China is cutting American imports in half over trade dispute. Here’s how that works.

Lian He, director of U.S. development and trade policy at China’s Central Party School, has a classic question about the trade battles brewing between the U.S. and China: “Do they know where all this stuff comes from?”

China imports a lot of commodities from around the world, including key components to put together the products Americans buy every day, from cellphone screens to forklifts to elevators. During the holiday season, electronics make up a significant chunk of what Americans buy. But shipments into the U.S. have been dropping this year because of higher import tariffs.

Chinese officials have put the blame for this country’s “global supply chain” problems squarely on the U.S. Both China and the U.S. consider something “global” if the source of the products is located elsewhere, often along the eastern seaboard. Americans look to Asia for parts to build smartphones, televisions and other consumer electronics. China sends its manufactured goods into the U.S. via transportation infrastructure in and around the East Coast.

“China’s decision to direct its tax policy toward American consumers and American businesses is like throwing a rotten apple into a well of good apples,” said Wang Yiwei, a senior fellow at China Centre for International Economic Exchanges in Beijing. “It will get badly scratched and the apple will rot.”

China has tightened up its customs procedures in order to prevent the release of dangerous product components. But many products use unconventional inputs that may still need sorting out by customs. Wang notes that “a rudimentary level of security” is not high enough. He’s advocating for more efficient border inspection in order to stop knock-offs. He also said those who migrate from lower-paying manufacturing jobs in China and other East Asian countries to jobs in the U.S. are likely to be in greater danger of missing out.

The economic relationship between China and the U.S. has shifted over the years from a trade surplus to one with the U.S. being a net creditor. The U.S. exported $130 billion to China last year while China exported $116 billion to the U.S. in 2017. The number of Chinese employees working in the U.S. working on both sides of the border nearly doubled to 7.3 million in the last decade. However, the trade surplus between the two countries more than doubled from 2012 to 2016.

While the two countries are global trading partners, they have managed to maintain a competitive advantage in a variety of categories, such as corn and data center hardware. The U.S.’s dominance in the manufacturing of office equipment, toys and crafts has been upended by the boom in design in the internet era, while China is accelerating its dominance in the telecommunications sector. Chinese computer makers Maoyan and Lenovo were among the most successful foreign companies in the U.S. when their models started to roll off U.S. assembly lines in 2012. Two years later, Huawei was the top seller of smartphones in the U.S.

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