Superficially, the US appears to be diversifying its sources of imports away from China. But America’s trade dependency on the world’s factory have not been reduced as drastically as headlines suggest. To date, third-country success in accessing the US market to replace Chinese exports has been strongly associated with an increase in investment from China, according to an analysis of fDi Markets data by Senior Research Fellow . Chinese overseas investment in manufacturing will likely continue to increase even after a surge in 2023. This is likely to stoke rising resistance among economies worldwide to fears of Chinese dumping in countries that are trying to nurture their own manufacturing industries.
If one of the objectives of US economic statecraft is to immunize the country from potential economic coercion by China, then it is still work in progress. But the seeds have been sown for a greater degree of genuine diversification of supply. In the same way that foreign multinational enterprises (MNEs) were at the forefront of building economic scale and expertise in China in the 1980s and 90s, the inflow of Chinese money into third countries will lead to new or growing manufacturing hubs and foster vertical integration abroad. Between 2016 and 2023, China’s greenfield foreign direct investment totaled US$609 billion across 4,900 projects, directly created more than 1.5 million jobs. This could ultimately lead to a more even distribution of manufacturing throughout the world, thus making trade more sustainable and less prone to weaponization.
