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Introduction

China’s record trade surplus—crossing $1 trillion in 2024—reflects not only its manufacturing prowess but also deep structural imbalances, marked by weak domestic demand and export dependence. In an evolving global trade order, this dynamic fuels concerns of “China Shock 2.0.”

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China’s Trade Surplus & Evolving Global Trade Order

• Export-Led Overcapacity: China’s surplus stems from excess industrial capacity amid subdued domestic consumption.
  Eg: China’s weak household demand pushing firms to dump exports globally.
• Fragmented Globalisation: Geopolitical tensions have shifted trade from multilateralism to friend-shoring and regional blocs.
  Eg: US–EU industrial policies responding to China’s export surge.
• Subsidy-Driven Competitiveness: State subsidies distort prices, undercutting competitors in clean tech and electronics.
• Trade Defence Revival: Countries increasingly deploy anti-dumping duties and safeguards against Chinese imports.
  Eg: India’s frequent use of trade-remedy measures on Chinese goods.

Concept of China Shock 2.0

• Advanced Manufacturing Focus: Unlike earlier low-end exports, China now dominates EVs, batteries, solar modules.
  Eg: China Shock 2.0 as technology-intensive, not labour-intensive.
• Global Price Suppression: Excess supply leads to deflationary pressures in global manufacturing markets.
  Eg: Falling global prices of steel and solar panels.
• Job Displacement Risks: Manufacturing job losses extend beyond the West to emerging economies.
• Policy Backlash: Industrial nations respond with carbon taxes, tariffs, and local-content rules.
  Eg: US Inflation Reduction Act targeting Chinese supply chains.

Positive Impact on the Global South

• Affordable Imports: Cheaper Chinese goods reduce input costs for infrastructure and renewables.
  Eg: Lower solar deployment costs in Africa and South Asia.
• Technology Diffusion: Access to EVs, batteries, and telecom equipment aids industrial upgrading.
  Eg: Global South’s rapid EV adoption via Chinese supply.
• South–South Trade Expansion: China’s surplus strengthens trade with developing economies.
  Eg: Rising Chinese exports to ASEAN, Africa, and Latin America.
• Infrastructure Financing: Export strength supports China-backed infrastructure projects.
  Eg: Surplus-driven capital to Belt and Road investments.

Negative Impact on the Global South

• Deindustrialisation Pressure: Local industries struggle to compete with underpriced Chinese imports.
  Eg: Risks to MSMEs in textiles and light manufacturing.
• Trade Deficits: Import-heavy trade deepens current account stress.
  Eg: Widening trade gaps for India and African economies.
• Limited Job Creation: Capital-intensive Chinese imports generate fewer local manufacturing jobs.
• Policy Space Erosion: Dependence reduces autonomy in industrial and trade policymaking.
  

Conclusion

China’s trade surplus reflects a paradox of strength-driven imbalance, reshaping global trade through China Shock 2.0. For the Global South, it offers affordability and technology access but risks industrial erosion. Strategic industrial policy, diversification, and calibrated protection remain essential to convert exposure into sustainable growth.

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