{"id":303,"date":"2026-06-18T04:08:42","date_gmt":"2026-06-18T04:08:42","guid":{"rendered":"https:\/\/housingnewsamerica.com\/?p=303"},"modified":"2026-06-18T04:08:42","modified_gmt":"2026-06-18T04:08:42","slug":"china-is-pulling-up-the-ladder-behind-it","status":"publish","type":"post","link":"https:\/\/housingnewsamerica.com\/?p=303","title":{"rendered":"China Is Pulling Up the Ladder Behind It"},"content":{"rendered":"
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China is increasingly embracing the mantle that comes with being a global superpower. Its rise is forcing the rest of the world to assess its credentials as a potential hegemon and a provider of public goods. And in one significant area, its strength may be a real weakness. Many poorer countries fear that China\u2019s economic rise will not leave room for them to industrialize. Unlike the United States and European countries, which in the past helped facilitate the industrialization of poorer countries (including China), Beijing is currently on track to have the opposite effect.<\/p>\n

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China is not merely climbing the technological ladder; it is pulling up the ladder behind it. It dominates the new commanding heights of manufacturing\u2014electric vehicles, solar panels, batteries, drones\u2014but it has not vacated the older, labor-intensive sectors through which it and other rich and middle-income countries escaped poverty. In effect, China is trying to do what economic theory says no country should be able to do: retain comparative advantage in almost everything.<\/p>\n

That gambit is all the more striking in an era when global imbalances are once again widening. China\u2019s trade surplus measured as a share of world GDP is at a historic high. The International Monetary Fund has warned that external imbalances and the attendant trade consequences are generating negative spillovers for trading partners. As Brad Setser and Shahin Val\u00e9e wrote recently in Foreign Affairs<\/em>, Chinese currency manipulation is undermining the global trading system. The last great era of Chinese surpluses, roughly in the first decade of this century, produced what several scholars have called the first \u201cChina shock\u201d: a surge of exports into the United States that hollowed out swaths of American manufacturing. That shock transformed American politics and helped create a rare bipartisan consensus against free trade and against China.<\/p>\n

The new shock is different. It is landing less in the United States, where tariffs, bans, and national security restrictions have blunted Chinese import competition by fiat. It is more visibly affecting Europe, and especially Germany, whose industrial model was built around the internal combustion engine and its associated high-end engineering ecosystem. China\u2019s rise in electric vehicles and green technologies has turned a commercial challenge into an existential one for many European industries.<\/p>\n

But the focus on how China\u2019s economic strategy affects the United States and Europe has obscured a larger problem. The most consequential victims of the current China shock are not workers in Detroit or Stuttgart, but future workers in places such as Addis Ababa, Dhaka, Lagos, Nairobi, Phnom Penh, Surat, and Tirupur. Their losses cannot be measured mainly in job cuts or factory closures, but rather in terms of factories never built, export markets never entered, capabilities never accumulated, and development paths never opened. That is the real toll of what is now called the \u201cChina squeeze.\u201d<\/p>\n

The stakes of the China squeeze are immense. The issue is not only hundreds of billions of dollars in forgone exports, it is whether latecomers to development still have access to the most reliable path of structural transformation the world has known. Historically, almost every country that escaped from poverty to prosperity did so by relying on manufacturing exports: garments, toys, footwear, furniture, electronics assembly, and other sectors that absorb large numbers of less-skilled workers while building firms, logistics, know-how, and state capacity. China benefited enormously from an open trading system that allowed it to lift hundreds of millions of people out of poverty through manufacturing for the global market. China\u2019s own rise may now block that same path for countries poorer than itself.<\/p>\n

THE MAIN SQUEEZE<\/strong><\/h3>\n

Much of China\u2019s manufacturing trade surplus (the difference between its exports and imports) sits precisely where poorer countries should have their greatest opportunity. Of China\u2019s total manufacturing surplus of about $2.2 trillion, roughly $700 billion to $1.4 trillion is concentrated in low-skill-intensive sectors such as apparel, footwear, toys, furniture, and electronics assembly, the very areas in which low- and middle-income countries with vast labor pools compete most directly with China.<\/p>\n

The simplest measure of this dynamic is China\u2019s share of global exports in low-skill goods. China\u2019s share of gross exports, including final goods such as shirts or shoes, rose sharply starting inthe early 1990s, peaked at over 60 percent in 2014, and then declined. That pattern suggests the squeeze may have eased.<\/p>\n

But gross exports miss much of the story. A shirt is not just a shirt. It is fabric, yarn, zippers, and buttons, but also packaging, logistics, and design. Accounting for the total value embedded in exports (what economists call \u201cvalue-added exports\u201d)\u2014a better proxy for the jobs and capabilities created along the supply chain\u2014China\u2019s share of low-skill goods has not meaningfully fallen.<\/p>\n

It has continued to rise, apart from a brief dip. China has not only dominated final assembly but has increasingly also dominated the production of the downstream inputs that go into final assembly: fewer shirts but more of the yarn, zippers, buttons, and so forth that go into making clothing.<\/p>\n

