[Analysis by Nomura, a financial services group.]
- Some USD560 bn of China’s annual exports may need to find new markets, which can be disruptive to economies
- 45 countries that experienced large increases in their shares of imports from China are generally the ones that experienced the sharpest slowdowns in manufacturing growth and where evidence of disinflation was strongest
- This year, with a US-China trade war raging, the results illuminate just how exposed economies are to the flood of China imports turning into a deluge
With the US-China trade war in full force, many emerging economies, particularly those in Asia, are exposed to the flood of inexpensive Chinese imports turning into a deluge.
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Statistics suggest that China’s highly competitive manufacturers, far from retreating, have penetrated new markets around the globe to make up for lost orders in the US. Local manufacturers in countries outside the US – from EVs in Germany and steel in Brazil to toys in Vietnam and electronics in India – have been facing increasing competition from goods imported from China.
Over 2017-24, China’s exports to the US grew by a cumulative 21% to US$524 billion, whereas China’s exports to the rest of the world grew three times as fast, by 67% to US$1.2 trillion. We estimate some US$100 billion of this was then re-exported to the US via Mexico and ASEAN, as a way for companies in China to circumvent US tariffs.
Against this backdrop, and using 2024 data, if we assume that all of China’s indirect exports to the US via Mexico and ASEAN (US$100 billion), half of China’s direct exports to the US (US$262 billion) and a smaller, one-quarter of China’s total exports to the EU, UK, Canada and Japan (US$198 billion) are at risk, then in aggregate some US$560 billion of China’s annual exports would need to find new markets.
A sudden flood of Chinese imports into emerging market economies can be very disruptive. Faced with growing cut-throat import competition, the likely initial response by local firms would be to cut prices to maintain market share, but at the cost of reduced profits. This can be good news for consumers but over time, as local firms accumulate financial losses, they would need to downsize, cut back on jobs and capex, and ultimately many may need to close down.
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Going forward, these economies might become more vulnerable to cut-throat competition from China. The drum beat of anecdotes of this China shock is growing louder.
