The Evolving U.S.-China Trade Relationship

Thursday, August 10, 2023

The Evolving U.S.-China Trade Relationship

By Randy Wright, Executive Partner, Synergy Global Business Solutions

Randy Wright
Randy Wright

In an increasingly connected world, trade between the United States and China has significantly transformed both nations’ economies into a complex and multifaceted partnership. It has been marked by periods of cooperation, growth, tension and contention. While opportunities and challenges continue to shape this critical economic alliance, both countries continue to navigate their role on the global stage. Let’s take a look at the history between the two countries and where we are today.

The Early Days of China’s Modern Business Relationships

In the early 1970s, Richard Nixon and Henry Kissinger paved the way for trade development between the U.S. and China. In 1972, the U.S. lifted its trade embargo on China and granted it most-favored-nation status in 1979. Trade from the U.S. and China increased exponentially, from $5 billion in 1980 to $691 billion in 2022. In 2022, the U.S. exported $153.8 billion worth of goods to China, making it one of the biggest export markets for America products.

China’s Drastic Transformation

China has undergone a drastic transformation over the past 40 years. In 1981, I traveled to China for my first product development and sourcing endeavor. This trip was one of 60 plus trips to follow over the next 40 years. The changes in China could only be explained as revolutionary.

China invested in manufacturing and infrastructure at breakneck speed, positioning itself as a low-cost producer for many consumer products. This became particularly relevant and attractive for industries requiring large plant and equipment investments and high direct labor content products. The automotive replacement parts manufacturing industry found its sweet spot in China’s growing economy. As of 2021, China became the second largest exporter of replacement auto parts in the world at over $43 billion, second only to Germany at $64.5 billion. 

On-Shore / Near Shore Considerations

Today we hear discussions of moving manufacturing away from China, but this consideration extends beyond the U.S.-China trade relationship. Supply chain issues incurred during the COVID pandemic created a great concern and awareness of close and secure product availability. Due to SKU proliferation of application replacement auto parts, as of this writing, our industry is still struggling with over stocks of some parts. This was caused due to the extensive lead times that had to be built into our reordering strategies during supply chain disruptions. This created focus on the extreme importance of working to assure a dependable supply chain for our products.  

Where do we go from Here?

Could China factories relocate or establish additional operations in the U.S.? This move could address some of the concerns that have developed through geopolitical concerns and supply chain disruptions. Chinese auto parts manufacturers considering establishing a plant in the U.S. can explore various sources, including:

Existing customers or suppliers in the U.S. market: They can provide market access, technical assistance, or capital investment, as we saw with Fuyao Glass’ partnership with GM and Honda to supply glass for their vehicles in the U.S.

Local governments or economic development agencies in the U.S.: They may offer tax incentives, grants, loans, bond issuance or other benefits to attract foreign investment. For example, Yinlun received a $2.5 million grant from the Texas Enterprise Fund to open a plant in Nuevo Leon, Mexico.

Banks, government or private equity institutions in the U.S. or China: They can provide loans, credit lines, or equity financing for the project. For example, Yanfeng USA Automotive Trim Systems secured a $3 million loan from the Missouri Department of Economic Development to open a plant in Riverside, Missouri.

Trade relations can have both positive and negative effects on historical relations between countries. It depends on how the countries manage their trade policies and balance their economic interests with their political and security concerns. Trade can be a source of cooperation or conflict depending on the context and circumstances. But there is no doubt that China will continue to play a pivotal role in the global economy.

International Buyers Attending AAPEX

AAPEX is working with U.S. Commercial Service specialists in global markets, including China, to recruit more international buyers and distributors of auto parts. This may be an opportunity to explore and/or expand your exports into the Chinese market as the vehicle population continues to age.

The Auto Care Association’s International Trade Committee is hosting an International Matchmaking Program at AAPEX to connect U.S. suppliers with international buyers from all around the world. The event will be held Tuesday, Oct. 31 – Wednesday, Nov. 1, Casanova 504, The Venetian Expo. More information will be available in the coming weeks and posted on the Auto Care Association website.

Randy Wright, Executive Partner, Synergy Global Business Solutions, works with both private equity firms and investment banks supporting their needs in product sourcing, new product development, growth strategies, profit maximization, management analysis and turn around structuring with various endeavors in the U.S., Mexico, Canada, Europe and Asia. He has an extensive career that involves working with several companies, including Hidden Harbor Capital Partners, FCI Marketing, Inc., JFP Holdings, Ltd., Cottman Transmission Systems, LLC, Shell Oil Company and Genuine Parts Company (NAPA).

Aug. 10, 2023