In the last decade, China has rapidly upgraded and expanded its manufacturing base. From a competitive standpoint, this action makes the US a dominant player in the international market. In just four years, the nation has invested enormous fiscal resources into state-of-the-art manufacturing facilities. In addition to quickly constructing new facilities, they are modernizing their legacy facilities with the most technologically advanced systems. China’s heavy-handed or often merciless expansion strategy has created a willing and ready duplicative, competitive plethora of products. They now produce anything from cars and cell phones to fertilizers at an unsustainable pace.
China’s manufacturing expansion has been nothing short of amazing. State-controlled banks have injected close to $2 trillion in additional industrial financing, a scale so remarkable as to leap out and call for explanation. That capital coming into the space has really ushered in a new emphasis. Rather than residential building, focus is now shifting to industrial projects, as evidenced by new information from China’s central bank. Today’s announcement marks a continued strategic shift towards building production capabilities over real estate investments.
As China increases its production, the effects are already being felt by other countries in the region. In Thailand, for example, the huge influx of Chinese imports has caused a stunning 50% drop in domestic manufacturing. This seemingly volatile disruption foreshadows a larger, more seismic, more permanent shift in global trade patterns.
Sadly, the United States is not immune to these positive developments. As the US Trade Representative’s Office itself has just admitted, exports to China fell almost 3% last year. This decrease was equal to $144 billion. At the same time, the US trade deficit shot up to a record high of $295 billion. These numbers do a pretty good job telling the story of how American industries have struggled against China’s manufacturing surge.
Faced with the serious challenge presented by China’s competitive practices, other nations have sought to defend their domestic industries. The European Union has raised tariffs on Chinese electric vehicles to 45.3%, aiming to shield its automotive sector from the influx of cheaper imports. Brazil’s duty increases target specific Chinese exports including metal and fiber optic cable exports. At the same time, Mexico has been considering whether it should start setting its tariffs to match those of the United States. Thailand has suggested shifting the goalposts of its free trade zones. They would like to see a 7% duty on low-value goods shipped into the country from China.
Despite all odds, China’s export performance continues to break records. In 2023 it reached a record annual growth rate of 13%, and analysts predict a stunning 17% surge in 2024. Exports account for roughly 20% of China’s GDP, highlighting how much the country is dependent on outside markets to feed its economic growth.
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