Andy Xie

Opinion | US-China trade war could be the death knell for advanced economies

As the US steps up support for national industries and expands tariffs on China, its high-income allies could lose their pricing power

Reading Time:3 minutes

Why you can trust SCMP

US President Joe Biden, South Korean President Yoon Suk-yeol and Samsung’s vice-chairman Lee Jae-yong visit a Samsung industrial site in Seoul, South Korea, on May 20 2022. Losing access to China’s market, as well as increased Chinese competition and decreased exports to the US, could hollow out the economies of industrialised nations. Photo: EPA-EFE

Andy Xie

Published: 8:30pm, 2 Aug 2024

The US’ China containment strategy and its shift towards re-industrialisation are shrinking the market for competitive industries in high-income economies. Ultimately, these economies could face increasing competition with a technologically independent China, as well as higher prices for raw materials.

The squeeze on multiple fronts may push them into middle-income status. Currencies such as the yen, the euro, the won and even the New Taiwan dollar have been on trajectories similar to that of a secular bear market.

High-income economies, such as Germany, Japan and South Korea, carved out their competitive niches in the US-centric global economy after World War II. They achieved an edge with pricing power in specific areas such as technology, manufacturing or branding.

Pricing power in the right sectors is the key to reaching high-income status. After China launched the reform and opening up policy four decades ago and entered the global economy, the advantages that high-income economies had gained were amplified. Costs were lowered by some of them shifting production to China.

This equilibrium has been under stress with China’s rapid technological development and improved manufacturing sophistication. The price war in China’s car market is a good example. The market is the biggest in the world and has been dominated by multinational companies for decades. They produced cars in China at low cost and sold them at high prices. The rise of Chinese car manufacturers has changed that dynamic. Global carmakers now face a prolonged crisis.

The US’ containment strategy towards China is another blow to these advanced economies. The US wants to dent or reverse China’s tech rise. One method of doing this is cutting off China from the hi-tech supply chain.