An update on the great reallocation in US supply chain trade

The era of hyperglobalisation has given way to a more fractured trade policy landscape. This column uses detailed US import data over 2013-2025 to analyse the scope, pace, and composition of the reallocation in US trade. Despite a decline in direct imports from China, the authors document rising total US merchandise imports, with limited diversification beyond top trading partners. US tariffs on China led to both the cessation of imports of some products, as well as reduced volumes among continuing flows. Data from 2025 reveal a further acceleration in reallocation of US imports, towards partners facing lower announced tariff rates.

The era of ‘hyperglobalisation’ that defined world trade in the early 21st century has given way to a more fractured trade policy landscape (Gros 2017), under the strain of actions enacted by the first and second Trump administrations. Starting in 2018, the first wave of US tariffs was a shock especially to US–China economic relations, with China being singled out for Section 301 actions on the grounds of redressing unfair trade practices. By late 2019, average US tariffs on goods from China had been raised by around 20 percentage points (Bown 2021, Chor and Li 2024). An even more sweeping wave of tariff announcements followed, shortly after Trump’s return as president in 2025. The “Liberation Day” tariffs, if fully implemented, threaten to increase tariffs for all US trade partners, with additional rates ranging from a minimum of ten to a maximum of more than 50 percentage points.

Global firms and country governments now face the unenviable task of navigating a trade policy environment where US tariff rates are increasingly fluid and mercurial. The stakes are considerable: sourcing decisions made by firms and policy responses enacted by countries today are poised to reshape global supply chain activity for years to come.

Already, the first wave of US tariffs in 2018-2019 set in motion a shift in US sourcing away from China, which we described as a ‘Great Reallocation’ with the potential to significantly disrupt established supply chain relationships around the world (Alfaro and Chor 2023a, 2023b). While we had (somewhat tentatively) characterised these trends as ‘looming’ in our previous work, it is fair to say that this adjective can now be dropped without qualifications. In Alfaro and Chor (2025), we provide an update on the scope, pace, and composition of this ‘Great Reallocation’, using US import data for detailed product codes from 2013-2025. With the benefit of a longer time span of data, what can we say about the short- to medium-run effects of the 2018-2019 wave of Trump tariffs? And what do the most recent months of data tell us about the early impact of the “Liberation Day” announcements?

Our work adds to a growing body of empirical evidence on the far-reaching effects of the US–China tariff war. These have documented the effects on bilateral trade flows (Fajgelbaum et al. 2020), as well as on trade diversion involving third countries (Fajgelbaum et al. 2024, Iyoha et al. 2024). More broadly, this work speaks to a debate over whether what we are witnessing is a fragmentation of world trade along geopolitical lines (Aiyar et al. 2023, Gopinath et al. 2025).

Six facts on the Great Reallocation

We summarise our findings in a series of six stylised facts.

1. Decoupling from China, but not (yet) from the world at large

Between 2017 and 2024, aggregate US merchandise imports grew at an annual average rate of 5.7% (in nominal terms), faster than the annual rate of 0.8% in the preceding four years. This was happening even amid an ongoing decline in US direct imports from China (see left panel in Figure 1). In China’s stead, there has been strong growth in US imports from other trade partners, notably Vietnam, Mexico, and in the last few years, Taiwan. What the data show is thus a selective decoupling from China, rather than a full US retreat from globalisation at least for now (Antràs 2021, Baldwin 2022, Goldberg and Reed 2023, Conteduca et al. 2025).

Figure 1 Changes in US imports by major trade partners, 2015-2025H1

Notes: Based on US Census Bureau data, half-yearly averages of nominal imports; index values with 2017H1 as the base (= 100). The selected trade partners illustrated in the right panel are the top seven as ranked by the increase seen between 2017-2024 in US import market share.

2. Limited diversification in the pool of US import partners

The US has diversified its sourcing away from China, with Mexico and Canada overtaking China in their share of direct US imports. Even so, the reshuffling of these US import market shares has occurred almost entirely among the US’ 20 largest import partners, as the combined share held by countries outside this ‘top 20’ has barely changed since 2017. During this time, only one economy (the Netherlands) broke into the ‘top 20’ list. The reallocation of US sourcing shares has thus been happening largely among its existing trade partners and established industrial clusters.

3. Continued slide in China’s direct import share

China’s share of US imports peaked at roughly 21% in 2017. By the end of 2024, this had fallen to around 13%, extending the slide in China’s direct import market share reported in earlier work (Alfaro and Chor 2023a, Freund et al. 2024, Grossman et al. 2024, Garred and Yuan 2025). On the other hand, Vietnam, Mexico, and Taiwan each gained around two percentage points of US import market share by 2024 (see Figure 2). Although some of this increase in partner country imports could reflect rerouting of goods that originate from China, the available estimates of this phenomenon indicate that pure rerouting is unlikely to account for the bulk of the increase in Vietnam’s and Mexico’s exports to the US (Iyoha et al. 2024, Freund 2025). 

