The ongoing US-China trade war is forcing China’s exporters to redirect some US-bound goods through other countries, creating a potential flood of inexpensive Chinese imports into emerging markets. This diversion, involving up to US$560 billion in annual exports, is already disrupting manufacturing growth and fueling disinflation in 45 economies globally.
Key Insights:
- Manufacturing Slowdowns: Countries experiencing large increases in Chinese import shares have faced sharp slowdowns in local manufacturing growth, even before President Trump’s second term.
- Trade War Impact: While China’s share of US imports dropped from 25% in 2017 to 16% in 2024 due to tariffs, its overall share of global exports stayed near all-time highs, as China penetrated new markets.
- Export Diversion: Around US$100 billion of China’s exports are rerouted to the US via Mexico and ASEAN to avoid tariffs, with a further US$460 billion at risk across the EU, UK, Canada, and Japan.
- Economic Consequences: The influx of cheap Chinese goods drives fierce local competition, leading to price cuts, profit erosion, job losses, and production shutdowns. This also pressures trade balances, inflation, and government budgets.
- Policy Challenges: Retaliatory tariffs are difficult to impose due to China’s role as a critical trading partner and major foreign investor in infrastructure projects.
- Southeast Asia & Mexico: These regions have so far cushioned the blow through robust FDI as production hubs but face new risks with potential US tariff hikes targeting countries perceived as tariff circumvention points.
