China's trade landscape in 2024 showcases its formidable manufacturing prowess, yet it grapples with significant challenges posed by international tariffs. With a trade surplus of $1 trillion (£788 billion), China stands as a global manufacturing powerhouse. Its exports have surged, reaching a staggering $3.5 trillion, far surpassing its import bill. However, this economic giant is facing headwinds as the United States imposes a 20% tariff on Chinese imports, prompting China to retaliate with its own tariffs ranging from 10-15% on U.S. agricultural goods, coal, liquefied natural gas, pick-up trucks, and certain sports cars.
China's vast network of factories, assembly lines, and supply chains has established it as a market leader in the production of high-end technology at competitive costs. Despite the U.S. being the top destination for Chinese exports, accounting for a significant portion of its earnings, China recognizes the need to broaden its trade horizons. It has been cultivating trade relationships with Europe, Southeast Asia, and Latin America to mitigate the impact of U.S. tariffs.
"The combination of globalisation, as well as China's pro-business policies and market potential, helped to attract the initial wave of foreign investors." – Chim Lee, an analyst at The Economist Intelligence Unit
China's investment in infrastructure has been substantial, creating an intricate web of roads and ports to support its export activities. This infrastructure development supports not only domestic growth but also aids in circumventing tariff barriers by facilitating the relocation of manufacturing operations. Vietnam emerges as a pivotal player in this strategy, with many Chinese factories relocating there to bypass U.S. tariffs.
"Vietnam is the key here. If tariffs are imposed on Vietnam, I think it will be very tough," – Ms Garcia-Herrero
However, China's journey is fraught with complexities. Accusations of flouting international trade norms have arisen, notably when China imposed a tariff exceeding 200% on Australian wine imports in 2020. These actions have drawn criticism and scrutiny from the global community.
Internally, China's economy faces challenges as domestic consumption fails to meet expectations. Despite Beijing's announcement of stimulus measures aimed at boosting consumer spending, economic rebalancing remains an arduous task. The tariffs imposed by the U.S. threaten to dampen overseas demand and potentially shrink China's trade surplus.
"The tariffs will hurt China," – Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis in Hong Kong
"They really need to do much more. They need to do what Xi Jinping has already said – boost domestic demand." – Alicia Garcia-Herrero
China has been adapting to varying degrees of U.S. tariffs over the years, having faced similar challenges during former President Trump's first term in office. Its ability to pivot and adapt is evident as it continues to explore new markets and opportunities beyond traditional partners.
"Not only is China the big exporter, it is sometimes the only exporter like for solar panels. If you want solar panels you can only go to China," – Ms Garcia-Herrero
While China's export-driven economy holds substantial influence globally, it must balance external pressures with internal reforms. Strengthening domestic consumption and maintaining international competitiveness are critical to sustaining its economic momentum.
"It's really difficult to find a replacement… China's status as a market leader is very difficult to topple." – Shuang Ding, chief China economist at Standard Chartered