2 words explain China export ‘surge’: Global South

Contrary to a meme that’s popular among Western policy analysts, there is no Chinese “export surge.” China’s exports to developed markets have stagnated for years, but have doubled to the Global South. 

Not only have China’s exports to the Global South in total risen by an unprecedented margin, but its exports to every region of the Global South – Asia, Latin America, Africa, Middle East/North Africa and Central Asia – have risen in lockstep

Some of China’s export success in the developing world, to be sure, reflects a new kind of triangular trade motivated by the 25% tariff on some $200 billion of Chinese imports that the Trump administration imposed in 2019. China ships components and capital goods to Mexico, Vietnam, India and other countries, which then assemble them into finished products for sale in the United States.

Asia Times first documented this grand circumvention of US tariffs in an April 3, 2023 analysis. Since then the World Bank, International Monetary Fund, Bank for International Settlements and the Peterson Institute have published studies documenting the same conclusion: America is more dependent than ever on Chinese supply chains.

China’s exports to the Global South (left-hand scale) are tracked by US imports from the Global South (right-hand scale), with a lag of about two months. China’s exports to the Global South have jumped from about $90 billion a month in 2020 to $150 billion a month today, or by $60 billion a month. About half of that, or $30 billion a month, shows up as higher US imports from third countries. Tariff avoidance through the extension of Chinese supply chains to the developing world, that is, explains about half of China’s export growth to the Global South.

The other half comes from industries that China has come to dominate during the past several years:

• electric vehicles,
• solar panels,
• digital infrastructure,
• transportation infrastructure and
• electronic equipment. 

Remarkably, this grand rotation of Chinese trade – the most significant development by far in the world economy in absolute numbers – has occurred almost without comment by American analysts.

Virtually every policy shop in the United States signed off on a consensus view of China that proved as wrong as any forecast could be wrong.

The consensus, expressed regularly on Fox News by Gordon Chang and promulgated in books by Axios’ Bethany Allen and Dan Blumenthal of the American Enterprise Institute, as well as a host of minor pundits, stated that China was in decline if not crisis, and that America’s restrictions on export of advanced chips would frustrate China’s technological ambitions.

China not only worked around the tech sanctions, but it also worked around US tariffs. China has had a plan, expressed at a high level in the Belt and Road Initiative, to replicate some aspects of its industrialization in other countries of the Global South, or what I called “Sino-forming” in my 2020 book, You Will Be Assimilated.

In 2015 I toured Huawei’s sprawling Shenzhen headquarters with a group of Mexican diplomats. We saw their product line and listened to a lecture about Mexico’s deficiencies in digital broadband and the great things it might accomplish with cheap high-speed data.

I complimented the presenter on the thoroughness of the study and asked casually whether Huawei had prepared this material just for the occasion. “No,” I was told. “We have digital plans for 100 countries. You can look them up on our website.”

China’s export success in the Global South, in short, is the economic equivalent of Babe Ruth’s apocryphal pointing to left field, followed by a home run in the same direction. 

The sheepish silence of American analysts on the subject isn’t simply an expression of ignorance or sloth. It reflects an unwillingness to own up to a catastrophic, collective policy failure. Virtually the whole of the American policy community decided that China’s rise as a world power should be restrained, and that a clampdown on exports of American technology would keep China down.

The first shock came after the Trump Administration stopped the export of advanced chips to Huawei, preventing it from manufacturing 5G-capable chips that it designed in-house and manufactured in Taiwan. Because Taiwan’s dominant foundry SCMP used American technology in the manufacture of Huawei’s 5G chips, Washington asserted extraterritorial control. Without access to advanced chips, US analysts thought, China would be unable to roll out its national 5G network.

Five years later, China has about 3.8 million 5G base stations in place, while the US has just 100,000. Huawei learned how to build base stations with older-generation chips manufactured in China.

The second shock came after Washington exercised the “nuclear option” of restricting advanced chips and equipment to all Chinese companies, not just Huawei, in October 2022. A year later, Huawei launched a 5G smartphone, the Mate 60, with an advanced 5G chip produced in China by a workaround process that American regulators had thought impossible.

The US policy community can’t admit that it was collectively, catastrophically wrong, and is groping for an explanation of Chinese success. That is the motivation for the popular meme that China has created “overcapacity” in manufacturing, and threatens the the world with a “second China shock,” as the Wall Street Journal wrote on March 3. 

The trouble with the notion of a “second China shock” is that China is exporting less, not more, to the developed markets with which it competes directly, and exporting a great deal more to the Global South, which has virtually unlimited demand for $10,000 electric vehicles, cheap solar panels and broadband infrastructure.

But promoting that notion is less embarrassing than looking at the obvious patterns in the trade data and drawing the conclusion that US policymaking towards China has been a humiliating failure.