In anticipation of rising trade barriers from developed economies, Chinese companies have been diversifying their exports and foreign direct investment (FDI). Increasing concerns about Chinese exports are likely to create barriers to trade for companies that have sought to relocate from the Chinese market in the name of de-risking but remain reliant on Chinese inputs.
The export environment for China has kicked off to a bumpy start in 2025, as President Donald Trump levied 10% tariffs on Chinese goods, revoked and then temporarily reinstated de minimis privileges for low-value Chinese shipments into the US. While Trump’s opening volley has been impactful, the degradation in trade ties between China and developed markets is a secular trend driving Beijing’s ongoing pivot to emerging markets. Correspondingly, Chinese exporters are diversifying their investments geographically, with private outbound FDI increasingly flowing to Latin America, the Middle East & North Africa. The geographic shift in investment has been particularly pronounced in the past 2-3 years, as Chinese firms have pre-empted an expected rise in trade restrictions in the West.
However, China’s pivot to seek revenue from developing markets will be increasingly beset by challenges such as the rise of trade barriers against Chinese goods and investment in the Global South as well as Western scrutiny of trade diversion. Key developing markets have leveled more harmful restrictions against China in the past few years, with a sharp uptick around the pandemic when China’s export pivot to the rest of the world accelerated. These primarily took the form of anti-dumping investigations and import tariffs.
What Happens Next
The tightening of trade restrictions against China is a continuing trend, with the Trump administration focused on Chinese goods rerouted through third-party nations for further export to the US. This effort, although initially focused on Mexico’s auto sector, is poised to broaden. The shift in US market share away from China to other major trading partners is expected to prompt US actions, potentially including tariffs and trade agreement renegotiations, as the administration seeks to address the overall trade deficit and compel others to impose barriers against Chinese imports.
China's strategic shift toward developing markets also encounters rising protectionism. Nations in Latin America and Southeast Asia are increasingly scrutinizing Chinese goods in sectors like steel and automobiles. While they may strategically deploy tariffs to protect domestic industries, the need for Chinese intermediates limits the degree of trade restriction they can impose.
In turn, developing economies are likely to pressure Chinese companies to invest in local industrial technologies and infrastructure, rather than simply exporting finished products. This push towards localization signifies a growing demand for deeper economic integration beyond trade flows.
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