China's mercantilist squeeze on developing countries

Shoumitro Chatterjee and Arvind Subramanian
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Shoumitro Chatterjee: Johns Hopkins University

No WP26-7, Working Paper Series from Peterson Institute for International Economics

Abstract: 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. -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.

Keywords: China; export competition; low- and middle-income countries; industrialization; low-skill manufacturing; value-added trade; China shock; exchange-rate policy (search for similar items in EconPapers)
JEL-codes: F13 F14 F16 F43 F63 O14 O19 O24 (search for similar items in EconPapers)
Date: 2026-05
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