Shift of U.S Imports away from China (Part 2)

Written by Amy Shen & Rijul Mahajan (Research Lead), Arjun Thokapalli and Veena Raigaonkar

China, the second-largest global economy, is a key trading partner for the U.S., exporting and importing significant goods. However, trade between the two countries saw a decline in 2023 due to China's economic slowdown and supply chain shifts, with total U.S.-China goods trade dropping 17%, and U.S. imports falling by 20.4% (Congressional Research Service).

(Source: CRS with data from the U.S. Bureau of Economic Analysis.)

The U.S.-China trade relationship has been significantly shaped by the imposition of tariffs during both the Trump and Biden administrations. Between 2018 and 2019, the Trump administration levied tariffs on approximately $380 billion worth of Chinese goods, amounting to nearly $80 billion in taxes (Tax Foundation). These tariffs were implemented under Section 232 (steel and aluminum) and Section 301 (Chinese products), targeting industries like electronics, furniture, and steel. In May 2024, the Biden administration further increased tariffs on an additional $18 billion worth of Chinese goods, including semiconductors and electric vehicles, resulting in a $3.6 billion tax increase (Tax Foundation).

(Source: Tax Foundation)

Despite these revenues, the tariffs have also raised costs for U.S. businesses and consumers, driving shifts in supply chains and contributing to the diversification of sourcing away from China. This report aims to analyze the specific shifts in U.S. imports from China, focusing on three key sectors: apparel, computer and electronics, and miscellaneous manufacturing (medical devices). Each of these industries has been affected differently by factors like rising production costs, changes in consumer demand, and China's evolving role in global supply chains. The research will examine how these industries are adjusting by diversifying sourcing to countries like Vietnam, Mexico, and others in Southeast Asia, as well as the impact of U.S. tariffs on Chinese goods.

Apparel and Footwear Manufacturing Imports from China

For decades, China has been the global leader in apparel and footwear manufacturing, thanks to its large-scale production capabilities, low labor costs, and highly developed infrastructure. The country’s ability to meet the needs of global brands like Nike and Adidas made it an essential hub in the global supply chain. From knit apparel to footwear, China has been the go-to destination for companies looking to manufacture products efficiently and at a competitive cost. However, in recent years, the industry has seen a significant shift in production locations, driven by rising costs, changing trade policies, and the disruptions brought about by the COVID-19 pandemic.

China’s role in the global apparel and footwear industry has long been defined by its dominance in manufacturing a wide range of commodities. These include key categories such as knit apparel (NAICS 3151), general apparel (NAICS 3152), apparel accessories (NAICS 3159), and footwear (NAICS 3162). With an infrastructure built to handle massive volumes, China’s factories have been a reliable backbone for brands seeking to produce large quantities of goods at scale. The accessibility of Chinese manufacturers, combined with their ability to offer competitive prices due to lower labor costs, made China indispensable to global fashion and footwear brands (NAICS, 3151; 3152; 3159; 3162).

However, the landscape is rapidly evolving. One of the biggest shifts in the industry is the increasing relocation of apparel and footwear production to countries in Southeast Asia, such as Vietnam and Bangladesh, and to South Asia, particularly India. Labor costs in China have steadily risen, making it less cost-effective for brands to rely solely on Chinese manufacturers . Southeast Asian countries, on the other hand, offer competitive labor costs that are attracting companies looking to maintain profitability. Vietnam, for example, has emerged as a key player in both apparel and footwear production, boasting the infrastructure and workforce to meet growing demand while keeping costs in check .

Footwear brands like Nike and Adidas are leading the charge in diversifying their manufacturing locations. While China remains an important part of their supply chain, these companies are increasingly shifting production to countries like Vietnam, Indonesia, and Cambodia. Vietnam has become a hotspot for footwear manufacturing, offering both lower labor costs and favorable trade conditions, such as those under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This shift allows brands to not only reduce their dependence on China but also to take advantage of tariff reductions and avoid potential trade conflicts .

Impact of Global Events on Apparel and Footwear Manufacturing

Global events have also played a critical role in accelerating the move away from China. The U.S.-China trade war, with its tariffs on Chinese textiles and footwear, created immediate financial pressure on companies reliant on Chinese imports. Suddenly, products manufactured in China became more expensive for U.S. consumers, forcing brands to reconsider their manufacturing strategies. Many turned to alternative locations in Southeast Asia where they could avoid these tariffs and maintain their price competitiveness in global markets .

