Key Takeaways
- The "China Squeeze" affects low- and middle-income countries through three major channels: intense competition in global export markets, rising Chinese import competition in their own domestic markets, and limited access to China’s own consumer market for low-skill-intensive exports from developing countries.
- The scale of the squeeze is historically unprecedented and may represent hundreds of billions of dollars in lost exports and forgone jobs in labor-intensive manufacturing in developing countries.
- Macro indicators on wages, productivity, and exchange rate policy suggest that distortions, especially an undervalued renminbi, may have played a role. Regardless of the cause, China’s dominance may be closing off the traditional manufacturing-led development path for low- and middle-income countries.
Body
Concern over China’s trade surplus is again resurging in the United States and Europe, but less attention has been paid to what China’s surplus means for low- and middle-income countries. Despite becoming a richer and higher-tech economy, China continues to occupy a large share of global low-skill-intensive export markets such as apparel and footwear, precisely where low- and middle-income countries compete most directly. The authors document what they call a "China Squeeze," which is limiting the industrialization opportunities traditionally used by these countries to grow their economies and create jobs.
Data Disclosure:
The data underlying this analysis can be downloaded here [zip, 5.96 GB]. The CEPII-BACI data can be accessed here.
