China’s GDP in 2023 was $18 trillion. It exported goods to the US worth US$440 billion (less than 2.5% of its GDP). Furthermore China only imported around US$150 billion worth of goods from the US. So why should it be concerned? Here’s the answer according to Google Gemini:
1. The Absolute Value and Contribution to Growth:
While the percentage might seem small, the absolute value of exports to the U.S. is still enormous (hundreds of billions of dollars). This contributes significantly to China’s export revenue, which has historically been a major driver of its economic growth and employment. Even a small percentage of such a large GDP translates to a substantial impact when lost or reduced.
2. Interconnectedness of Supply Chains:
A significant portion of China’s exports to the U.S. are intermediate goods and components that are part of complex global supply chains. Tariffs on these goods can disrupt these chains, impacting not only Chinese manufacturers but also U.S. businesses and consumers. Disruptions can lead to decreased efficiency, increased costs, and the need for companies to find alternative suppliers, potentially leading to a longer-term shift away from China.
3. The U.S. Market’s Importance:
The U.S. is a major consumer market with significant purchasing power. Access to this market has been crucial for the growth and development of many Chinese industries.
Losing or facing restricted access to the U.S. market can limit the growth potential of these industries and force them to find alternative markets, which may not be as large or as profitable.
4. Signaling Effect and Future Uncertainty:
U.S. tariffs and trade policies can create uncertainty for Chinese businesses regarding future trade relations. This uncertainty can deter investment, impact long-term planning, and encourage diversification of supply chains away from China by other countries and companies.
Even if current tariffs only affect a small portion of GDP, the potential for further escalation and broader restrictions is a significant concern.
5. Impact on Specific Sectors and Employment:
While the overall GDP impact might be small, certain sectors in China are heavily reliant on exports to the U.S. Tariffs can have a significant impact on these specific industries, leading to job losses and economic disruption in those regions. Examples include electronics, machinery, textiles, and toys.
6. Trade Balance and Currency Issues:
The large trade surplus China has with the U.S. has been a point of contention. U.S. tariffs are often aimed at reducing this trade deficit. While the overall GDP impact might be limited, changes in the trade balance can have implications for currency exchange rates and China’s foreign exchange reserves.
7. Geopolitical Implications:
Trade issues are often intertwined with broader geopolitical tensions. China is concerned that U.S. trade policies are part of a larger strategy to contain its economic and technological rise.
In summary, while the direct percentage of China’s GDP from exports to the U.S. might appear small, the absolute value, the interconnectedness of supply chains, the importance of the U.S. market for specific sectors, the potential for future escalation, and the broader geopolitical implications all contribute to China’s significant concern regarding U.S. trade policies and tariffs. The impact goes beyond just a simple percentage of GDP.
Source: Google Gemini
More Reading: List of Top Products exported by US to China