the Shifting Landscape โขof โฃGlobal Tradeโฃ and China‘s Ascendance
Recentโ shifts in โglobal trade dynamics are increasingly driven by China’s economic policies,rather than those of the United States,despite the continuation of Trump-eraโ tariffs under the Biden management.Whileโฃ the initial Trump administration tariffsโ 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 โto Neil Shearing,chief economist of โCapital Economics in London,the share of China’s exports โgoing directly to the US has fallen by approximately 4 percentage points this year. However,โข indirect shipments to the US have only increased by 0.5 percentage points, meaning only about one-eighth of the decline โขin direct exports has โขbeen offset by rerouting.โ This contrasts โsharply โwith 2018, when โa third โขof the decline in directโ Chinese exports was โcompensatedโ for by โคindirect routes.โ Countries utilized forโฃ rerouting, like Mexico, face limited benefit and risk potential backlash from the US.
Rather of rerouting, China has adopted a strategyโค ofโ lowering export prices. Fromโค 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 approachโ favored by the US.โข while the US aims to restore past โขmanufacturing strength by erecting trade barriers against commodity exports,โข China is focused โonโฃ securing leadership in โฃfuture-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% ofโ solar wafers, and 85% of solar panels. Moreover, Chinese companies manufacture more โขthan three-quarters of all batteriesโข sold globally, with prices dropping nearly 30%.
Thisโ dominance is fueled by intense competition withinโ China,driving down prices and impacting corporate profits.The Chinese goverment has even launched an “anti-involution” campaign in response to thisโ over-competition. The โฃresulting surplus of inexpensive products is likely to be exported, potentially solidifying China’s global leadership โinโฃ these sectors.
The US approach โto greenโฃ energy, โviewing it as aโ potential “scam,” could proveโค detrimental if carbon fuels become obsolete. Regardless, China’s lower electricity production costs โ- currently less than half that of โthe US – provide a significant advantage.
Ultimately, mercantilism is becoming a definingโค feature of the global economicโค order. โHowever, 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.