The upcoming trade conflict between China and the Global South

Chinese President Xi Jinping promised Chinese President Xi Jinping vowed on September 5 to open up his country’s economy to emerging countries, committing to zero tariffs for the least developed countries. The move, unveiled at the China-Africa summit in Beijing, appeared deliberately designed to contrast China with the United States, which has largely abandoned its role as a champion of free trade in favor of protectionism. But Xi’s promise was also aimed at countering growing concern among emerging countries about major changes in global trade flows as China’s export-heavy economic model faces resistance from the West. These changes now threaten to flood much of the South with cheap Chinese goods and undermine their fragile progress in economic development.

Chinese President Xi Jinping promised Chinese President Xi Jinping vowed on September 5 to open up his country’s economy to emerging countries, committing to zero tariffs for the least developed countries. The move, unveiled at the China-Africa summit in Beijing, appeared deliberately designed to contrast China with the United States, which has largely abandoned its role as a champion of free trade in favor of protectionism. But Xi’s promise was also aimed at countering growing concern among emerging countries about major changes in global trade flows as China’s export-heavy economic model faces resistance from the West. These changes now threaten to flood much of the South with cheap Chinese goods and undermine their fragile progress in economic development.

As Beijing tries to curb massive overinvestment in real estate and unproductive infrastructure, it is now investing huge sums in advanced manufacturing, or what it calls new quality productive forcesThe West has responded sharply, accusing China of fueling excessive production and selling its surplus abroad. European and North American leaders are rushing to impose tariffs on products such as electric vehicles and solar panels. But as barriers rise across the rich world, many emerging countries fear that China’s excess production will be directed at them and are therefore beginning to resort to protectionist measures. This in turn creates a major strategic dilemma for China, as policies designed to save its domestic economy threaten to undermine its ties to the global south, a crucial geopolitical battleground with Washington.

Examples of emerging countries alarmed by what some are already calling The Chinese Shock 2.0Alongside the massive global economic changes of the 1990s, when China first flooded world markets with cheap goods, it is not hard to find products. In July, Indonesia import duties enacted of up to 200 percent on textiles and other goods, citing unfair competition from China. A few months earlier, Chile imposed anti-dumping tariffs on Chinese steel. Mexico and Brazil have adopted similar measures. Others are preparing them: Thailand has just put in place a new government body review restrictions on Chinese imports. India recently imposed a series of anti-dumping measures and opened a series of additional probes.

This is a significant shift. Emerging markets from Southeast Asia to Africa and Latin America have long viewed China as a key economic partner. Beijing has been a source of investment, particularly through its massive Belt and Road Initiative (BRI) infrastructure program. Indeed, in many cases, it still is, despite a sharp reduction in investment under the BRI. Last week in Beijing, Xi Jinping pledged about $51 billion He also expressed concern about credit lines and green investments for African countries, while ignoring calls for additional restructuring assistance for heavily indebted African borrowers. Cheap Chinese imports have generally been seen as helpful for economic development, providing cheap goods to consumers in emerging markets and valuable components to industry.

At first glance, the new measures targeting Chinese imports might therefore look like isolated cases of traditional protectionism, in which a few uncompetitive domestic producers persuade governments to shield them from effective foreign competition. But the scale and diversity of China’s manufacturing capabilities mean that these anti-China restrictions are different. Previously, accusations of Chinese dumping tended to focus on isolated industries such as steel. Today, China’s booming exports span a bewildering range of products, from electric vehicles and green transition technologies to traditional manufacturing inputs and intermediate goods. The scale of these exports is also growing, reaching $309 billion in August, the highest monthly level in two years. Some Chinese products are so cheap that no tariff can reduce their price competitiveness, as India’s chief economic adviser, V. Anantha Nageswaran, wrote in The Daily Telegraph. annual economic survey in July.

Emerging markets are responding to a wide range of pressures. Some, like Chile, are concerned about dumping of products like steel. Others, like Indonesia, are more concerned about what they see as unfair competition from Chinese subsidies or are responding to pressures related to Western countries’ attempts to decouple from China. In any case, other emerging countries are likely to follow suit as barriers against China rise in Western industrialized countries. This will be especially true if former U.S. President Donald Trump wins the November election and hits China with the China threat. higher rates than he promisedChinese exporters shut out of richer markets will then be forced to turn their attention elsewhere even more than they do now, creating new pressure on developed countries to respond by imposing higher tariffs of their own.

All of this is particularly difficult for Asia’s trade-dependent economies, which have traditionally sought to integrate closely with China. Exporting powerhouses like Malaysia and Thailand rely on China for the goods that power their factories. But that also makes their own domestic manufacturing bases particularly vulnerable as China moves into high-end manufacturing. Africa’s poorer countries have relatively few industrial sectors that compete with China. But Malaysian and Thai companies specialize in precisely the kind of advanced manufacturing supply chains that China is developing. As a result, Asia is the region most exposed to the cascading effects of tariffs imposed on the rest of the world, explains Sonal Varma, an economist at Nomura. I put it on recentlyIncreased imports from China could weaken the region's manufacturing industry.

The rise of Chinese exports also threatens to pose more serious problems. Developing economies are already struggling to cope with challenges such as premature deindustrializationa process in which manufacturing begins to decline even before the country is industrialized enough to reach a high income level, partly because new technologies are replacing traditional manufacturing. The replacement of domestic manufacturers with cheap Chinese imports could well make things worse, making it even harder for emerging countries to escape what economists call the middle-income trap.

For Western policymakers, the rise of Chinese exports represents a potential geopolitical opportunity. Many fear that the West is losing touch with the Global South, with the two countries estranged by divergent views on challenges such as Russia’s invasion of Ukraine and the war between Israel and Hamas. Addressing the challenge of China’s rising exports, which will increasingly affect both the West and the Global South, offers an opportunity to build a common agenda.

For China, the challenge is how to act. In theory, Beijing could reduce its export-friendly policies and subsidies or invest in local production in emerging economies. But its surge in manufacturing exports is actually driven by urgent domestic political imperatives that will be hard to reverse. China needs to boost flagging economic growth and, with it, the legitimacy of the Chinese Communist Party and Xi Jinping’s regime. Export-friendly policies have been the policy of choice for decades, and the recent emphasis on advanced manufacturing makes it unlikely that Beijing will revise its current strategy without significantly increased international pressure. Tariffs of the magnitude Trump has planned could persuade Beijing to rethink some elements of its strategy, but moves by countries like Chile or Indonesia are much less likely to do so. Xi Jinping thus faces a stark choice: China can seek to win even more friends in the developing world and act as a leader in the Global South, or it can move forward with an economic plan that sharply refocuses its export-based growth model on advanced manufacturing. But it will be exceptionally difficult to do both.