Cheap Chinese Goods Are Angering Developing Countries

A deluge of cheap Chinese goods sweeping across the developing world is straining relationships between China and the Global South, complicating Beijing's efforts to build alliances amidst escalating trade tensions with the U.S.

  • With the U.S. poised to increase tariffs on Chinese goods, Beijing has ramped up exports to developing nations, including Indonesia, Pakistan, and Brazil, to unload excess factory production.
  • However, many of these countries are pushing back as low-cost Chinese imports devastate local manufacturing, costing jobs and stifling domestic growth.

For these nations, manufacturing is key to climbing the economic development ladder, making China's strategy a bitter pill to swallow.

Backlash in the Developing World

Developing countries fear the same "China Shock" that gutted U.S. industries over two decades ago. Economists estimate that between 1999 and 2011, the U.S. lost more than two million jobs due to Chinese import competition. Now, countries like Thailand and Brazil are seeing similar patterns.

  • In Thailand, over 1,700 factories shut down from 2023 to the first quarter of 2024, according to KKP Research, due to the surge of Chinese goods. While new factory openings have offset some closures, the outlook remains challenging.
  • To counteract this wave, nations have implemented nearly 250 trade-defense measures since 2022, including tariffs, antidumping investigations, and antisubsidy probes, according to Global Trade Alert.

Brazil’s Double-Edged Sword

Despite close ties between Brazilian President Luiz Inácio Lula da Silva and Chinese leader Xi Jinping, Brazil has taken action. The country has raised tariffs on auto parts, telecommunications equipment, and steel, despite benefiting from trade deals and billions in Chinese investment.

  • Brazil's manufacturing, once a robust 36% of GDP in 1985, contributed less than 11% last year.
  • Steel imports are a particular sore spot, as it's often cheaper to send iron ore to China and re-import it as steel than to produce locally.
  • Indonesia has also been vocal in its opposition. In October, it banned Temu, a Chinese-origin app delivering cheap goods directly to consumers, citing predatory pricing risks.

Officials are exploring tariffs of up to 200% on certain Chinese goods, including textiles and ceramics. However, fears of retaliation have tempered action, with ministers clarifying that any measures wouldn’t specifically target China.

The Role of Chinese Investment

China has extended billions in loans and investments to the Global South, pitching itself as a more reliable partner than the U.S. Bangladesh secured a commitment from China to import its mangoes, while Peru celebrated a vast new Chinese-funded deep-water port. However, many developing countries remain frustrated that China clings to low-end manufacturing, blocking their path to growth.

  • Economists point out that China's share of global goods exports rose to 15% in 2023, up from 13% in 2019, as it continues ballooning production. Developing nations, which hoped to fill the void left by China's economic maturation, feel increasingly "stuck."
  • There might a lack of opportunity for emerging economies to export those low- to mid-end products," said Camille Boullenois of the Rhodium Group.
  • China's efforts to shore up its factory sector amidst domestic economic troubles, including a real estate bust, have pushed it to lean harder on the developing world for exports. With trade tensions escalating and tariffs on the rise, Beijing’s ambitions to lead the developing world are being challenged at every turn.

For developing nations, the path forward involves balancing trade reliance on China with protecting domestic industries, all while avoiding retaliation that could jeopardize vital commodity exports. As these tensions mount, China’s alliances are growing more fragile, just as it seeks support to counter U.S. trade policies.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by CHUTTERSNAP / Unsplash.