Capital Economics has issued a stark warning, indicating that regardless of who occupies the White House, China’s burgeoning exporting prowess is paving the way for another potential trade showdown with Washington.
Growing Exporting Power
Despite apparent stability in Chinese exports, customs data reveal a significant surge in surplus-to-GDP ratios, reaching near-record highs. This surge is attributed to the pandemic-induced manufacturing boom in China, where output has soared by over 25% since 2019.
Shift in Economic Strategy
China’s focus on bolstering its manufacturing sector as an alternative source of growth, particularly amidst concerns about the debt-ridden property market, signifies a strategic pivot. This shift aims to prioritize national security imperatives, develop domestic chip ecosystems, and fortify advanced manufacturing capabilities.
Potential Global Disputes
Experts like Leland Miller from China Beige Book and Neil Shearing from Capital Economics foresee potential global disputes stemming from China’s strategy to offload surplus production. With domestic consumption lagging, China must seek foreign markets to absorb excess output, increasing pressure on major buyers like the US and Europe.
Reliance on US Consumers
China’s heightened dependence on US consumers, constituting 15% of global manufacturing exports, amplifies the strain on Western markets. Shearing emphasizes that China’s exporters now rely more heavily on US consumers than at the onset of the trade war, exacerbating the trade deficit between the two nations.
Outlook for Trade Relations
The prognosis suggests that the US-China trade deficit will persist, prompting concerns for any incoming administration. Former President Trump proposed imposing substantial tariffs, with potential rates as high as 60% on Chinese goods. Despite changes in leadership, many of the policies enacted during Trump’s tenure continue to influence US-China trade dynamics, signaling a potential escalation in tensions in the near future.
