Can China export without the West

Wed Jun 12 2024
Lucy Harlow (4114 articles)
Can China export without the West

Is it possible for China to engage in exports without relying on the Western market?

China continues to experience robust export growth. This has caused friction with Western countries and resulted in a fresh round of tariffs on its diverse range of vehicles. However, it is also having a significant impact on the global trade landscape.

Beijing must consider if shifting its focus to the developing world will be sufficient to maintain the momentum of its export industry.

The most recent trade data from China, which was released last week, conveyed significant information. In May, there was a 7.6% increase in exports compared to the previous year, measured in dollars. Similarly, imports experienced a 1.8% rise. China’s housing market downturn has had a negative impact on domestic demand, prompting Beijing to focus on boosting exports as a means to drive growth.

That has, nonetheless, caused significant concern in Western capitals. In the near future, the Biden administration will be implementing new tariffs on Chinese electric vehicles, imposing a 100% tariff, as well as a 25% tariff on Chinese EV batteries and parts.

On Wednesday, the European Commission announced the implementation of new tariffs on Chinese electric vehicles. The duties will range from 17.4% to 38.1% and come as a result of an investigation into anti-subsidy practices. The statement highlighted the presence of unfair subsidies in the entire Chinese EV value chain. It emphasized that the influx of subsidized Chinese imports, which are being sold at artificially low prices, poses a clear and foreseeable threat of imminent injury to the EU industry.

Recent strong growth may be attributed to manufacturers anticipating potential trade restrictions. In May, China’s exports to the U.S. increased by 3.6% compared to the previous year, which goes against the trend observed in recent years. However, China’s trade patterns have shifted, with a decrease in exports to the West and an increase in exports to Southeast Asia and Latin America.

The exports to Southeast Asia in the first five months of this year increased by 12% compared to the same period two years ago. During the same period, China’s exports to the U.S. decreased by 17%. In 2023, China experienced a 14% decline in its exports to the U.S.

It is possible that Chinese companies are redirecting their trades through countries such as Vietnam or Mexico, as these countries have also been developing their lower-end manufacturing capabilities while China has been focusing on higher-value industries.

China is also exploring new markets. Exports to Russia have experienced a significant increase of 70% in the last two years due to the impact of Western sanctions, which have limited the country’s trade with other nations. China has been exporting a significant number of gas-powered vehicles to Russia, as China’s domestic market has experienced a swift shift towards electric vehicles, resulting in surplus production capacity.

Furthermore, China is now offering a diverse range of products compared to previous times. According to Morgan Stanley, China’s total exports saw a significant increase in new segments such as EVs, batteries, solar panels, and mature chips. These segments accounted for 8.5% of China’s total exports last year, which is a notable rise from 4.5% five years ago.

These exports have faced criticism in Europe and the U.S. due to their potential impact on the development of green technologies and artificial intelligence. Chinese goods with competitive prices may be well-received in many lower-income countries.

In 2023, Brazil experienced a significant increase in the sales of electric vehicles (EVs) and hybrids, as reported by dealer association Fenabrave. BYD, a Chinese company, dominated the market for pure EVs, with over half of the sales. Additionally, Chinese automakers were also prominent sellers of hybrid vehicles.

Southeast Asia has emerged as a more prominent market for China’s exports compared to the United States or the European Union. Southeast Asia and Latin America have accounted for a significant portion of China’s exports this year. While their share is smaller compared to the U.S. and the EU, these regions still represent a sizable market with promising growth potential.

However, despite the generally positive attitude of developing countries towards China, they may still face domestic political pressures that could lead to the implementation of trade barriers against Chinese imports.

Several Latin American countries have increased tariffs on steel in order to safeguard their domestic industries. In an effort to boost domestic production, Brazil has decided to reintroduce tariffs on electric vehicles. The initial tariff rate stands at 18%, and it is expected to increase to 35% by 2026. Chinese companies have been establishing local manufacturing operations, which could potentially alleviate some tensions and generate employment opportunities. For instance, BYD is constructing an electric vehicle factory in Brazil.

China’s shift towards developing countries as export destinations has proven to be successful. However, in a world that is becoming more protectionist, there will be constraints on that strategy.

Lucy Harlow

Lucy Harlow

Lucy Harlow is a senior Correspondent who has been reporting about Equities, Commodities, Currencies, Bonds etc across the globe for last 10 years. She reports from New York and tracks daily movement of various indices across the Globe