China Shifts Exports from U.S. to Third Countries: Korea Must Beware of Intensifying Competition with China

KITA International Trade and Commerce Research Institute Releases Report
China Diversifies Export Destinations Each Time U.S. Imposes Tariffs
Intermediate Goods Such as Wireless Communication Device Components and Batteries Take Center Stage
Exports Concentrated in ASEAN, Africa, EU, and India
"Preparation Needed for Intensifying Korea-China Export Competition"

The International Trade and Commerce Research Institute of the Korea International Trade Association emphasized on December 15, through its report titled "Analysis and Implications of China's Export Market Diversification After U.S. Tariff Imposition," that it is now time for Korea to prepare countermeasures against China, which is shifting its export destinations from the United States to third countries.

The report explained that, according to various indicators, China has been diversifying its export destinations and reducing its dependence on the U.S. in its overall exports each time the United States imposed tariffs.

China's Herfindahl-Hirschman Index (HHI), which measures the concentration of export destinations, dropped significantly during President Trump's administration. The index, which stood at 659 in 2018, gradually decreased to 376 from January to October of this year. This indicates that China's exports have become less concentrated in a single country and have diversified across multiple destinations.

China's export share to the United States also declined by 17.7% year-on-year from January to October, while its exports to the rest of the world increased by 5.3%, mainly to third countries such as Vietnam (22.3%) and India (12.3%). As a result, China maintained a global export market share of around 15%.

By product category, China's exports to the U.S. saw significant declines in its major export items such as wireless communication devices, computers, and batteries. In contrast, the decrease in exports to third countries was much smaller, offsetting much of the decline. For wireless communication devices and computers, exports to the U.S. dropped by more than 30% year-on-year from January to October, while global exports of these items decreased by only 0.2% and 4.9%, respectively. Battery exports to the U.S. fell by 16.3%, but global exports of batteries actually increased by 23.9%.

Notably, the increase in exports to third countries was more pronounced in intermediate goods such as wireless communication device components and batteries than in consumer goods. Up to October, China's exports of intermediate goods to third countries rose by 10.5%, outpacing capital goods (8.8%) and consumer goods (3.1%) by a wide margin. In this regard, the report analyzed that for consumer goods, where there are significant constraints in distribution and marketing, export market diversification may be relatively limited.

The report identified ASEAN, the European Union (EU), India, and Africa as the four main destinations for China's export diversification. Of the 231.8 billion dollars in increased exports to third countries recorded by China from January to October, exports to ASEAN rose by 67.7 billion dollars, mainly in wireless communication devices, computers, and passenger cars, accounting for the largest share (29.2%). The EU, home to major electric vehicle production facilities, saw notable increases in imports of batteries and gaming equipment, while Africa experienced a surge in imports of passenger cars. India emerged as a global assembly hub for wireless communication devices, leading to a sharp increase in China's exports of relevant components to India.

The report warned that, as a result of these changes, export competition between Korea and China could gradually intensify. As of January to October, the export competition index between Korea and China in most of the four major destinations remained at similar levels to last year, indicating that the impact has not yet fully materialized. However, the report emphasized the need to prepare for the possibility of intensifying competition in the coming years, citing the precedent of a continuous rise in export competition between the two countries in the EU, India, and Africa following the imposition of tariffs during Trump's first term.

Heo Seulbi, a researcher at the Korea International Trade Association, stated, "China's shift to third-country export markets is more of a structural change than a short-term response strategy," and added, "To reinforce the competitiveness of our exports in strategic markets where China's export shift is concentrated, we must pursue a high value-added strategy based on technology and quality, and at the same time secure a preemptive advantage in areas with lower competitive pressure through diversification of export items."