China dominates global manufacturing, contributing 32% to global value added and holding a $1 trillion trade surplus. While it excels in high-tech and basic goods, its consumption lags at 12%, relying heavily on exports. As Western nations impose trade barriers, China shifts focus to the Global South, targeting growing markets like India. India faces a $100 billion trade deficit with China and must safeguard its industries by boosting manufacturing. Navigating these dynamics is crucial for fostering growth and protecting jobs.
China has firmly established itself as the world's manufacturing and export powerhouse, achieving an extraordinary goods trade surplus of $1 trillion—a figure nearly triple what it was before the COVID-19 pandemic. This massive surplus includes significant balances such as over $300 billion with the United States, exceeding $200 billion with the European Union, and approaching $500 billion with countries in the Global South. The few notable exceptions to China's trade surplus are Taiwan and South Korea, primarily due to heavy imports of semiconductors and electronic components, and Australia, from which China imports substantial quantities of commodities.
Today, China's manufacturing sector generates an impressive 32% of global manufacturing value-added, significantly surpassing the United States at 15%. Japan and Germany follow far behind, with only 6.5% and 4.5%, respectively. China's manufacturing output is therefore more than double that of its nearest competitor. This phenomenal growth has occurred rapidly—back in 1995, China's share of global manufacturing production stood below 5%, trailing behind major economies like the US, Germany, and Japan.
China's manufacturing dominance extends across both advanced technology products and basic goods. It holds commanding market shares of approximately 65% in sectors such as electric vehicle batteries, solar panels, and electrical equipment, while also controlling around 50% of global production in apparel and basic materials. Astonishingly, China's manufacturing capability is about ten times that of India. However, a critical imbalance exists: although China produces about 32% of global manufactured goods, it consumes only 12%, making its economy highly reliant on exports for growth and stability.
With Donald Trump back in office and broader skepticism toward globalization growing in Western countries, concerns over declining manufacturing competitiveness have gained momentum. For the US and Europe, the loss of manufacturing jobs raises issues around national security, supply chain vulnerabilities, and threats to middle-class prosperity. Manufacturing employment in the US has dipped below 10% of the workforce, sparking fears of further deindustrialization and the erosion of well-paying jobs.
Yet, despite these pressures, China has successfully adjusted its export strategies. Over the past several years, its trade surplus with the US and the EU has remained relatively stable, while its surplus with the Global South surged dramatically—from $300 billion to around $500 billion. Interestingly, this increase does not reflect significantly greater internal demand in the Global South; instead, it highlights how China has cleverly redirected exports bound for Western markets through these developing regions. Supporting this view, data reveals that the rise in China's surplus with the Global South coincides with an increase in the Global South's own surplus with the US.
The West, however, is increasingly determined to counteract this strategy. Recent actions, such as pressuring Mexico into imposing tariffs on Chinese imports and the EU's tariffs on Chinese electric vehicles, illustrate a growing effort to restrict China's indirect access to Western markets. As these protective measures intensify, a critical question emerges: if Western markets become less accessible, where will China direct its vast manufacturing output?
China cannot simply curtail its manufacturing operations; the sector employs over 22% of its labor force and contributes more than 26% to its GDP. Nor can Chinese domestic consumption alone absorb the excess production. Even if internal consumption rebounds, it would still fall short of matching China's enormous manufacturing output. Moreover, exporting remains considerably more profitable than domestic sales due to fierce competition within China's internal market.
The logical answer to this predicament lies in expanded trade with the Global South, a region characterized by rapid economic growth and a burgeoning middle class. Already accounting for over a fifth of global consumption, these emerging economies represent an ideal destination for China's surplus production. Rather than using the Global South merely as transit hubs for Western markets, China is now shifting its approach to directly cater to rising consumer demand within these regions.
China's impressive economies of scale, technological advancements, and competitive pricing make it particularly well-positioned to dominate these markets. Although Western nations may increasingly prevent higher-value Chinese imports to protect their industrial sectors, they still depend heavily on China for lower-value goods like apparel and chemicals, which cannot be cost-effectively produced domestically or elsewhere.
Among countries in the Global South, India represents the largest and potentially most lucrative market. India currently has a substantial trade deficit of over $100 billion with China, accounting for roughly 10% of China's total trade surplus and nearly half its surplus with the EU. As Western economies erect more barriers, China will likely intensify its focus on India, especially in higher-value product categories. This scenario presents significant challenges for India's economy, requiring careful management to prevent domestic industries from being overwhelmed by inexpensive Chinese imports.
India's domestic manufacturing sector needs sufficient time, resources, and government backing to effectively compete. Though the Indian government acknowledges these risks, current anti-dumping duties and non-tariff measures tend to be slow and inadequate. Meanwhile, private investors remain cautious, hesitant to enter manufacturing sectors out of concern about Chinese competition.
Addressing these challenges requires India to prioritize strengthening its manufacturing base urgently. Increasing India's share of global manufacturing output is essential for creating meaningful employment and reducing reliance on imports. As China faces enhanced restrictions in Western markets, India must decisively protect its domestic industries and strategically foster longer-term economic resilience.
China's unparalleled manufacturing strength has reshaped global trade dynamics profoundly. As nations worldwide increasingly erect barriers to protect their own economies and supply chains, India and other Global South countries must carefully navigate these emerging tensions. For India, success lies in boosting manufacturing capacity, encouraging innovation, and ensuring fair competition amid China's growing economic influence.
Comments