China has overtaken the United States in global exports of manufactured goods: Implications.

By Edward Chisanga

Introduction

The colloquy among Zambians is often about why President Hichilema should visit China and keep the existing Zambia-China partnership that he found established by the first Zambian President and enhanced by those that followed while others question the partnership is some aspects. They equally debate Zambia’s partnership with the USA with others questioning it too.

But few if any are engaged in a colloquy to understand the reasons for the often-razor-edged relationship between China and the USA in which Zambia finds itself entrapped. Of course, many in general will know that the bigger picture explanation is the tussle for global hegemony. This is characterized by several detailed factors.
Why is America afraid of China?

In his article, “Why is America so scared of China,” Milton Ezrati states, “More and more, Americans seem to fear China. In one sense, their reaction is understandable enough. As China has gained power – economic, technological, and military.”

I know one additional factor that Milton misses out in his listing and which most Zambians are not colloquizing about. As I said earlier, many reasons explain why America is afraid of China. But trade often finds itself playing second fiddle. Here, I intend to heighten its role and remind readers how former President of America, Mr. Trump tried to do so in the trade war between his country and China, although I have no intentions of replicating his behavior.

In 2001, the USA allowed China to become member of the World Trade Organization (WTO) under unfriendly terms. What the USA may have overlooked is although the ticket given to China was costly, in terms of conditions for accession, it created a monster that would come to haunt it. China has been member of WTO for a very short time in comparison with the USA and Zambia. Zambia became member in 1995 when it was established.

Since then, China has effectively used the WTO’s objective of reduced tariffs to become number one in global exports of manufactured goods, making the USA a follower. Some argue that the quality of China’s manufacturing cannot match that of the USA. Perhaps true, but in absolute terms, China has overtaken the USA in global exports of manufactured goods (See Figure 1 below). According to UNCTADstat data source, in 2021, China’s proportion in world exports of all merchandize was 15% compared to 8% for the USA. In world exports of manufactured goods, China’s share was 21% shown in Figure 1 relative to 7% for the USA. Yet, in 2001 when it acceded to the WTO, the shares were only 5% for each.

Reporting about global manufacturing output in 2019, Felix Richter says, “China is the world’s manufacturing superpower. According to data published by the United Nations Statistics Division, China accounted for 28.7 percent of global manufacturing output in 2019. That puts the country more than 10 percentage points ahead of the United States, which used to have the world’s largest manufacturing sector until China overtook it in 2010.” The date Mr. Richter is referring to is contained in Table 1 below.
Table 1: Top 10 countries by share of global manufacturing output in 2019

In absolute terms, he adds, “With total value added by the Chinese manufacturing sector amounting to almost $4 trillion in 2019, manufacturing accounted for nearly 30 percent of the country’s total economic output. The U.S. economy is much less reliant on manufacturing these days: in 2019, the manufacturing sector accounted for just over 11 percent of GDP.”

Implications

As said earlier, many important reasons spark the toxic relationship. But, equally important is that China’s extra-ordinary performance over the last years is a major thorn in the USA flesh with some implications. If Zambians think that the tussle for global hegemony between the two is only what they see here in their country, they better think again because in the World Trade Organization (WTO), that makes and manages international rules in trade, something has been brewing.

Reports Tom Miles, “The United States proposed a reform of the World Trade Organization on Friday that would slash the number of countries that are eligible for special and differential treatment (S&D), a plan likely to be resisted by China, India, and other countries. The United States has long complained that WTO members can self-designate as “developing countries”, entitling them to a range of benefits and lenient treatment at the WTO.” He continues, “Most of the WTO’s 164 members claim to be developing, including major trading powers like China and India and some of the richest countries in the world, such as South Korea, Saudi Arabia, Brunei, Hong Kong, Qatar and Oman.”

He goes on, “Special and differential treatment (S&D) entitles developing countries to longer time periods for implementing agreed commitments, measures to increase trading opportunities, and twice the number of agricultural subsidies available to developed countries. The U.S. draft reform posted on the WTO website said current and future trade negotiations should withhold such special treatment from countries classified as “high income” by the World Bank, OECD members or acceding members, G20 nations and any state accounting for 0.5 percent or more of world trade.”

China has its own rebuttal argument, that despite its breakthrough in global manufacturing, developed countries must be cognizant of its huge population of almost one billion people and its implications. One is that its gross domestic product per capita was only about US$10,000 in comparison with about US$ 63,000 for the USA in 2019. Some argue that China must behave like a good member that gains from the system and reciprocates by loosening its import tariffs especially on manufactured goods for other members to benefit too instead of hiding behind the mask of developing countries.

And finally, the USA paper in the WTO is not dead. It was postponed by Covid19 which impacted international meetings too. My bet is that it will soon come again. For Zambia, the toxic relationship between the two elephants fighting means it’s the small grass that finds itself in between, with its leadership grappling to make key decisions for its citizens.