Then came the COVID-19 pandemic, which further disrupted global supply chains and made companies acutely aware of the risks of over-reliance on a single country for manufacturing. China, as the epicenter of many of the early pandemic-related disruptions, faced factory closures and production delays that rippled across the global market. Brands that had been exploring alternatives to Chinese manufacturing were suddenly incentivized to speed up their diversification plans, shifting more production to other countries to mitigate future risks (.

Looking ahead, the trend of relocating production from China to Southeast and South Asia is expected to continue. Vietnam, Bangladesh, and India are well-positioned to capture an increasing share of global apparel and footwear manufacturing. These countries not only offer lower labor costs but also benefit from trade agreements that make their products more competitive in international markets. In the apparel sector, Bangladesh has made significant strides in becoming one of the top exporters globally, while India’s growing capabilities in both apparel and footwear are attracting attention from major brands.

That said, China is unlikely to disappear entirely from the global supply chain. Its infrastructure, experience, and scale still provide advantages that are difficult to replicate in other regions . However, as labor costs continue to rise and global events prompt brands to seek more diversified, resilient supply chains, China’s share in apparel and footwear manufacturing will likely decrease over time. The future of global apparel and footwear production is shifting, with a greater focus on resilience, cost-efficiency, and strategic diversification across multiple regions.

In conclusion, the evolving landscape of apparel and footwear manufacturing marks a significant turning point for global brands. As companies like Nike and Adidas diversify their production away from China, countries in Southeast and South Asia are stepping up to fill the gap. The shifts are driven by a combination of economic factors, global trade dynamics, and unforeseen events like the pandemic, all of which have underscored the need for more flexible and resilient supply chains. Moving forward, the key for brands will be to balance cost-efficiency with the need for a more geographically diverse production base that can withstand global uncertainties.

Consumer Electronics and Appliance Imports from China

China has long been a critical player in the global electronics and household appliances industries, serving as the world’s largest exporter of consumer electronics. Dominating the production of semiconductors and other essential components, China has built strong supply chains that are integral to global consumer electronics brands such as Apple and Lenovo. Chinese manufacturing hubs have supplied vast quantities of smartphones, laptops, and audio/video equipment to the world, while semiconductors, the backbone of these devices, have been predominantly manufactured in China.

For example, Lenovo, a Chinese tech giant, continues to rely heavily on its domestic manufacturing plants for producing AI servers, while brands like Apple have historically depended on Chinese manufacturers like Foxconn for large-scale iPhone production, though recent diversification strategies are shifting production elsewhere.

Impact of Global Events

The global shift in manufacturing has been accelerated by several key events. One of the most significant has been the ongoing trade war between the U.S. and China, which led to the imposition of tariffs on Chinese electronics and semiconductors. U.S. tariffs on imported goods, including consumer electronics, have driven companies to reconsider their dependence on Chinese manufacturing, pushing them to look for alternative production sites that offer tariff-free access to the U.S. market.

The COVID-19 pandemic also brought to light the vulnerabilities of heavily concentrated supply chains, as China’s stringent lockdowns disrupted production and shipping for companies worldwide. Apple, for example, faced delays in iPhone shipments due to factory closures in China. These disruptions prompted companies to adopt a “China plus one” strategy, diversifying their manufacturing operations across multiple countries to reduce the risk of supply chain bottlenecks

Shifts in Manufacturing Locations for Consumer Electronics

In recent years, geopolitical tensions, rising labor costs in China, and supply chain disruptions caused by the COVID-19 pandemic have prompted tech giants to diversify their manufacturing footprints. In the electronics manufacturing sector (smartphones, audio/video equipment), a substantial shift in production has been observed toward countries like Vietnam, Malaysia, and India. These countries offer lower labor costs and increasing manufacturing capabilities, making them attractive alternatives to China (New York Times).

Apple’s iPhone production is one of the most prominent examples of this shift. Since 2017, Apple has been assembling entry-level iPhones in India through its contract manufacturers like Foxconn. According to CNBC, Apple now makes around 14% of its iPhones in India, which is double the amount it produced there last year.

(Source: Bloomberg)

Bloomberg also discusses India's potential to surpass China as the world’s leading growth engine by 2028. While India’s economy is still significantly smaller, it is experiencing rapid growth in sectors like manufacturing and aviation, supported by government infrastructure spending and favorable demographics. In the past developing countries like India have had an unreliable infrastructure system for western companies but now India has become a more attractive destination for foreign investment, with companies like Apple increasing production there.

In the household appliances sector Mexico has emerged as a key manufacturing hub, particularly for large appliances. Companies are increasingly shifting production to Mexico to reduce shipping costs, shorten lead times, and benefit from proximity to the U.S. Foxconn’s recent decision to build the world’s largest factory for Nvidia’s advanced AI servers in Guadalajara, Mexico, underscores this growing trend of shifting appliance and electronics production to Mexico (Financial Times).

