China remains embedded in U.S. supply chains even as American firms have taken steps to reduce direct imports from the country, according to a paper presented at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference August 26.

The paper’s authors, Laura Alfaro of Harvard Business School, and Davin Chor of Dartmouth College’s Tuck School of Business, documented a decrease in the share of U.S. imports from China and a corresponding increase in the share of U.S. imports from Vietnam and Mexico between 2017 and 2022. 

The shift was spurred by U.S. government policies including tariffs, which were aimed at decoupling the American and Chinese economies.

But Chinese firms appear to be finding ways to mitigate the impact, namely through increased exports to and foreign direct investment in Vietnam and Mexico.

“The U.S.’ indirect supply-chain links to China remain intact; along some dimensions — through China’s economic ties with Vietnam and Mexico — these indirect links have even been intensifying,” Alfaro and Chor wrote.

“Even though the U.S. may be reallocating its sourcing and imports toward Vietnam and Mexico, it may de facto remain connected with and dependent on China through third-countries, including through Vietnam and Mexico.”