Figure 2 Changes in US import shares across trade partners since 2017

Notes: Based on US Census Bureau data; the first seven trade partners illustrated from the left are the top seven as ranked by the increase seen between 2017-2024 in US import market share.

In our paper (Alfaro and Chor 2025), we also estimate Jorda (2005) local linear projections to trace out the year-by-year, HS six-digit product-level impulse responses of US imports following the 2018-2019 tariffs on China, separately for several key trade partners. Figure 3 presents the associated findings for US imports from China. This confirms the large and persistent decline in product-level import shares with the onset of the tariffs (top-left panel). This drop reflects both the cessation of imports of some products (the extensive margin), as well as reduced volumes among continuing flows (the intensive margin). Using data on duty-inclusive unit values (bottom-right panel), we also estimated tariff pass-through to be substantial (around 0.7), albeit slightly smaller than the full pass-through obtained from monthly data in earlier studies (Amiti et al. 2019, Fajgelbaum et al. 2020, Cavallo et al. 2021).

Figure 3 Local projection responses: China’s imports in the US, 2013-2024

Notes: Based on Jorda (2005) local projections, with the additional US product-level tariff on imports from China, i.e. Δln(1 + τ), as the tariff shock variable. The sample here comprises all available HS six-digit products. We average the data over 2018-2019 and set this as the base year (h = 0); the regressions are otherwise run on annual data. For pre-periods (h < 0), the outcome variable is defined as yp,h − yp,h−1. Standard errors are clustered at the HS four-digit level, with 90% confidence intervals illustrated.

4. Most of the adjustment has occurred on the product-level intensive margin

Using a product-level accounting decomposition, we find that most of the reallocation – both China’s drop and other countries’ gains in US import market share – stem from changes in volumes for products that were already being traded. There were some notable exceptions where the extensive margin – (net) entry of exports in HS6 codes – did play a more prominent role, namely, Vietnam and India after 2021.

5. Reallocation eventually affects more ‘sticky’ supply chain relationships

The decrease in China’s share in US imports was concentrated in 2017-2020 among products that could plausibly be sourced from alternative locations at short notice, such as various computer units and associated parts, as well as apparel items. By 2021–2024, however, the shift away from China spread to products that are contract-intensive (i.e. whose production relies more on specialised inputs, as measured by Nunn 2007) and that are relationship-sticky (i.e. that tend to feature more long-lived buyer-supplier ties, as measured by Martin et al. 2023). For such products, it appears that once it was clear that the Trump tariffs would persist under the Biden administration, firms stopped taking a ‘wait and see’ approach and instead started incurring the sunk costs of reorganising and relocating their cross-border supply chains.

6. Reallocation has accelerated since Liberation Day

The data through August 2025 already reveal a striking acceleration in the pace of reallocation in US import patterns following the 2 April 2025 tariff announcements. China’s share of US imports fell sharply by about four percentage points between March and August 2025, so much so that by late 2025, this share stood at approximately 9% (see Figure 2), a level last seen when China joined the WTO in 2001. US trade policies in the past eight years have thus effectively unwound the preceding two decades of deepening US-China trade ties (see Figure 4).

Figure 4 China’s import share in the US since 1991

Notes: Based on US Census Bureau import data. The bars illustrate China’s share in US imports (left vertical axis), while the line illustrates the rise in US total real imports over time (right vertical axis). The 2025 data point is based on partial year information.

Moreover, Figure 5 reveals how the Liberation Day tariffs have tilted reallocation in favour of US trade partners facing lower announced tariff rates, notably Mexico and Canada. Economies faced with higher announced tariffs, particularly in East Asia, instead lost further import market share. This speed of adjustment suggests that firms had already pre-emptively lined up alternative sourcing arrangements as a contingency plan, which they were then able to activate quickly once the full extent of the protectionist goals of the second Trump administration was confirmed on Liberation Day.

Figure 5 Changes in US imports by major trade partners, March to August 2025

Notes: Based on US Census Bureau import data and the Liberation Day tariff rates announced on 2 April 2025. The vertical axis plots the change in each trade partner’s share of US imports between March and August 2025, demeaned by the average import share change over the same months during 2022–2024. Marker sizes are proportional to each partner’s total import volume in 2024. The best-fit line is from a linear regression, weighted by initial US imports from the trade partner in 2024.

Concluding thoughts

Given how swiftly the ‘Great Reallocation’ in US supply chains has unfolded, a natural question to ask is whether US–China trade, and the international trading system more broadly, can bounce back. On this front, much depends on how permanent firms and supply chain managers envision the current slate of US trade policy measures to be. Specifically, which tariffs are likely to remain in force – perhaps even beyond the second Trump administration – and which could be rolled back? A plausible hypothesis here is that protectionist measures will persist for the foreseeable future in US trade with China and in industries deemed vital for American jobs. This is because concerns about trade with China and about competition for workers have been repeatedly cited by the US public as reasons for favouring limits on imports (Alfaro et al. 2023c).

Source : VOXeu