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Evolving US Global Trade Dynamics


When China joined the World Trade Organization (WTO) in December 2001, it agreed to allow foreign investment in, among other sectors, banking, financial services, insurance and telecommunications. China entered the domain of international trade, agreeing to abide by trade regulations and polices which it had not shaped.

Western companies, seeing the potential size of the Chinese market and its significantly lower labor costs, rushed to move production to China— “offshoring” had begun. Not every Western worker benefited. One offshoring result, as stated by Gita Gopinath of the International Monetary Fund, was “The biggest losers from international trade are always those whose skills have a cheaper competitor in a different market.”

China’s frequent noncompliance with WTO regulations became a source of friction between it and Western developed countries. Issues such as its theft of intellectual property, dumping of products sold below cost, government subsidies, and currency manipulation led to increasingly strained trade relationships with China.

In this report, The Mather Group LLC (TMG) analyzes the evolving global trade dynamics between the US and China, its principal trading partner. The outlook is uncertain, as suggested by the graphic shown below, which displays 24 years of US global trade imbalances. The 2023 deficit of $773 billion was the second highest during the period.


Current Global Trade Outlook

TMG’s analysis focuses on four recent contributors to the current global trade outlook: the US-China “trade war”, the Covid pandemic, war in Eastern Europe, and shipping disruptions in the Red Sea.

The trade war began in January 2018, with the US government accusing China of forced intellectual property transfers, erecting barriers limiting US imports and currency manipulation. These actions deepened the trade deficit with China. The government then imposed a range of import tariffs on Chinese goods, including appliances, electronics and other manufactured goods.

China responded. First, it imposed tariffs on US imports such as soybeans, its largest agricultural import. Second, it cancelled orders for soybeans and other agricultural products. Finally, its Central Bank intervened in the foreign exchange market to manipulate its value against the Dollar.

As shown in the graphic below, the Chinese currency began weakening against the Dollar (a higher number means weaker) shortly after the trade war began. Devaluing its currency helped to offset US tariffs imposed on Chinese imports. It strengthened during the Covid pandemic, as US consumers splurged on Chinese goods such as furniture and electronics. With recent tariffs imposed upon Chinese exports such as solar cells, China’s Central Bank helped its currency to weaken a further 14%. So, the trade war continues with an uncertain outlook.


The Covid pandemic had a negative effect on all global trade. As shown in the graphic below, container shipping costs for Chinese exports to Europe and the US soared by a factor of 6X-7X. The pricing surge occurred because of massive consumer demand for goods, a lack of containers, and a shortage of port workers and ship crew due to illness and lockdowns.


A second Covid effect was the realization by corporations that their supply chains were insufficiently flexible to maintain necessary levels of output. Common discoveries were that longer chains experienced significant shipping delays, too few sources existed for critical materials, and that Chinese manufacturing concentration made companies dependent upon its pandemic policies. This led companies to rethink their offshoring strategies, as still occurs today.

Meanwhile, geopolitical events in Eastern Europe had a significant impact upon the global flow of commodities. Prior to the war, Ukraine was shipping 6.5 tons of wheat and corn each month worth $1 billion, but that fell to 2 million tons when Russia withdrew from a negotiated grain deal. With 92% of its wheat previously destined for developing countries in Africa and Asia, this shortfall made the global food supply insecure.

A parallel outcome of the war was an acceleration in deglobalization. Countries began seeking regional trading partners to strengthen their supply lines, such as the United States-Mexico-Canada Agreement, the Asia-Pacific Economic Cooperation and the Common Market for Eastern and Southern Africa.

Unlike during the Covid pandemic, today there are sufficient containers and ships to maintain global trade. However, as shown in the graphic below, a seismic shift occurred in shipping routes. Attacks on Red Sea shipping have seen a dramatic fall in tonnage using the Suez Canal and Red Sea in favor of transiting around the Cape of Good Hope.

