China's Mercantilist Squeeze on Developing Countries

Shoumitro Chatterjee () and Arvind Subramanian ()

Indian Council for Research on International Economic Relations (ICRIER) Working Paper from Indian Council for Research on International Economic Relations (ICRIER), New Delhi, India

Abstract: China's resurgent trade surplus has revived concern in the United States and Europe, but its development consequences for low and middle income (LMIC) countries remain underappreciated. This paper documents a "China Squeeze": the compression of industrialization space available to poorer economies in labor-intensive manufacturing. Using gross trade, value-added exports, historical benchmarks, and labor-endowment comparisons, we show that China, despite becoming richer and moving up the technology value chain, continues to occupy a historically unusual share of global low-skill export markets, especially once value added embedded across supply chains is counted. We estimate this squeeze at hundreds of billions of dollars of foregone valued added exports in labor-intensive manufacturing in LMICs. The squeeze also operates through rising Chinese import competition in LMIC domestic markets and through China's limited absorption of low-skill imports from poorer countries. We then ask whether this dominance reflects unusual productivity performance or policy distortions. Although definitive micro evidence is unavailable, macro indicators on wages, productivity, and exchange-rate policy suggest distortions, especially an undervalued renminbi, may have played a role. The central concern is developmental: China's export strength may foreclose industrialization pathways for poorer countries.

Keywords: 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)
Pages: 25 page
Date: 2026-05
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