Changes in the Spillover Effects of the U.S. Economy

The global economy, particularly that of the United States, has displayed remarkable resilience in recent timesHowever, this resilience has predominantly favored regions such as Europe and North America, thereby diminishing the traditional driving force the U.S. economy had over emerging markets in East Asia and beyondAs we delve into 2023, it's essential to understand how the evolving landscape of American economic demand impacts global trade dynamics.

One of the most striking features observed this year is an unexpected strength in the U.S. economyDespite recent fluctuations, consumer spending rebounded in the first quarter, and the Composite Purchasing Managers' Index (PMI) indicated a noteworthy increaseNonetheless, exports to the U.S. from emerging economies, particularly those in East Asia, have seen a general declineHistorically, the American market has been a catalyst for trade growth, yet it appears that its ability to stimulate export growth among East Asian nations and other emerging markets has weakened significantlyThis brings us to a vital question: what has changed in the structure of U.S. demand, and who stands to benefit from the robust performance of the American economy?

Typically, the resilience of the U.S. economy has played a crucial role in driving up global trade, particularly benefiting emerging markets in East AsiaTo analyze this, one must consider the overall demand landscapeThe U.S. alone accounts for approximately 13% of global import demandThe types of products that the U.S. imports are diverse and balanced—27% consist of capital goods, 23% of intermediate goods, and 25% of consumer goodsThis diversity allows various countries to export different categories of goods to the U.SIn past cycles, growth in U.S. economic performance often preceded boosts in exports from emerging markets, facilitating a global trade upswing.

However, this time around, while the U.S. maintains its economic resilience, its trade-related stimulation appears subdued, especially concerning East Asian economies

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For instance, although consumption rebounded in 2023, South Korea's export growth plunged to -14% in April, Brazil saw a decline to -6%, and Vietnam’s exports to the U.S. dropped to -20%. Notably, Indonesia faced a staggering decline of -35%. Although China has experienced robust growth in exports, much of this growth is not directly tied to U.S. demand, as developed countries, including the U.S., have demonstrated stronger export growth compared to emerging marketsThis leads to the conclusion that, despite the U.S. economy's resilience, the driving power for emerging markets, particularly those in East Asia, remains limitedSo, which countries or regions have captivated opportunities from the American economic strength, and has the import demand structure in the U.S. undergone shifts?

In general, it appears that post-pandemic, the U.S. import demand has increasingly shifted towards Europe and North America, which includes countries such as Canada and MexicoEurope has notably benefited from the U.S. demand for durable goods, while North America has gained from U.S. energy imports.

When considering trade volumes, China, Mexico, and Canada rank as the top three trading partners of the U.SA closer analysis reveals that the primary beneficiaries of U.S. economic resilience have been high-value durable goods and capital goodsConversely, labor-intensive and resource-based exporting nations have not reaped comparable benefitsThis suggests that the demand structure in the U.S. significantly influences which nations benefit from its economic stabilityThe demand for durable consumer goods continues to play a pivotal role.

A remarkable departure from previous trends is the substantial advantage European developed nations are gaining from the U.S. economic resilience this time aroundOn a regional basis, trade intensity between the U.S. and Europe has risen post-pandemic; imports from the EU constituted 16% of U.S. imports by the end of the fourth quarter of 2022, a rise from 14% in 2020. Judging by product categories, Europe’s main beneficiaries are high-tech products, capital goods, and high-value consumer goods, especially automobiles

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For instance, in Germany's case, mechanical equipment and automobiles accounted for 26% and 25% of U.S. imports, respectively, with precision instruments making up another 10%. There has been a notable increase in U.S. imports of German cars, chemicals, and electrical machinery since the pandemic.

Moreover, North American countries, namely Canada and Mexico, have prominently benefited from the resilience of the U.S. economyThe share of products imported from these two countries increased from 26% before the pandemic (February 2019) to 28% afterwards, while imports from Asia have decreased from a pandemic high of 45% to 42% by March 2023. In a striking development, estimates for 2023 suggest that Mexico has surpassed China to become the top supplier of goods imported by the U.S.

While the demand for durable consumer goods in the U.S. remains significant, changes in consumption patterns and inventory levels indicate that the beneficiaries of U.S. economic resilience could shift from European developed nations to lighter industrial export countriesAs U.S. consumer behavior evolves, the demand for durable goods is beginning to decline, whereas essential consumer goods continue to show growth, signaling a likely increase in imports of lower-value everyday items.

With the exhaustion of excess savings and a reduction in fiscal subsidies, the growth rate of durable goods consumption is expected to recede, while growth for non-durable items, such as groceries and household goods, remains robustThis shift may steer American demand away from durable goods toward non-durable commoditiesFrom an inventory perspective, although total U.S. inventory levels are high, inventory pressures in sectors such as clothing, food, and groceries have significantly diminished, further indicating an increased import demand for non-durable goods.

This raises the pressing question: Can China still benefit from these developments? China has the potential to find opportunities in two key areas