Shifting our attention to Vietnam, which is rapidly increasing its capacity for electronics manufacturing, positioning itself as a key player in the global supply chain and competing with China. The country has attracted major investments from companies like Samsung and Intel, which are shifting specific production from China to Vietnam due to its lower labor costs and government incentives. Vietnam's electronics exports have surged, and the country is moving from being a low-cost assembler to a higher productivity hub. However, to sustain this growth, Vietnam needs to focus on adopting advanced technologies, upskilling its labor force, and improving infrastructure to handle more complex manufacturing processes (McKinsey).

Looking forward, China’s dominant role in consumer electronics production is likely to decline as companies continue to diversify their manufacturing locations. The growing importance of Vietnam, India, and Mexico in global manufacturing reflects a broader trend of diversification, driven by geopolitical tensions, supply chain disruptions, and economic considerations. These shifts will reshape the global landscape of electronics and appliance production in the years to come.

(Source: United States Census Bureau)

China’s Role in Furniture Manufacturing

China has been a critical player in furniture manufacturing, especially in regard to imports to the United States. Main commodities include household furniture and kitchen cabinets, as well as textile furnishing mills and related product manufacturing. Products for this sub-sector include mattresses, window blinds, cabinets, and fixtures while considering the current design and fashion trends. The NAICS classifies furniture initially by the application purpose of the furniture rather than material used; however, concrete, ceramic, or stone furniture, seating for transportation equipment, and specialized hospital furniture are notable exceptions to this and are not considered in the furniture manufacturing industry. (source)

China has been a dominant exporter of both household furniture and textile furnishing due to its low-cost labor and extensive production capacity. Being the largest furniture exporter in the world, demand for wood furniture from China has grown considerably over the past five years. Chinese furniture industry revenue has grown to approximately $124 billion in 2024 (IBISWorld). In comparison to other top exporters in furniture, China is significantly larger in terms of revenue. The figure attached below provided by Statista displays the top furniture exporters worldwide in 2022.

(Source : Statista)

In 2001, China switched to become the most important source of wood furniture imports, taking Canada’s place after the Canadian dollar declined in value (source). Though China has had a crucial role in global furniture manufacturing for a long period of time, this position is now being challenged as imports from Vietnam and Mexico have increased dramatically.

Shift in Manufacturing Locations and Global Impact in Furniture Manufacturing

Furniture manufacturing imports have been increasingly shifting primarily towards Mexico and Vietnam. This shift has been spearheaded by cheaper prices available in Mexico and Vietnam, as well as companies seeking to reduce reliance on China for imported goods.

China’s furniture exports to the US have reduced to about 35% from 2019, while Vietnam’s exports are 40.6% and Mexico’s are 65.2%. Additionally, while China exported $9 billion of furniture to the US in 2019, the nation exported a drastically smaller amount of less than $6 billion in 2023 (source). The figure displayed below showcases the steady decline in Chinese imports of furniture.

Source: https://fred.stlouisfed.org/series/COCHNZ3371

With the relocation of manufacturing from China to other countries, Vietnam and Mexico have emerged as the primary choice for furniture manufacturing. Wages in China have increased over the past decade, leading to companies turning to Vietnam and Mexico for cheaper labor prices without compromising quality in production. The cost advantage presented allows companies to possibly increase profit margins.

Vietnam’s various trade agreements have also made Vietnam a desirable partner for trade, contrasting heavily with the political tensions between China and the US. Vietnam signed a Bilateral Trade Agreement with the US in 2000, which was put into action in 2001 (source). In contrast, the 25% tariff on Chinese goods imposed by the Trump administration, resulting in nearly $80 billion worth of additional taxes, was one of the biggest tax increases in decades. The Biden administration applied the hike to $18 billion more Chinese goods with an increase in tax of $3.6 billion. (source) The US-China trade war combined with Vietnam’s trade-efficient policies and cheaper costs through abundant inexpensive labor has made it a viable and attractive source to shift to for manufacturing.

Catapulted by the increase in Chinese wages in 2014, companies are also drawn to Mexico for cheap and skilled labor. More than 675 furniture manufacturing companies, both international and domestic, conduct their production in Mexico (source). In 2022, Mexico exported more than 10.5 billion USD worth of furniture products (source). In continuation of the strong US-Mexico trade relationship, furniture manufacturing has begun to shift to Mexico as well.

