China's Export Boom And How It Could Lead To Trade Wars Again

China's surplus in manufacturing trade, now nearing record levels, points to a much broader surge in exports.

This boom encompasses not just green-energy goods but a diverse range of products—from steel to animal feed—that are becoming increasingly difficult to sell at home due to a real estate slump slowing the domestic economy.

As China seeks to offload its excess production onto the global market, the potential for renewed trade tensions looms large.

Diverse Export Portfolio

China's export surge extends well beyond green-energy goods.

The country is exporting massive amounts of iron and steel, petrochemicals, and agricultural products like soybean meal.

For instance, China’s iron and steel exports hit a record 13 million tons in March and remained near that level in April, driven by a collapse in domestic housing construction.

Local steel firms, facing reduced domestic demand, are likely to increase exports further to manage their surplus production.

Petrochemicals represent another area of significant export growth.

China has been ramping up its production capacity with new plants producing essential plastic components.

This surge has disrupted chemical industries in neighboring countries such as South Korea and Japan, which now face increased competition and have seen some facilities close as a result.

Agricultural exports are also on the rise.

China’s exports of soybean meal, used for animal feed, jumped nearly fivefold in the first four months of 2024 compared to the previous year.

With declining domestic demand for pork, Chinese processors are exporting their surplus, affecting global markets.

Protective Measures by Affected Countries

The flood of Chinese exports has prompted several countries to consider or implement protective measures to safeguard their domestic industries.

Rising exports have been accompanied by falling prices, which threaten to trigger protective reactions from a growing number of nations beyond the US and Europe.

Countries like India and South Korea have already imposed record numbers of anti-subsidy and anti-dumping measures against Chinese goods, targeting a wide range of products from steel to wind towers.

In Latin America, nations have imposed tariffs to protect local producers from the influx of cheap Chinese metal.

Similarly, the US is set to increase tariffs on Chinese imports, which may redirect more Chinese exports to other regions like Asia.

Companies in Vietnam and India are already feeling the pressure, with firms like Tata Steel Ltd reporting profit hits due to the cheap influx of Chinese metal.

Thailand and Saudi Arabia are also considering new levies to protect their industries from the oversupply of Chinese goods.

Embracing China's Exports

Not all countries view China's export boom as a threat.

Some nations welcome the influx of cheaper goods, which can benefit consumers and support local economic needs.

For example, South Africa has embraced imported Chinese solar panels to address its severe power shortages.

India, despite its complex relationship with China, has seen a surge in demand for these panels after easing import restrictions last year.

In some cases, tariffs are used not to keep Chinese products out but to encourage Chinese firms to invest locally.

Brazil and Turkey, for instance, have raised barriers to direct imports of electric vehicles (EVs) while simultaneously courting Chinese manufacturers to build EV factories within their borders.

One notable proposal comes from Huang Yiping, an adviser to the People’s Bank of China, who suggests implementing a modern version of the Marshall Plan.

This initiative would see China lending money and providing technology to developing nations to help them build their renewable energy industries, fostering economic ties and creating new markets for Chinese goods.

Navigating the Future of Global Trade

China's export boom, driven by a combination of domestic economic challenges and robust manufacturing capabilities, is reshaping global trade patterns.

While some countries are implementing protective measures to shield their industries, others are embracing the economic benefits of cheaper Chinese goods.

However, the potential for renewed trade wars remains significant as more nations react to the influx of Chinese exports.

Gita Gopinath, deputy chief of the International Monetary Fund, recently warned that trade decoupling and the formation of rival blocs could significantly harm global economic output.

As China continues to expand its export footprint, the global community must navigate these complex dynamics to avoid exacerbating trade tensions and ensure a stable and fair trading environment for all.