the Shifting Landscape of Global Trade and China‘s Ascendance
Recent shifts in global trade dynamics are increasingly driven by China’s economic policies,rather than those of the United States,despite the continuation of Trump-era tariffs under the Biden management.While the initial Trump administration tariffs prompted China to reroute exports through third countries like Vietnam and Mexico, this strategy is proving less effective against the current wave of trade tensions.
According to Neil Shearing,chief economist of Capital Economics in London,the share of China’s exports going directly to the US has fallen by approximately 4 percentage points this year. However, indirect shipments to the US have only increased by 0.5 percentage points, meaning only about one-eighth of the decline in direct exports has been offset by rerouting. This contrasts sharply with 2018, when a third of the decline in direct Chinese exports was compensated for by indirect routes. Countries utilized for rerouting, like Mexico, face limited benefit and risk potential backlash from the US.
Rather of rerouting, China has adopted a strategy of lowering export prices. From October 2022, following the lifting of its stringent Covid-Zero restrictions, Chinese export prices dropped by 22%, while prices elsewhere remained relatively stable.This approach, described as “dumping,” reflects a broader strategy of establishing dominance in emerging technologies.
This new form of mercantilism differs significantly from the traditional approach favored by the US. while the US aims to restore past manufacturing strength by erecting trade barriers against commodity exports, China is focused on securing leadership in future-oriented industries. Data from the International Energy Agency indicates that China currently produces over 70% of the world’s electric vehicles, 92% of global solar cells, 98% of solar wafers, and 85% of solar panels. Moreover, Chinese companies manufacture more than three-quarters of all batteries sold globally, with prices dropping nearly 30%.
This dominance is fueled by intense competition within China,driving down prices and impacting corporate profits.The Chinese goverment has even launched an “anti-involution” campaign in response to this over-competition. The resulting surplus of inexpensive products is likely to be exported, potentially solidifying China’s global leadership in these sectors.
The US approach to green energy, viewing it as a potential “scam,” could prove detrimental if carbon fuels become obsolete. Regardless, China’s lower electricity production costs - currently less than half that of the US – provide a significant advantage.
Ultimately, mercantilism is becoming a defining feature of the global economic order. However, Chris Watling, chief executive of Longview Economics in London, suggests that China, with its experienced mercantilist practices, is better positioned to capitalize on this trend than the United States.