Tariffs on Chinese furniture imports and rising labor costs in China have accelerated the shift to nearby countries with competitive labor markets, primarily Vietnam and Mexico. Though China has been the leading exporter for furniture for the US, import statistics from the past few years reflect that this shift has been in action and is expected to continue in the future.

Future Outlook of Furniture Manufacturing

Mexico and Vietnam are expected to play growing roles in furniture manufacturing as the U.S. continues to diversify its supply chains. Driven by the tensions between the US and China in terms of geopolitical and economic conflicts as well as the availability of cheaper, skilled labor in Vietnam and Mexico, it is likely that this trend will continue. Vietnam’s furniture industry is expected to reach $2.56 billion in 2033, resulting in a compound annual growth rate (CAGR) of 6.2% from 2024 (source). In turn, Mexico is projected to reach $5.16 billion by 2029, resulting in a CAGR of 10.18% from 2024 (source). Companies will continue to grow and invest in manufacturing in Vietnam and Mexico, resulting in a shift in imports of furniture from China.

Analysis of U.S. Import Data (2016–2023) & Factors Driving the Shift in U.S. Imports

From 2016 to 2023, U.S. import data shows shift in sourcing patterns, particularly in industries such as apparel, electronics, and furniture. Historically, China has been the dominant supplier in these sectors due to its extensive manufacturing infrastructure and low labor costs. However, recent trends show a decline in U.S. imports from China, especially for electronics, with corresponding increases in imports from Vietnam, Mexico, and India. The apparel sector has experienced a slower but steady decline in imports from China, with Vietnam and Bangladesh emerging as key alternatives due to their competitive labor markets and growing production capacity (FRED, 3151; 3152). This diversification of sourcing locations reflects broader shifts in global trade dynamics.

Several factors have contributed to the shift in U.S. imports, one significant one being geopolitical tensions, like the U.S.-China trade war. An example of this would be tariffs on Chinese goods, which increased the cost of imports from China, forcing U.S. companies to explore alternative markets (FRED, 3159). China’s domestic policies on technological self-reliance and industrial upgrades have also influenced global production decisions, diversifying supply chains even more (FRED, 3152).

Economic considerations, like rising labor costs, have also affected this shift. Labor costs in China have made other regions like Southeast Asia and Mexico more attractive for production. For example, Vietnam has become a major player in apparel and electronics manufacturing, benefiting from competitive wages and favorable trade agreements (FRED, 3152). Mexico’s proximity to the U.S. has made it a key hub for industries like appliances and furniture, where companies can reduce shipping costs and shorten lead times by relocating production closer to the U.S. market (Financial Times). Foxconn’s decision to build a large factory for Nvidia’s AI servers in Mexico underscores this trend (Financial Times).

In addition to geopolitical and economic factors, technological and industrial policies have shaped these trends. U.S. initiatives like the CHIPS Act promote domestic manufacturing and incentivize companies to relocate production away from China, particularly in high-tech industries such as semiconductors (McKinsey). These policies reflect an emphasis on supply chain resilience and diversification, moving away from reliance on a single country for manufacturing.

Overall, the decline in U.S. imports from China and the corresponding rise in imports from countries like Vietnam, Mexico, and India highlight the evolving landscape of global trade. This shift is driven by a combination of geopolitical tensions, rising labor costs, and policies promoting domestic manufacturing, and it is expected to continue reshaping global supply chains in the coming years (FRED, 3159; Bloomberg).

Conclusion

U.S. imports from China between 2016 and 2023 have had a significant shift in the sourcing patterns of key commodities like apparel, electronics, and medical manufacturing. While China has long been a dominant supplier due to its manufacturing capacity and low labor costs, recent trends show a steady decline in its market share, largely driven by geopolitical factors such as the U.S.-China trade war, increasing costs for U.S. companies and prompting them to explore alternative sourcing locations. Rising labor costs in China, coupled with the COVID-19 pandemic's supply chain disruptions, further accelerated the diversification of global production.

Countries like Vietnam, Mexico, and India have emerged as key alternatives to China, offering competitive labor markets and favorable trade agreements. Vietnam, in particular, has become a leading manufacturer in both apparel and electronics, while Mexico's proximity to the U.S. makes it a strategic hub for appliances. Additionally, U.S. policies like the CHIPS Act are reshaping supply chains by encouraging domestic production and reducing reliance on China for high-tech industries.

Looking ahead, the diversification of global supply chains is expected to continue, with China’s role in industries like apparel, electronics, and furniture likely to diminish further. As U.S. companies continue to prioritize resilience and cost-efficiency in their supply chains, countries like Mexico, Vietnam, and India are positioned to play an even greater role in global manufacturing, driving future trends in international trade.