Opinion
China’s export thrust is pushing tariffs up across Asia
Summary
- An influx of Chinese goods is making even governments friendly to Beijing raise trade barriers. Beijing’s subsidies for manufacturing to keep its economy growing mean overseas markets must contend with the overflow beyond its borders.
In Jakarta this July, textile workers took to the streets to protest imports of cheap Chinese apparel selling on e-commerce platforms that had laid the domestic industry low. Indonesian trade unions complain that a dozen or so factories have closed in the first half of this year, a cumulative loss of 13,000 jobs.
In response, the Indonesian government has raised tariffs to 100-200% on goods ranging from clothing to electronics. The media quoted trade minister Zulkifli Hasan as saying, “The United States can impose a 200% tariff… so we can as well."
It is a refrain playing out across Southeast Asia. Even governments such as Thailand’s are being forced to respond differently as industry-after-industry feels besieged by the Chinese export flood.
Also read: Mint Explainer: The mystery behind India’s flourishing trade with China
The military junta that ruled Thailand for more than a decade found it expedient to ally with Beijing, but will be forced to respond differently because of a groundswell of concern over Chinese imports.
An electric vehicle (EV) invasion from China has undermined Thailand’s automotive industrial base built over decades in partnership with Japanese players.
Smaller-value consumer goods from China have multiplied via e-commerce, meaning that even small local retailers in Asean often do not benefit from the business generated.
The South China Morning Post, the Hong Kong daily, reported that the Malaysian Retailers Association has publicly called on Kuala Lumpur to significantly raise duties on imported goods costing $115 or less from the 10% levy imposed in January.
The retailer’s association estimates it is losing 30% of its business to e-commerce portals selling goods shipped in from China. “Because we have not tightened up any rules or regulations, Malaysia has become a dumping ground for excess capacity from China," Ameer Ali Mydin of the Malaysian Retailers Association told the newspaper.
Two trends that have dominated China’s economic development have come to the fore.
Dating back to 1999, when I began following the Chinese economy as a foreign correspondent in Hong Kong for the Financial Times, experts have said that China needed to raise its personal consumption levels as a proportion of GDP and scale back its industrial model, which was too dependent on boosting growth through endlessly increasing capital expenditure and manufacturing and relying on export markets to soak up surplus production.
Instead, China’s total household consumption remains at just under 40% of GDP, compared with 60-70% in most developed countries.
Some economists argue that these cross-country comparisons underestimate the consumption of services in China. But when the gap is of such magnitude, that number still highlights Beijing’s inability to steer China’s economy to a more sustainable path.
The second more recent trend is the bursting of China’s property bubble. This means industries such as construction, steel and cement have slowed, prompting Beijing to raise manufacturing capacity in the expectation that exports will keep the economy growing.
In late August, the Wall Street Journal characterized this approach as “putting the country’s factory sector on steroids… squeezing businesses around the world and raising the spectre of a trade war."
While newspaper headlines have suggested that a trade war is primarily an extension of an increasingly fractious US-China relationship, this is only part of the story.
Also read: The China challenge: Fix India’s lopsided bilateral trade
Even countries like Pakistan have begun to investigate the low pricing of Chinese stationery and rubber, while Argentina and Vietnam worry about wind-tower and microwave oven shipments from China.
Meanwhile, the huge increase in capacity of EV manufacturing in China, more than twice its local demand, has rung alarm bells globally.
Thailand’s The Nation noted that in the first half of this year, its trade deficit with China reached $30 billion: “The impact of China’s economic situation is particularly concerning for four major Thai industries: steel, automobiles, hard disk drives, and petrochemicals."
Earlier, the Federation of Thailand Industry estimated that in 2023, imports from China contributed to the closure of nearly 2,000 factories.
Chinese diplomats have insisted that China’s exports are often capital goods, a point also made by New Delhi last week in trying to defend India’s continually rising trade deficit.
The truth is that both consumer and capital-goods industries in China are characterized by an export-or-bust mentality as Chinese firms seek to sustain cash flows as a shock absorber amid a property crash and consumption slowdown at home.
The bigger issue is that Beijing’s subsidies aren’t decreasing. Although industrial policy has spread across the world as a kind of follow-on infectious disease since covid, Beijing tops the global table with Olympian subsidies for a variety of industries.
Despite the International Monetary Fund’s recent suggestion that India should join trade groupings such as the Regional Comprehensive Economic Partnership, the evidence of 2023 and 2024 across the region by way of sizeably higher trade deficits with China argues against it.
Also read: Indian companies should reduce dependence on China, reiterates Jaishankar
Ceramic manufacturers in Thailand and garment makers elsewhere are baffled by how they can marshal a competitive response to Chinese rivals offering prices that are sometimes less than half theirs.
China’s producer price index released on Monday showed that prices fell 1.8% in August, the most since April, when they fell 2.5% year-on-year. Intensifying deflationary pressure in China is likely to fuel a round of tariff increases across Asia.
