New data shows trade wars pushing companies from China to GSP countries

Evidence continues to grow that the nearly year-long trade war is pushing companies to source more from GSP countries such as India, Thailand, Cambodia, Indonesia, and Turkey. The May 10 increase in tariffs on $200 billion in imports from China – and announcement that new tariffs on the remaining $300 billion in imports could come soon – will only accelerate the trends.

Shifting trade from China to countries like India does not appear to be a byproduct of recent actions, but instead one of President Trump’s explicit goals:

…completely avoided if you buy from a non-Tariffed Country, or you buy the product inside the USA (the best idea). That’s Zero Tariffs. Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia. That’s why China wants to make a deal so badly!…

— Donald J. Trump (@realDonaldTrump) May 13, 2019

And it’s working: GSP saved American companies $105 million in March, an increase of $28 million (36%) from March 2018 and the second highest level on record. In the first quarter of 2019, GSP saved American companies $285 million. That is $63 million more than the first quarter of 2018 – itself a record-shattering year.

Products hit by Section 301 tariffs when imported from China account for 90% of increased GSP imports in 2019. Overall, GSP imports rose by about $760 million, with $672 million coming on products on China Section 301 lists. GSP imports of products on those Section 301 lists increased 19%, while GSP imports of other products increased by just 5%.

As shown last week, imports from China subject to new tariffs are down significantly. The chart below shows countries from which GSP imports of products on China Section 301 lists have increased the most in the first quarter of 2019.

For India, 97% of increased 2019 GSP imports are on the China Section 301 lists. GSP imports on Section 301 lists increased by $193 million (18%), while imports of everything else increased by just $7 million (2%).

Similarly for Turkey, 97% of increased 2019 GSP imports are on the China Section 301 lists. GSP imports on Section 301 lists increased by $40 million (13%), while imports of everything else increased by just $1.2 million (less than 1%).

For the Philippines, GSP imports of products on China 301 lists growth helped offset declining GSP imports of all other products. South Africa, Brazil, and Egypt saw similar increases in Section 301-affected products offset losses of other products.

GSP imports from Indonesia grew *only* twice as much on affected products. Yet even here growth rates are faster for products on the Section 301 lists: GSP imports of products affected by new China tariffs grew by 22%, while imports of other products grew by 15%.

Not only would terminating GSP for India, Turkey, or others under review (Thailand, Indonesia) hurt many American companies and workers that have relied on GSP for years. It also would reduce viable sourcing options for companies looking to buy less from China in response to Section 301 tariffs – thereby undermining the President’s own objectives.