3 U.S. Industries That Could Be Slammed by Another Bout of ‘China Shock’


  • Amid global strife and competition, U.S. industries at risk must adapt and brace for a potential “China Shock 2.0”.
  • U.S. Manufacturing: U.S. manufacturing shows growth with a current ISM PMI of 50.30, indicating resilience against global trade tensions.
  • America’s Semiconductor Industry: The CHIPS Act’s $50 billion investment has revitalized the semiconductor sector, with sales jumping 20% year-over-year.
  • Chinese Electric Vehicles in the U.S. Market: Chinese EV companies like NIO and BYD use Mexican plants to dodge U.S. tariffs, strategically entering North American markets.
U.S. industries at risk - 3 U.S. Industries That Could Be Slammed by Another Bout of ‘China Shock’

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Due to continuous geopolitical crises and shocks related to globalization, U.S. industries are at risk.

Due to fierce worldwide competition and an inflow of lower-priced imports, U.S. industries have suffered greatly since China joined the WTO in 2001, losing some 3.4 million jobs.

As we shall examine in detail, there have been positive indicators over the last year despite these difficulties, with a gradual but steady rise in industrial activity, with the S&P Global U.S. Manufacturing PMI at 51.9 in March.

However, a “China Shock 2.0” might undermine these gains. Trade disputes and tariff wars, especially with big competitors like China, may affect the U.S. manufacturing sector due to its considerable engagement in overseas supply networks.

Nevertheless, the newest wave of inexpensive commodities is more sophisticated and crucial to Beijing’s long-term ambitions, so the U.S. cannot afford to be complacent. With China’s Q1 GDP growth likely to slow, it will not pivot away from its strategy of providing cheaper solar panels or electric vehicle vehicles overseas to spur growth.

Therefore, the United States will need to rethink its options and see what it can do to safeguard U.S. industries at risk.

U.S. Manufacturing

China’s accession to the World Trade Organization in 2001 sparked the first 12-year import surge. In response to China’s liberalization reforms and rise on the world stage, U.S. manufacturing suffered a massive drop, with 3.4 million manufacturing jobs lost.

The talk surrounding cheap Chinese exports comes at the wrong time for U.S. manufacturing, seeing signs of life after the COVID-19 epidemic and geopolitical conflicts (such as the conflict in Ukraine).

At the same time, one needs to give credit where it’s due. U.S. manufacturing is showing resilience, with the data from the last 12 months indicating a slow yet deliberate uptick, regardless of the tensions with China.

Throughout March, there was some fluctuation in manufacturing-related indicators, which gauge the mood and expectations of businesses. The S&P Global U.S. Manufacturing PMI fell in March, although the Institute of Supply Management’s Purchasing Managers’ Index (PMI) rose.

The U.S. ISM Manufacturing PMI is currently at 50.30, up from 46.30 a year ago and 47.80 this past month. This is a shift of over 8% from a year ago and approximately 5% from the previous month. A figure above 50 illustrates manufacturing growth.

The average hourly wage for all manufacturing workers increased by $0.20 to $32.63 in March. The average hourly wage of production workers increased by $0.12 to $27.48.

However, China Shock 2.0 can damage these numbers. Due to its strong reliance on international supply chains, the U.S. manufacturing industry is particularly vulnerable to changes in trade agreements and tariffs with important trading partners such as China. Couple that with labor shortages and high-interest rates, and U.S. manufacturing has a lot on its plate.

America’s Semiconductor Industry

Thanks to the pandemic and aftershocks, semiconductor supply chains are a topic of interest when discussing U.S. industries at risk.

During the pandemic, investors, consumers and the U.S. government learned how dependent the country is on chip supplies, which are mostly foreign. As a result, the Biden administration went into overdrive and crafted legislation to create a dependable local supply.

The CHIPS and Science Act, which started many programs to protect and revive America’s semiconductor supply lines, is a big reason why the U.S. semiconductor sector has made such huge strides in recent months.

The U.S. Department of Commerce says this plan will bring $50 billion into the chip business to help it grow again.

The act also emphasizes workforce development, with over 50 community colleges in 19 states expanding or establishing semiconductor industry training programs to close the skills gap and supply skilled labor to growing facilities.

The present trade disputes between the United States and China are centered on the semiconductor and electronics industries, with China’s efforts to expand its semiconductor capabilities directly competing with American and other international enterprises. Legislation such as the CHIPS and Science Act will help mitigate any negative effects of the next ‘China Shock.’

We certainly see a positive impact on the market. Semiconductor sales in the Americas rose to $12.64 billion in January 2024 from $10.51 billion the year before. January 2024, global sales were $47.63 billion. And there are no major supply chain issues.

Ultimately, the U.S. administration must walk a tightrope to avoid a chip surplus in supply chains. At the same time, making sure U.S. domestic companies remain vibrant is also a concern.

Chinese Electric Vehicles in the US Market

BYD (OTCMKTS:BYDDF), the biggest car company in China, has just started selling the Dolphin model in North America, first in Mexico. Even though BYD is growing quickly in many areas worldwide, its only products in the U.S. right now are commercial cars.

Nio (NYSE:NIO), renowned for its luxury electric vehicles, intends to enter the U.S. market by 2025. This corporation, already popular in Europe, wants to expand into North America in stages. In the first quarter of 2024, NIO delivered 30,053 automobiles. As of March 31, 2024, 479,647 NIO cars have been delivered overall, making it a substantial player in the Chinese and global EV space.

These actions point to a pattern. North America ranked third globally in EV sales last year, with 1.1 million units sold, and except Li Auto (NASDAQ:LI), almost all Chinese EV firms suffered enormous losses. All of them want to turn a profit, and soon. And North America can become a lynchpin for their success, which is why the EV business is one of the U.S. industries at risk.

As a result, Chinese EV companies foresee a stronger U.S. presence in 2025 and beyond. However, due to the U.S. policy of taxing Chinese EVs at 25% on top of a 2.5% import fee, they struggle in the market. Production facilities in Mexico are becoming increasingly attractive as a way to circumvent high tariffs and use North American trade agreements.

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

Article printed from InvestorPlace Media, https://investorplace.com/2024/04/3-u-s-industries-that-could-be-slammed-by-another-bout-of-china-shock/.

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