China may restrict high technology exports to the U.S.

China indicated that it may restrict international trade in high technology products with the U.S. as part of the mounting U.S.-China trade dispute. Hanse data show that the China increased its share in U.S. high technology sector imports significantly during the past 10 years. The biggest losers in U.S. high technology imports were the E.U. and Mexico.

The classification of high technology sectors based on a U.N. classification allows to approximate the possible coverage a high technology trade dispute could involve. Hanse has used the U.N. classification and used the U.N. correspondence tables to translate from SITC Rev. 2 to HS 2002. It covers 186 sectors in HS 2002 at level 6 and 44 sectors at level 4 (see table).

Hanse data show that the share of U.S. imports of high technology sectors increased from 12.5 percent (US$252 billion) in 2007 to 14.6 percent (US$351 billion) of total U.S. imports. China increased its share in U.S. high technology imports from 24.5 percent (US$62 billion) in 2007 to 37.8 percent (US$133 billion) in 2017. Those sectors represent 25.3 percent of U.S. imports from China affirming that U.S.-China trade is significantly determined by high technology sectors. Over the same period, U.S. imports from the E.U. (28) in high technology sectors declined from 17.4 percent in 2007 to 14.4 percent in 2017 and Mexico’s share was down to 12.9 percent in 2017 from 17.1 percent in 2007. High technology sectors represent in 2017 11.4 percent of total U.S. imports from the E.U. and 14.2 percent from Mexico.

China has dominated U.S. high technology imports in particular the sectors (HS2002 AG4 out of 1245 groupings): 9008 image projectors, 8473 machinery parts for office machines, 9005 binoculars, astronomical instruments, 8525 transmission apparatus for radio-telephony, 2936 provitamins, vitamins natural or reproduced by synthesis, 8467 tools for working electric and non-electric motors, 8518 microphones and loudspeakers, 8517 electrical apparatus including for digital line systems, 9006 cameras, 8472 office machines including automatic banknote dispensers. China’s share in those sectors increased on average from 40.8 percent in 2007 to 63.1 percent in 2017.

The fastest growing high technology sectors in U.S. imports are set to increasingly shape U.S. trade relations in particular with China. The 10 fastest growing sectors (HS2002 AG4 out of 1245 groupings) between 2007 and 2017 are: 8525 transmission apparatus for radio-telephony, 8542 electronic integrated circuits, 9018 instruments used in medical and related sciences, 8803 aircraft parts, 8541 diodes, transistors, semi-conductors, 9010 photographic laboratory equipment, 8412 engines and motors for e.g. reaction engines, hydraulic power engines, 8501 electric motors, 8504 electric transformers, 9027 instruments for physical and chemical analyses. China increased its share in the fastest growing high technology sectors from 22.5 percent in 2007 to 38.3 percent in 2017 while the E.U. saw its share decline from 15.9 percent in 2007 to 12.0 percent in 2017 while Mexico’s share has remained broadly stable at 10.7 percent. Japan saw its share decline from 11.7 percent in 2007 to 6.0 percent and Korea from 9.1 percent to 4.8 percent. China increasingly dominates the most dynamic high technology sectors.

U.S. exports of high technology sectors have faltered. High technology sectors decreased from 18.5 percent (US$176 billion) of total U.S. exports in 2007 to 13.5 percent (US$202 billion) in 2017. The U.S. has thus incurred a significant deficit in high technology sectors. In 2017, 8.7 percent of U.S. high technology sectors go to China up from 6.9 percent in 2007 and 18.9 percent to the E.U. down from 25.6 percent in 2007. U.S. high technology exports to Mexico are up increasing from 7.6 percent in 2007 to 17.4 percent in 2017.

The U.S. has become highly dependent on high technology imports from China. Compared with the E.U., the U.S. is significantly more dependent on China in high technology sectors. The share of China in E.U. high technology imports in 2016 was 14.4 percent compared with China’s share of 37.8 percent in the U.S. A more diversified trade pattern may be beneficial to all parties.

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