U.S. Producers Recapture Substantial Domestic Market Share in Q1, China Loses Share
The CPA Domestic Market Share Index (DMSI) increased by 1.2 percentage points in the first quarter of 2023 to a reading of 69.0. That means that U.S. producers gained share in the U.S. market for manufactured goods compared with the first quarter of 2022. Compared to Q1 2022, imports of manufactured goods in Q1 2023 were down 4% while gross manufacturing output increased 5% and exports of manufactured goods increased by 6%.
As shown in Figure 1, the Q1 reading shown on the blue line was the highest quarterly reading for the index since Q1 2020 when the pandemic constrained imports. The surge of imports in 2021 and 2022 as supply chains caught up with consumer demand for goods has now subsided. As such, the DMSI has increased by 2.5 percentage points over the past two quarters. At 69.0, domestic share is now back to levels seen in the 2016-2017 period but still well below domestic share in earlier years. Gross output tends to be higher in the first quarter of the year, but the DMSI is trending upwards over the past year as shown by the four-quarter moving average in green of Figure 1.
Figure 1: Domestic Market Share Index (DMSI) (2005-2023)
Source: U.S. Bureau of Economic Analysis, U.S. Census; CPA Calculations
Note: Blue line reflects quarterly data. Green line reflects four-quarter moving average.
The DMSI measures the share that U.S. domestic producers hold of the U.S. market for manufactured goods. A DMSI of 69.0 means that domestic producers hold 69% of the U.S. market for manufactured goods and importers hold the other 31%. The U.S. market for manufactured goods, worth about $7.2 trillion, is the world’s largest market. Since 2002, U.S. manufacturers have lost 8.3 percentage points of home market share, worth $598 billion in lost revenue. This represents a huge setback for U.S. producers, who have traditionally been strongest in the home market.
Domestic Producer Gains by Manufacturing Sub-Sector
U.S. producers of computer and electronics gained 5.1 percentage points of the domestic market in Q1. This is likely the result of the current slump in American consumers’ purchases of laptop computers. Yet these may also be early signs that legislation such as the CHIPS Act is working to encourage private investment to reshore production even before government funding of the semiconductor projects has been disbursed. Nevertheless, as shown in Figure 2, the computer and electronics sector continues to hold the second lowest share of the domestic market by manufacturing subsector after apparel, so there is much room for growth to rebuild the domestic manufacturing of computer and electronic goods.
U.S. producers saw strong quarterly gains in several other manufacturing sectors in the first quarter of 2023 compared to the previous quarter, including furniture (+2.0), textiles (+1.7), nonmetallic minerals (+1.7), paper products (+1.6), wood products (+1.5), plastics and metal (+1.0), and fabricated metals (+1.0). The increases in domestic output and decline of goods imports were broad-based in the first quarter. Whether it is the start of a trend or simply normalization following post-pandemic market distortions is yet to be seen.
Figure 2: DMSI by Manufacturing Subsector (2023 Q1)
Source: U.S. Bureau of Economic Analysis, U.S. Census; CPA Calculations
China Continues to Lose Market Share, Overtaken by EU and Mexico
The past several years have marked a shift in the source of U.S. goods imports. The most prominent shift is the fall of China’s share as a source of U.S. imports. In Q1, China’s share of the U.S. domestic market fell to 5.1%. As shown in Table 1, China’s share of the U.S. domestic market has decreased by 2.1 percentage points in the past year. Imports from China are decreasing as a result of decoupling driven by the Section 301 tariffs and corporate decisions to reduce risk by diversifying away from Chinese production. Aside from the disruption of imports in Q1 2020, the current reading in the lowest China’s share of the U.S. domestic market has been since 2005. In the first quarter of 2023, imports of manufactured goods from China were down 32% year-over-year, indicating that China will continue to lose share of U.S. goods imports for fifth year.
China lost share in 16 of the 19 subsectors with the largest loss coming in computer and electronics with a decline of 5.8 percentage points. China has struggled to restart its economy post-pandemic and its export-led growth model has faltered as supply chains have shifted away due to previous disruption caused by lockdowns and the continuing decoupling effect of the Section 301 tariffs.
Table 1: Major Sources of U.S. Manufactured Imports as Share of U.S. Consumption of Manufactured Goods
Source: U.S. Bureau of Economic Analysis, U.S. Census; CPA Calculations
As shown in Table 1, for a second straight quarter, the 27-nation European Union holds the largest share of the U.S. domestic market for manufactured goods after overtaking China in the fourth quarter of 2022. The EU has gained 0.7 percentage points of share of the U.S. market over the past year with its largest gains coming in machinery (+2.5), electrical equipment and appliances (+1.8), motor vehicles (+1.1), and chemical products (+0.9) which includes pharmaceuticals.
Elsewhere, Mexico added only 0.1 percentage point in Q1 but overtook China as the largest share of the U.S. domestic market held by a single country with 5.4% share. Canada had the largest increase by country of 0.2 percentage points driven by increases in imports of primary metals and motor vehicles, increasing by 1.3 percentage points and 0.7 percentage points, respectively.
There were no notable gains by other countries in Q1. On a regional level, only the fellow USMCA countries in North America added to their share of the U.S. domestic market in Q1 by a combined of 0.3 percentage points to a total of 9.1%. All other regions maintained or lost share compared to the previous quarter.
Trade Deficits in Most Manufacturing Sub-Sectors in Q1
The U.S. ran a trade deficit in 16 out of 19 manufacturing sub-sectors, demonstrating how pervasive the U.S. trade deficit is. As shown in Figure 3, motor vehicles ran the largest trade deficit by subsector for the quarter of -$57.8 billion followed by computer and electronics (-$50.5 billion) and electrical equipment (-$29.4 billion).
While domestic share gained in Q1 2023, the dollar value of imports continues to far outweigh exports, leading to a large manufacturing trade deficit of -$247.8 billion.
Figure 3: Trade Balance by Manufacturing Subsector (2023 Q1)
Source: U.S. Bureau of Economic Analysis, U.S. Census; CPA Calculations
Methodology
The CPA Domestic Market Share Index (DMSI) measures the success of U.S. manufacturing producers in the U.S. market. Over the past two decades, imports have gained a larger share in the U.S. market, leading to millions of lost jobs and industrial decline in many regions and many sectors.
The DMSI is based on the value of production, imports, and exports in U.S. manufactured goods. It is calculated entirely from U.S. government data as the inverse of the import share: DMSI =100*(1-(imports/(output+imports-exports)).
Changes in the reported annual and quarterly DMSI reflect revisions in government data. For more detailed information on the DMSI including downloadable data, please contact aheritage@prosperousamerica.org.
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