The US-China decoupling is slow going but still offers India opportunities

livemint.com:

There is mounting evidence that the US is cutting its direct dependence on Chinese imports—to the lowest level in 17 years, by some measures. Mexico and Canada in the middle of this year overtook China as top exporters to the US. This points to both a gradual decoupling of the two largest economies in the world as well as the rise of friend-shoring.

But is the story a bit more complicated? Game theory tells us that players in any game are strategic, be they individuals, firms or nations. They adjust their strategy based on what the other player is expected to do, a bit like a game of chess. It is useful to keep that core insight in mind while looking at global trade patterns in the age of rising geopolitical tensions.

China will adjust its strategy in response to US actions. Chinese goods could be getting into the US through new channels. Not everything has to be shipped out of Chinese ports directly to the US.

In a different context, think about how Russia is working its way around US-led sanctions right now. A new paper by four World Bank economists throws new light on some of the new realities of global trade (‘Is US Trade Policy Reshaping Global Supply Chains’, by Caroline Freund, Aaditya Mattoo, Alen Mulabdic, Michele Ruta). Based on a study of 17,891 products and 157 countries, they show that higher US tariffs on Chinese imports have begun to bite.

China has lost substantial market share in the items that have been targeted by the US. However, this has not led to an overall fall in US imports of these goods. In other words, there is little evidence of re-shoring.

The US is not making these items at home (at least yet). It is merely sourcing them from other countries. The trade war with China has stimulated imports