Written by Amanda Katiraei
In November 2023, Chinese factories confronted overcapacity and a struggling domestic economy by boosting exports. These actions to boost their economy have created new trade tensions, particularly in industries like electric vehicles and solar panels. As manufacturers are now facing weakened domestic demand, they are aggressively cutting prices to gain traction in overseas markets, creating conflicts that are experienced globally. However, manufacturers in Western countries are having trouble competing with China’s increased exports, used to salvage China’s struggling economy. China’s increased exports have led to an anti-subsidy investigation on their electric vehicles from EU regulators, levies from the U.S. on tin-plate metal products, as well as investigations from India on how China dumped goods into their economy at prices that their domestic economy could not compete with. These actions from the U.S., the EU, and India, reflect the global concern of the impact of China’s exceptionally low-price products and how that will impact each nation’s respective domestic economy. China’s overcapacity problem along with large amounts of production in other countries threaten deep crises in industries in the future and growing geopolitical tensions.
Tensions in Key Regions
One notable area of tension is Europe, where the European Union has initiated an anti-subsidy probe (Xie and Fairless, 2023.) The concern revolves around a potential increase of low-cost Chinese electric vehicles in European economies, stirring fears of an unfair playing field. At the same time, the U.S. has imposed levies on tin-plate metal products from China, claiming that there were unfair pricing practices by Chinese steelmakers (Xie and Fairless, 2023.) These tensions have extended to India and Vietnam as well, where cases of the alleged dumping of Chinese goods are being investigated (Xie and Fairless, 2023.)
Price Wars and Government Support
Despite Chinese officials asserting that fair competition takes place, tensions escalate as prices of Chinese goods drop by ~20% in 2023 (Xie and Fairless, 2023.) To reinforce export initiatives, local governments are stepping in, subsidizing overseas trips for companies and encouraging bank lending for expansion. The depreciation of the yuan further emphasizes China’s export advantage (Xie and Fairless, 2023.) Excess production, specifically in batteries and excavators, is being supported by the Chinese government, raising concerns about potential oversupply with major consequences for global markets. This support from China’s government further emphasizes this divide of economic incentives between China and the West.
Economic Challenges and Global Apprehensions
Economists are apprehensive that a substantial expansion of Chinese exports could adversely affect production elsewhere, worsening global economic tensions. The size of China’s economy, compounded by strained relations with Western nations like the U.S. and internal challenges such as an aging population and high debt, intensifies these concerns (Xie and Fairless, 2023.)
Pressures on Beijing: A Decline in Exports
As China deals with declining exports, which fell 6.4% in October 2023, pressures fall on Beijing to stimulate domestic spending due to global economic uncertainty (Douglas, 2023.) Rising interest rates and global political conflicts in Ukraine and the Middle East continue to worsen this situation. Although recent stimulus measures led to a 3% increase in imports, economists argue that more notable efforts are needed to avoid a potential slowdown, especially given the current property slump affecting investment and consumer spending within the country’s GDP (Douglas, 2023.)
Economic Divergence and Global Risks
In a larger context, China has achieved a notable economic milestone by having a higher combined trade with developing countries that exceeds that of the U.S., Europe, and Japan combined (Douglas and Fairless, 2023.) This shift exemplifies a growing economic divide between China and the West, characterized by tensions over trade, technology, and security. While reducing reliance on Chinese supply chains brings potential benefits for the U.S. and Europe, such as decreased dependence and increased jobs, there are major risks, including slower global growth (Douglas and Fairless, 2023.)
Uncertainties
Major companies, particularly in European nations like Germany, are dealing with the impact of this production shift. German and Japanese automakers are experiencing a decline in their share of China’s auto market (Douglas and Fairless, 2023.) The economic split between China and the West, if worsened, could cost the global economy up to 7% of GDP, according to IMF research, which is worth billions of dollars (Douglas and Fairless, 2023.) Despite uncertainties, the shift in economic ties reflects large-scale political tensions, with both China and Western countries using their resources to strengthen their own economic and global positions.
Looking towards the future, popular brands and companies like social media company, TikTok, and fast-fashion clothing supplier, Shein, could face constrained growth from these ongoing tensions. This article displays that China and Western countries like the U.S. have worsening economic ties, putting many companies and workers in a vulnerable position. The increase in China’s exports to compensate for the condition of their economy has upset competitors in a way that continues to reinforce negative political relations.
Citations
Douglas, J. China’s Exports Tumble Again in Fresh Sign of Economic Trouble. The Wall Street Journal. https://www.wsj.com/economy/trade/china-exports-drop-more-than-expected-signaling-continued-headwinds-dc57b719?mod=trade_news_article_pos4
Douglas, J. & Fairless, M. It’s U.S. vs. China in an Increasingly Divided World Economy. The Wall Street Journal. https://www.wsj.com/economy/trade/economy-us-china-tariffs-trade-investment-1c58d24e?mod=trade_news_article_pos5#comments_sector
Xie, S. & Fairless, T. China Is Making Too Much Stuff—and Other Countries Are Worried. The Wall Street Journal. https://www.wsj.com/economy/trade/china-is-making-too-much-stuffand-other-countries-are-worried-f949cd27?mod=trade_news_article_pos3