Weekly Business Insights from Top Ten Business Magazines
Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 350 | May 24-30, 2024
Shaping Section | 1
Brazil, India and Mexico are taking on China’s exports
The Economist | May 23, 2024
Extractive Summary of the Article
At last, it seemed time for a manufacturing take-off. Having struggled to compete with China’s industrial might, other emerging markets stood ready to benefit as their rival’s labour costs surged and rising tensions between it and the West pushed firms to look for new factory locations. Last year foreign direct investment into China fell to a 30-year low.
But China has started to fight back. To reverse an economic slowdown and cement its control over global supply chains, its leaders have launched an investment spree in high-tech goods, such as batteries, electric vehicles and other green devices. Weak domestic demand for traditional products, such as cars, chemicals and steel, mean they are also flooding global markets. The average price of Chinese manufactured exports fell by nearly 10% from 2022 to 2023. China’s export volumes have surged to near-record levels. A few weeks later, on May 14th, the Biden administration unleashed a wave of tariffs covering everything from solar cells to syringes. Electric vehicles were hit with a 100% levy. China has other options for its exports, however—namely emerging markets that value friendly relations with it.
As a result, emerging-market policymakers are worried. Emerging economies are thus introducing import restrictions on Chinese goods, while accelerating a push for free trade elsewhere. Their success depends on the sustainability of China’s approach, as well as the deftness of their own.
Start with the free-trade side of things. Countries with manufacturing ambitions are desperate for access to big markets, where leaders are themselves keen to reduce reliance on China. This emerging-market attempt to lower trade barriers with the West is happening at the same time as they are being raised with China. Officials see this as necessary to protect domestic manufacturers until China’s subsidy wave subsides.
Yet some Chinese goods are so cheap they have the lowest prices even with sky-high tariffs. Moreover, some products sneak past levies because they are packaged in third countries. That is why non-tariff barriers and import bans are also proliferating.
Unfortunately for emerging markets, China is now at the technological frontier of manufacturing, providing another reason to avoid antagonising its leaders. Even in India, where relations with China are frosty, plenty of officials recognise that Chinese investment is crucial for manufacturing. A better alternative to flat-out protectionism may be to copy China’s strategy of coaxing firms to invest locally.
Can this cocktail of strategies work? One factor is how long China’s export surge lasts.
Even if China were to reorient its economy, emerging markets would be wise not to place too much hope in manufacturing growth. Western countries may welcome more of their exports, but only up to a point. The West is in the midst of its own subsidy spree to revive domestic manufacturing. And American tariffs on Chinese goods are limited to just a few categories that count for $18bn in current imports; in other areas, Chinese competition will remain robust. The manufacturing take-off may have to wait a while longer.
3 key takeaways from the article
- At last, it seemed time for a manufacturing take-off. Having struggled to compete with China’s industrial might, other emerging markets stood ready to benefit as their rival’s labour costs surged and rising tensions between it and the West pushed firms to look for new factory locations. Last year foreign direct investment into China fell to a 30-year low.
- But China has started to fight back. To reverse an economic slowdown and cement its control over global supply chains, its leaders have launched an investment spree in high-tech goods, such as batteries, electric vehicles and other green devices.
- Emerging economies are thus introducing import restrictions on Chinese goods, while accelerating a push for free trade elsewhere. Their success depends on the sustainability of China’s approach, as well as the deftness of their own.
(Copyright lies with the publisher)
Topics: Global Economy, Tariffs, Technology, Emerging Economies, Manufacturing, Non-tariff barriers, Latin America, India, Brazil, Mexico, Competitiveness