In its rivalry with the US, China can leverage 3 advantages
- While on the surface, the US has reduced imports from China, it continues to depend on it indirectly
- China is a key supplier of electronic components to countries such as Vietnam and Mexico which export to the US, it dominates the production of rare earths and is part of the world’s largest free-trade bloc
Some might argue that the Chinese government should have lifted its zero-Covid policy gradually so the country was better prepared. However, it is also plausible that curbing the spread of the virus is untenable because it has mutated.
Instead of prolonging the agony, it may have been more effective to open everything at one go to stimulate the economy in the hope that a catastrophic loss of human life could be avoided if the Omicron variant is indeed less deadly.
Once herd immunity is achieved, China’s economic engine can reboot by leveraging three competitive advantages.
Beneath the surface, the US continues to depend on China indirectly as it becomes the key supplier of electronic parts and semi-finished products to countries such as Vietnam and Mexico. In 2021, Vietnam imported goods worth US$110 billion from China, but most of these imports are parts to be assembled into finished goods intended for export to the US.
Mexico imported over US$79 billion of goods from China between January and August 2022, representing a 28 per cent increase compared to the same period in 2021. Most of the imports were parts and semi-finished products to be assembled into cars and home appliances intended for export to the US.
Under the RCEP, tariffs among the members that ratified the partnership dropped to zero on more than 65 per cent of goods imported. Zero tariffs on 90 per cent of goods are expected in 20 years. China can leverage the free-trade agreement with Southeast Asian nations to increase trade within Asia.
Intraregional trade grew more than 31 per cent in the first three quarters of 2021, and trade within Asia made up 58.5 per cent of the region’s total trade in 2020, its highest share in three decades.
More importantly, since the US first placed 25 per cent tariffs on a range of Chinese goods in July 2018, China’s total trade with the US has declined. However, between July 2018 and November 2022, China’s total trade with these RCEP members, such as Indonesia, Malaysia and Vietnam, grew 71 per cent.
This growth is driven by the need for these Asian countries to import more parts for producing goods to be exported to the US. In addition, free-trade agreements ensure products imported from China are cheaper, making them even more appealing to price-conscious consumers in these Asian countries.
The scale and scope of the impact of China’s sudden end to its zero-Covid policy on human lives cannot be underestimated. But the urgent need to stimulate China’s economy cannot be trivialised either.
Let’s hope China can resume its economic growth without catastrophic human loss.
Christopher Tang is a distinguished professor at the UCLA Anderson School of Management