China, explained.
China's automation of low-end industries will be bad for US-reliant textile exporters (VCG via Getty Images)
Those looking for relief from US tariffs will run up against China’s mercantilism and structurally weak demand.
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Global trade: Why China can’t (and won’t) come to the rescueGlobal trade: Why China can’t (and won’t) come to the rescue
China has not missed the opportunity posed by the United States’ economic self-immolation to present itself as a responsible champion of the international trading system.
Mid-April, shortly after the Trump “Liberation Day” tariffs were announced, saw the unusual spectacle of trade ministers from China, Japan and South Korea pledging to protect free trade – ostensibly creating a renewed impetus to negotiate a long-stalled trilateral free trade agreement.
Beijing has also removed self-imposed obstacles to an otherwise moribund trade and investment pact with the European Union. China even had the audacity to enjoin Australia to jointly resist President Donald Trump’s tariffs, just over six months after removing the last vestiges of Covid-19-era trade barriers.
The perversity of 2025 is such that China’s campaign of economic coercion against Australia looks calculated and sober compared to some of the capricious spasms emanating from the White House. The China de-risking agenda, has at least for now, been superseded by a new imperative to de-risk from the United States.
China’s ambition to achieve self-sufficiency and capture global market share across the breadth of the modern industrial economy was unabashedly crystallised in its Made in China 2025 strategy.
This is all grist for the mill for China’s public messaging and diplomatic posturing. Taken at face value, China is open for business and ready to help victims of US tariffs find new markets. But salutary optics can only go so far in obfuscating economic reality. The attractiveness of the Chinese export market has had huge caveats attached to it for some time.
Take Germany, South Korea and Japan – all export-orientated economies with a lot to lose from Trump’s tariffs and who Beijing appears intent on wooing. Across the decade from 2013 to 2023, Japan and South Korea both saw their exports to China decrease in nominal terms.
Germany’s exports rose by 13 per cent, a decline when adjusted for inflation. In fact, a more granular examination of German export data shows that Germany Inc’s China-bound exports have essentially remained stagnant since 2012. Across the same time period, German exports to the European Union and the United States have registered much more appreciable growth.
China’s ambition to achieve self-sufficiency and capture global market share across the breadth of the modern industrial economy was unabashedly crystallised in its Made in China 2025 (MIC25) strategy, launched in 2015. MIC25 has succeeded in key areas, albeit with considerable wastage and without making China’s economy more productive. China has dramatically reduced import dependency in most targeted sectors since 2015, even if it remains some distance from the cutting edge (with a few very notable exceptions, including electric vehicles, drones, rare earths processing and solar panels).
MIC25 is not merely a product of President Xi Jinping’s China – it was built on solid autarkic foundations. China’s imports of manufacturing goods peaked as a share of GDP more than two decades ago, in 2003.
Export-orientated economies are losers from Trump’s tariffs (Anna Moneymaker/Getty Images)
Other economies have traditionally ceded market share in more labour-intensive and lower-tech sectors as they have moved up the value chain. But in 2023, Xi explicitly rejected the categorisation of traditional industries as “low end” and called for the upgrading of these industries through automation. This is bad news for major US-reliant textile exporters such as Bangladesh and Cambodia, who have previously grabbed market share from China.
So who has benefited the most from the China market?
In the decade to 2023, Taiwan, Malaysia and Vietnam recorded healthy increases in China-bound exports – though the latter two have both seen their manufacturing-based exports plateau since 2019. The intricacies of regional trade, whereby goods often cross borders multiple times before being exported to Western markets, may make China-bound export figures look better than they otherwise would.
Undertaking meaningful steps to increase consumption’s share of Chinese GDP would also provide solace for exporters facing US tariff uncertainties.
The countries that have benefited most from China-bound exports in recent years have overwhelmingly been commodities exporters. Russia (especially since 2022), Brazil, Australia and Indonesia all stand out here. More recently, Argentina and Brazil have moved to position themselves as alternative suppliers of agricultural commodities that China previously sourced from the United States.
China’s own reliance on US-bound exports – including direct shipments and supply chains feeding into the United States via Southeast Asia and Mexico – has prompted renewed calls for Beijing to finally get serious about raising consumption. China’s consumer spending is only around 40 per cent of US levels. This is despite boosting consumption being a stated priority for Beijing since 2004.
Undertaking meaningful steps to increase consumption’s share of Chinese GDP would also provide solace for exporters facing US tariff uncertainties. Higher consumption doesn’t only mean more demand for foreign goods. In the Chinese context, it also applies a diminution of the largesse lavished on manufacturers, often at the expense of China’s social safety net.
Yet there is little sign that Beijing has any intention to make fundamental changes to China’s growth model. Thus far, Beijing has prioritised producers over households in its response to the trade war. Measures that overwhelmingly favour producers over consumers may ultimately further entrench Chinese exporters’ cost advantages – as occurred during Covid-19.
Exporters facing diminished access to the US market may soon be presented with even fiercer Chinese competition on their home turf.
About the author
Henry Storey
Henry Storey is Manager - Projects, Research and Analysis at Dragoman with a focus primarily on Asia and the South Pacific.
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