The landscape of global trade is rapidly changing, marked by increasing protectionist measures from major economies. Amid claims from the United States and Europe about China’s overcapacity, the European Union (EU) has recently decided to impose temporary tariffs on imports of battery electric vehicles (BEVs) from China. Additionally, the U.S. and Mexico have announced joint measures to strengthen the North American steel and aluminum supply chain, with Mexico imposing 25% and 10% tariffs on steel and aluminum imports from China, respectively.

In recent years, trade barriers against Chinese goods have been escalating. Besides the U.S. and the EU, emerging economies such as Brazil, India, Mexico, and Indonesia have initiated anti-dumping investigations into low-priced Chinese goods. Since early last year, over 70 import restriction measures targeting China have been announced worldwide. Researchers at ANBOUND believe these protectionist practices signify a long-term trend driven by shifts in the global trade landscape, affecting not only U.S.-China or EU-China relations but extending globally. China must adapt to the changing world trade rules and prepare for long-term strategic competition.

Evolution of  Global Trade Landscape

The post-World War II momentum of global economic integration is waning, giving way to de-globalization and regional economic integration. Since the financial crisis, consumer demand in developed countries has weakened, technological advancements have surged, and developed nations have actively pursued reshoring of manufacturing. Concurrently, developing countries, especially China, have reduced their dependence on intermediate goods trade as they upgrade industries, leading to a slowdown in global trade growth and restructuring of global value chains.

Before the financial crisis, the global average ratio of imports to GDP grew at about twice the rate of global GDP growth. However, since 2011, this ratio has dropped below 1. According to the European Central Bank, global trade is unlikely to return to pre-financial crisis growth trends, with the slowdown expected to become the “new normal.” The concept of “close produce,” proposed by ANBOUND, indicates that the slowdown in global trade is accompanied by a restructuring of global value chains, moving production closer to terminal markets. This marks a shift from global economic integration to regional economic integration, inevitably spurring trade protectionism.

Increasing Momentum of Trade Protectionism

Trade protectionism is gaining traction globally. Even before former U.S. President Donald Trump initiated the trade war with China, the Obama administration had imposed hefty tariffs on Chinese steel imports and created obstacles in the Doha negotiations, favoring regional agreements like the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP).

Anti-dumping duties and import tariffs are the most commonly used protectionist measures, collectively accounting for about 30% of all measures. There has also been a rise in export subsidies, licensing or restrictions on foreign direct investment, and domestic clauses in public procurement, leading to a surge in trade distortions. According to Global Trade Alert, harmful trade interventions by governments have steadily increased since 2008, with a sharp rise starting in 2018. Overall, global harmful trade interventions surged from 199 in 2018 to 910 in 2023, a 357% increase. From 2009 to 2023, there were a total of 58,205 harmful trade interventions globally, with 1,752 targeting China, the highest number for any country.

Impact on Multilateral Trading System

Trade protectionism undermines the rule-based multilateral trading system established under economic globalization, specifically the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). Regional trade agreements are increasingly replacing the WTO’s global multilateral trade rules, accelerating the fragmentation of trade and industrial spaces. The Most-Favored-Nation (MFN) principle under the WTO multilateral trade system faces numerous challenges in the current international trade environment. The U.S. has questioned the MFN principle concerning China’s market access restrictions, trade imbalances, and intellectual property protection.

The COVID-19 pandemic heightened awareness of supply chain diversification risks. Amid the global economic downturn, unilateralism and populism have surged, with geopolitical factors increasingly dominating economic and trade issues. This has led to the reshoring of manufacturing, strengthening of economic and trade ties within alliances, and weakening of relationships outside these alliances. As a result, despite years of attempts, the Doha Round negotiations have failed, and the WTO’s appellate body has been paralyzed since December 2019.

International trade rules have been evolving since the Age of Exploration. Before the great maritime discoveries, global commercial trade was regional. Afterward, the world connected through maritime trade, establishing a truly global trading system. This disrupted the tribute system and continental mindset of that era in China, with the international order shaped by maritime trade dominated by the West for over three centuries.

After World War II, the GATT and the WTO established a multilateral trading system based on mutual benefits. China’s entry into this trade system allowed it to deeply participate in the global value chain, benefiting from economic globalization and achieving an economic miracle. Today, the global trade landscape is undergoing another structural shift, introducing new orders and disciplines within the new trade system, and China must be prepared.

Strategic Implications for China

The surge in trade protectionism targeting China results from the structural shift in the global trade landscape. Amid the slowdown in global trade growth, the trade pattern is moving from global integration toward regional integration. In response, China needs to recognize the changes in the current trade environment and prepare for the challenge of long-term trade protectionism.

China should consider several strategic approaches:

• Diversification of Export Markets: China should diversify its export markets to reduce reliance on traditional markets such as the U.S. and the EU. This could involve strengthening trade ties with emerging economies and exploring new regions.
• Enhancement of Domestic Consumption: Boosting domestic consumption can help mitigate the impact of external trade barriers. Policies that encourage consumer spending and reduce savings rates can play a crucial role.
• Upgrading Industrial Capabilities: Moving up the value chain by investing in high-tech industries and innovation can help China counteract the impact of tariffs on lower-end manufacturing goods.
• Strengthening Regional Trade Agreements: Engaging in regional trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), can help China secure stable trade relationships within the region.
• Legal Recourse and Diplomacy: Utilizing WTO mechanisms to challenge unjust trade measures and engaging in diplomatic efforts to resolve trade disputes amicably can be effective strategies.

The global trade landscape is in a state of flux, with protectionism on the rise and regional integration becoming the new norm. The recent tariffs imposed by the EU and the joint measures by the U.S. and Mexico against Chinese goods are symptomatic of this broader trend. As China navigates this challenging environment, it must adopt a multifaceted strategy to adapt to the evolving trade rules and prepare for sustained strategic competition. Recognizing and responding to these shifts will be crucial for China to maintain its position in the global economy and continue its growth trajectory.