In 2018, the United States initiated a series of tariffs against Chinese goods over a trade deficit and trade practices that it believed unfairly disadvantaged US industries. Nevertheless, according to Chinese data, the US deficit has only increased in the intervening years, and the aggregate global goods deficit with China has doubled from $420 billion in 2017 to $822 billion in 2023. As Beijing now prioritizes manufacturing products requiring more complex processes with a higher value added such as batteries, electric vehicles, and solar panels, more tariffs are likely regardless of the outcome of the US presidential election.
The 2018 US tariffs primarily targeted Chinese intermediate inputs and capital equipment. In 2025, far more countries will share concerns over the impact of an expansion of Chinese exports. This time, however, they are likely to target final consumer goods to shield domestic industries and avoid imposing costs on their own supply chains.
In 2023, 150 countries had a goods trade deficit with China. As the chart below shows, bilateral goods trade deficits for economies across the world and income levels have widened in 2023 as compared to 2017.
Bilateral trade deficits can be harmless and simply reflect macroeconomic dynamics of supply, demand, and savings between countries. However, persistently large and deepening deficits could indicate that employment lost to more competitive imports may not be equally offset by employment in new tradable sectors. In the case between the United States and China, the countries even disagree over the numbers. The reported numbers diverge considerably since the imposition of tariffs in 2018 as US importers were incentivized to under-report the value of Chinese imports while Chinese exporters were incentivized to over-report exports due to changes in tax incentives. The US Federal Reserve itself believes the discrepancy is mostly explained by the former.
In China’s case, rapid export growth is behind the widening global trade deficit with it over the last six years. As more people worked from home during the pandemic in 2021, Chinese shipments of electrical machinery, phones, and office equipment surged.
But that is not all. As part of its strategy to unleash “new quality productive forces,” Beijing has shifted its focus to technology-led growth. Since 2017, China has more than doubled its exports of high value-added products, such as electric vehicles, batteries, semiconductors, and solar panels. Weak domestic demand means this increased production is redirected to foreign markets while strengthened domestic capacity to build high-tech products has reduced China’s need for importing them.
All things being equal, the aggregate global trade deficit with China will therefore continue increasing. But things most likely won’t stay the same. Governments are intervening proactively to shield their industries from a surge in Chinese goods.
Governments are increasingly concerned by what they consider unfair Chinese subsidies in the form of tax breaks, direct transfers of funds, or the public provision of goods or services below market prices. These subsidies could allow Chinese enterprises to continue exporting large quantities even when they are loss-making, becoming unresponsive to global demand signals.
The cutthroat prices that Chinese firms can offer are making it difficult for emerging markets to move up the global value-added supply chains themselves. During the first “China shock,” many emerging markets rode the wave of China’s growth by supplying it with the food and energy commodities it needed to sustain its rise as the world’s factory. They are unlikely to benefit similarly from China’s move up the value chain this time. This new transition will demand advanced technology such as semiconductors, auto parts, batteries, and 5G infrastructures—among other products that emerging markets typically don’t produce. Though some countries have large deposits of critical minerals, the bulk of value-added processing and refining is dominated by China.
Furthermore, China’s move up the value-added chain was expected to create demand for low-value-added goods from low- and middle-income economies. But weakness in China’s domestic demand and Beijing’s emphasis on retaining low-tech manufacturing jobs has not only reduced export opportunities to China, but also intensified Chinese firms’ competition in low- and mid-tech sectors.
Advanced economies have already seen this story play out once and worry that China’s entry into high-tech sectors will overwhelm employment in its industries just as it did in the 2000s. Consider the European Union (EU), for instance. Its attempts to remain an industrial powerhouse for the low-carbon economy in domestic and global markets could be stymied by China’s rapid ascent in high-value-added industries. Chinese firms could allay employment concerns by investing in manufacturing plants within the EU that would give products a “Made-in-EU” stamp. But this would only address part of the issue—the goods would still saturate domestic markets while the profits would be repatriated to China.
The EU is not alone. Governments within the Group of 20 (G20) and beyond are becoming wary of a “China shock 2.0.” Policy interventions targeting imports from China of electric vehicles, batteries, and solar panels have surged in the last four years. Since 2023 alone, Argentina, Brazil, India, Vietnam, and the EU have launched anti-dumping and anti-subsidy investigations against China. Brazil, Canada, Indonesia, Mexico, South Africa, Turkey, the United States, and the EU have all imposed tariffs on certain high-value-added Chinese imports, including but not limited to electric vehicles.
While many countries share concerns regarding China’s expanding exports, divergent priorities around trade with China will mean they struggle to coordinate a shared response.
Advanced economies such as the EU, for example, are already taking measures to maintain their market shares in high-value-added markets where they have traditionally enjoyed a comparative advantage within Europe and beyond. Whether the United States pursues blanket tariffs against Chinese goods or favors domestic subsidies to counter Chinese subsidies largely depends on who enters the White House in January.
Emerging markets will be more cautious. They aim not only to protect existing domestic industries, but also to onshore new Chinese manufacturing in light of Western friendshoring policies. Companies leaving China often want to retain supply chains in China for key inputs, at least in the short term—as India has learned. Several low-income countries that rely on Chinese intermediate inputs to expand their own manufacturing production will also prefer to remain integrated in its value chains. Low- and middle-income countries are also vulnerable to Chinese retaliation. These priorities call for distinct sets of incentives and barriers that will not align neatly.
Since 2018, the United States has increasingly used tariffs to try to balance its trade with China, and 2025 may well see a new wave of tariffs imposed. The difference this time, however, will be that other advanced economies—and indeed, most of the G20—agree that a response is needed to China’s manufacturing overcapacity.
Mrugank Bhusari is assistant director at the Atlantic Council GeoEconomics Center.
This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org