The Coming Clash Between China and the Global South

Chinese President Xi Jinping has promised to open his country’s vast economy to the world’s emerging nations, pledging on Sept. 5 to introduce a regime of zero tariffs for the world’s least developed countries. The move, unveiled as dozens of leaders gathered at the China-Africa summit in Beijing, seemed deliberately designed to contrast China with the United States, which has largely abandoned its role as a champion of free trade as it drifts toward protectionism. But Xi’s promise also aimed to counter growing alarm among emerging countries that major shifts in global trade flows—as China’s export-heavy economic model meets Western resistance—now risk swamping much of the global south with cheap Chinese goods and undermining their fragile progress in economic development.

As Beijing tries to restrict massive overinvestment in real estate and unproductive infrastructure, it is currently plowing huge sums into advanced manufacturing—or what it dubs “new quality productive forces.” The West has responded tersely, accusing China of stoking excessive production and dumping surplus goods abroad. Leaders across Europe and North America are racing to erect tariffs on items including electric vehicles and solar panels. But as barriers go up in the rich world, many in emerging markets fear that excess Chinese production will head their way instead, and they are thus beginning to resort to protectionist measures of their own. This in turn creates a major strategic dilemma for China, as policies designed to rescue its domestic economy threaten to undermine its ties with the global south—a critical geopolitical battleground with Washington.

Examples of emerging nations alarmed about what some are already calling “China Shock 2.0”—paralleling the massive global economic shifts of the 1990s, when China first flooded world markets with cheap wares—are not hard to find. In July, Indonesia enacted import duties of up to 200 percent on textiles and other goods, citing unfair competition from China. A few months earlier, Chile imposed anti-dumping tariffs on Chinese steel. Mexico and Brazil have enacted similar measures. Others are preparing them: Thailand just established a new government body to examine restrictions on Chinese imports. India recently imposed a series of anti-dumping measures and has opened an array of further probes.

This marks a significant shift. Emerging markets from Southeast Asia to Africa and Latin America have long viewed China as an essential economic partner. Beijing has been a source of investment, not least via its sizable Belt and Road Initiative (BRI) infrastructure program. Indeed, in many cases it still is, despite a sharp cutback in BRI investments. Last week in Beijing, Xi pledged around $51 billion in credit lines and green investments for African countries, although he ignored calls for additional restructuring help for heavily indebted African borrowers. Cheap Chinese imports have generally been viewed as helpful for economic development, too, providing inexpensive goods to emerging market consumers and valuable components to industry.

At first glance, therefore, the new measures directed against Chinese imports might look like isolated cases of traditional protectionism, in which a few uncompetitive domestic producers cajole governments to shelter them from efficient foreign competition. But the sheer scale and range of China’s production capabilities mean that these anti-Chinese restrictions are different. Previously, accusations of Chinese dumping have tended to focus on single industries such as steel. Now, China’s burgeoning exports cover a bewildering array of products, from electric vehicles and green transition technologies to traditional manufacturing inputs and intermediate goods. The scale of these exports is growing, too, jumping to $309 billion in August, the highest monthly level in two years. Some “Chinese goods are so cheap that no amount of tariff can reduce their price competitiveness,” as India’s chief economic advisor, V. Anantha Nageswaran, wrote in the country’s annual economic survey in July.

Emerging markets are responding to a diverse range of pressures. Some, such as Chile, worry about the dumping of products such as steel. Others, such as Indonesia, are more anxious about what they view as unfair competition stemming from Chinese subsidies or are responding to pressures linked to attempts by Western nations to decouple from China. Either way, more emerging nations are likely to follow as barriers against China go up in the industrialized West. This will be especially true if former U.S. President Donald Trump wins the November election and hits China with the higher tariffs he has promised. Chinese exporters shut out of richer markets will then be forced to turn their attention elsewhere even more than they are now, creating new pressure on developed nations to respond with more tariffs of their own.

All this is especially challenging for trade-dependent economies in Asia, which have traditionally sought to integrate themselves closely with China. Exporting powerhouses such as Malaysia and Thailand rely on China for the goods that keep their factories running. But this also makes their own domestic manufacturing bases especially vulnerable as China moves into higher-end manufacturing. Poorer countries in Africa have relatively few industrial sectors competing with China. But Malaysian and Thai companies specialize in exactly the kinds of advanced manufacturing supply chains that China is now expanding. As a result, Asia is the region most “at risk from the knock-on effects of tariffs erected across the rest of the world,” as Sonal Varma, an economist at Nomura, put it recently. “Rising imports from China may hollow out the region’s manufacturing.”

China’s export surge risks deeper challenges, too. Developing economies are already struggling to cope with problems such as premature deindustrialization, a process in which manufacturing starts to decline even before the country has industrialized enough to reach an advanced level of income, driven in part by the new technologies replacing old-style manufacturing. Having domestic manufacturers replaced by cheap Chinese imports could well make this worse, making it even more difficult for emerging countries to escape what economists dub the middle-income trap.

For political leaders in the West, China’s export surge creates a potential geopolitical opportunity. Many fret that the West is losing touch with the global south, with the two driven apart by divergent views on challenges including Russia’s invasion of Ukraine and the Israel-Hamas war. Tackling the challenge of China’s export surge—which will increasingly affect both the West and the global south—creates a possibility to build a common agenda.

For China, the challenge is what to do. In theory, Beijing could dial back its policies and subsidies that favor exports or invest in local production in emerging economies. But its manufacturing export surge is in truth driven by urgent domestic political imperatives that will be hard to reverse. China needs to boost sagging economic growth and with it the legitimacy of the Chinese Communist Party and Xi’s regime. Favoring exports has been the go-to policy for decades, and the recent emphasis on advanced manufacturing makes it unlikely that Beijing will recast its current strategy without significantly more international pressure. Tariffs on the scale planned by Trump might persuade Beijing to rethink elements of its strategy, but measures by the likes of Chile or Indonesia are much less likely to do so. This leaves Xi facing an awkward choice: China can aim to win even more friends in the developing world and act as a leader of the global south, or it can plow forward with an economic plan that heavily refocuses its export-based growth model on advanced manufactured wares. But it is going to be exceptionally hard to do both.