This shift resulted in longer transit times, higher fuel and ship chartering costs, with the cost of war risk insurance rising 20X since the shipping attacks began. These costs pass through to companies and consumers, and add inflationary pressures.


Overall, US current global trade status has responded more to geopolitical than economic factors, but the outlook may be improving.

Evolving Global Trade Outlook

Several factors are helping the US lessen its trade imbalances. First, the US became the world’s largest crude oil producer, setting a record of 13.3 million barrels a day in December 2023 for crude and distillate output. As shown in the graphic below, the US had already exceeded Saudi Arabia’s output of petroleum and other liquids by 2012. This factor reduces US energy dependence on the Gulf states, and strengthens its energy-related balance of payments account.


The war in Eastern Europe also resulted in an expanded energy market for the US. The cutoff of Russian natural gas to the European Union offered the US an opportunity to export rising levels of domestic production. In 2023, natural gas exports were 7.6 million cubic feet. This is a 111% increase from 2018 export levels, sold at prices 39% higher than before.

A second factor is a significant “reshoring” of US manufacturing, intended to shorten existing supply chains. As shown in the graphic below, monthly construction spending for US manufacturing facilities reached $223 billion in February 2024, a 205% increase from its pandemic low.


In a remarkable turn of events resulting from the 2022 CHIPS and Science Act, as well as US government loans and subsidies to the electric vehicle and battery sectors, there is a recent effort by Asian manufacturers to build new factories in the US. Yes, the US became an offshore destination for foreign high-tech companies.

One result of these onshoring, nearshoring and reshoring strategies was a reversal in US trade flows. As shown in the graphic below, Mexico is now the leading manufacturing partner of the US, followed by Canada and then China.


A third factor affecting the US trading outlook is growth in the value of digitally delivered services (DDS), which exceeded that of goods by 2013. DDS consists of myriad services, such as e-commerce, consulting, telehealth and financial services. As a global leader in technologies such as cloud computing and artificial intelligence, the US continues to expand its global market share of such services.


Source: UN Trade and Development


TMG believes there is renewed focus on policies intended to improve US trade balances. Supply chains shown to be vulnerable during the pandemic are being reconfigured through onshoring and nearshoring strategies, often on a regional basis. The US continues expanding its dominance of the digitally delivered services sector. Energy independence, no longer an unlikely goal, is supporting exports of liquified natural gas to Asia and Europe. However, achieving acceptable trade strategies with China remains difficult, and continues to pose the greatest challenge to US trade dynamics.

Sources: Bloomberg; British Broadcasting Company; Bureau of Economic Analysis; Bureau of Labor Statistics; Census Bureau; China Association of Automobile Manufacturers; Economist; Energy Information Administration; Federal Reserve Bank of Dallas; Federal Reserve Bank of St. Louis; Federal Reserve Board of Governors; International Monetary Fund; NIKKEI Asia; Organization for Economic Cooperation and Development; Reuters; UN Food and Agricultural Organization; UN Trade and Development; US International Trade Commission; Wall Street Journal; World Bank; World Trade Organization

The Mather Group, LLC (TMG) is registered under the Investment Advisers Act of 1940 as a Registered Investment Adviser with the Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training. For a detailed discussion of TMG and its investment advisory services and fees, see the firm’s Form ADV on file with the SEC at, or on the firm’s website at The opinions expressed, and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The opinions and advice expressed in this communication are based on TMG’s research and professional experience and are expressed as of the publishing date of this communication. All return figures and charts shown are for illustrative purposes only. TMG makes no warranty or representation, express or implied, nor does TMG accept any liability, with respect to the information and data set forth herein. TMG specifically disclaims any duty to update any of the information and data contained in this communication. The information and data in this communication does not constitute legal, tax, accounting, investment, or other professional advice. Investing involves some level of risk. Past performance does not guarantee future results.

An investor cannot invest directly in a presented index, as an investment vehicle replicating an index would be required. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Please feel free to contact us for additional information on any indices mentioned in this commentary.

The Mather Group



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