Import Penetration Rates in U.S. High-Value Industries: Focus on China

The U.S. trade deficit in goods and services declined from $560 billion in 2011 to $540 billion in 2012. This reflected a $16.8 billion improvement in the services trade surplus and a $2.7 billion improvement in the goods trade deficit. While the U.S. trade deficit in petroleum products declined, the deficit in nonpetro­leum goods increased by about 9 percent. The growing deficit in nonpetroleum products, especially manufactured products (which increased by $44.7 billion in 2012), represents a substantial threat to the recovery of U.S. manufacturing employment.

Much of the deficit on manufactured goods is with China, Japan, and South Korea. China alone is responsible for about 72 percent of the U.S. trade deficit in manufactured goods (2012). In spite of increasing wages and transportation costs, Chinese-made high-value products are taking an increasing share of the U.S. market. In 2011, for example, products made in China captured 5.28 percent of total U.S. purchases of capital-intensive products. In many advanced manu­facturing sectors, China’s import penetration rates have substantially increased over the past ten to fifteen years.

Many factors have contributed to the growing U.S. market share of Chinese high-technology industries:

• Rising productivity in China’s export sector: This enables producers to ab­sorb higher labor costs without passing them to consumers.
• Export subsidies to producers: The Chinese government provides support to its industries through lower costs for land, energy, water, and other inputs.
• Intervention in the foreign exchange markets to reduce renminbi apprecia­tion: China’s recent intervention is estimated at $250 million a day to either halt or limit currency appreciation (see Tables 16.3 and 16.4).

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.