Economists can determine whether this dominance is excessive. They can ask, for instance, whether China\u2019s share of low-skilled exports is commensurate with its share of the world\u2019s low-skilled labor. And they can ask how China compares with today\u2019s advanced economies when they were at a similar level of income. Together, these measures can help assess the extent to which China is distorting the global economy.<\/p>\n

In labor-intensive manufacturing, a country\u2019s share of world exports should broadly track its share of the world\u2019s low-skilled labor, or at least the two should not diverge massively even if technologies and productivities are similar across countries. At the start of the twenty-first century, among all lower- and middle-income countries, China\u2019s share of low-skilled labor and its share of value-added exports were roughly aligned. Since then, they have diverged sharply. Between 2013 and 2023, China\u2019s value-added export share remained at about 64 percent, even as its share of the labor force fell by three percentage points. According to this benchmark, China\u2019s \u201cexcess\u201d exports rose from 33 to 36 percent of all global exports from lower- and middle-income countries.<\/p>\n

The magnitudes are large. For apparel, textiles, leather, and footwear, this excess amounted to about $110 billion in value-added exports in 2022. Across all low-skill sectors, we estimate excess value-added exports of more than $355 billion in 2022. That export space could have supported tens of millions of manufacturing jobs in poorer economies. Value-added data beyond 2022 are not yet available, but data on gross exports until 2024 show a similar trend.<\/p>\n

Comparison with the past offers a similar sense of the scale of the current distortion. When today\u2019s rich countries were as rich as China is now, they had already ceded much more low-skill manufacturing space to others. After adjusting for income levels and for the fact that goods are more tradable today because of lower transport costs and trade barriers, we calculate that advanced economies at China\u2019s current level of per capita GDP had a global export share of about eight percent in comparable sectors. China\u2019s share today is much higher, at 27 percent. The gap, multiplied by current global gross exports, implies excess Chinese exports of about $140 billion in the four labor-intensive sectors of apparel, textiles, leather, and footwear, a figure close to the $110 billion estimate from focusing on low-skilled labor share.<\/p>\n

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Two very different comparisons therefore yield the same conclusion: China\u2019s continued dominance in low-skill manufacturing is historically unusual and economically consequential. The biggest proportional gains from a relaxation of the squeeze would likely accrue to sub-Saharan Africa, where low-skill exports are currently only about $12 billion. If countries in the region had more room in global markets (and enacted better domestic policies, such as deregulating their economies and reducing the costs and risks of doing business) they could increase such exports severalfold. East Asian and South Asian economies could also see large gains, with low-skill exports rising by 75 to 175 percent.<\/p>\n

China alone does not explain every missed opportunity in a poorer country. Domestic constraints still matter enormously. But China\u2019s dominance narrows the possibilities available to poorer countries and makes it harder for them to plot a reliable way forward.<\/p>\n

The effect of the China squeeze on lower- and middle-income countries is too large to dismiss. But the causes also matter. If China\u2019s dominance reflects genuine accomplishments in boosting the country\u2019s productivity\u2014through gains in scale, logistics, automation, and managerial quality, and through fierce domestic competition\u2014then poorer countries should respond to the current situation by seeking to improve their own competitiveness. If that dominance reflects subsidies, financial repression, or exchange rate distortion, then it is an indictment of the global trading system.<\/p>\n

China\u2019s dominance has persisted even as its wages have surged. Data from the UN Industrial Development Organization show that Chinese manufacturing wages are now far above those in most competitor countries and are still rising. In apparel, annual wages in China average around $10,000, about five times such wages in Bangladesh and four times those in India. Conventional theories about trade hold that such wage gaps should allow lower-wage economies to carve a greater slice of the global export pie. They have not. China remains formidable even in sectors where its labor-cost advantage has long disappeared.<\/p>\n

One possibility is that China\u2019s productivity advantage is simply large enough to offset its wage disadvantage. Its workers might toil 15 hours a day and its firms operate with the benefit of automation, deep supplier networks, dense industrial clusters, world-class logistics systems, and an ecosystem that can scale production with extraordinary speed. These advantages are real. But distinguishing genuine competitiveness from policy distortion requires disaggregated firm-level data on productivity, wages, subsidies, credit, ownership, and export performance. For more than a decade, such data have been largely unavailable to researchers outside China, making serious diagnosis, including assessing the effect of automation, very difficult.<\/p>\n

Industrial policy is another possible explanation. China has long used subsidies, directed credit, government procurement practices,and local government support to strengthen manufacturing. Yet research by the International Monetary Fund and the Federal Reserve suggests that China targets subsidies more heavily toward high-tech sectors than toward traditional labor-intensive industries. That may help explain China\u2019s success in electric vehicles, batteries, solar panels, and drones. It does less to explain its abiding dominance in apparel, footwear, toys, and basic assembly.<\/p>\n

That leaves the exchange rate. Several analysts have argued that the renminbi remains undervalued by 15 to 25 percent. China\u2019s foreign exchange intervention tracks its global market share in low-skill goods: between 2013 and 2018, its global export share declined in parallel with the frequency of its intervention in keeping the renminbi relatively weak; thereafter, its global export share rose, as did its propensity to intervene in manipulating the renminbi. If the renminbi has been kept artificially cheap, the effect is equivalent to a broad subsidy to Chinese exporters and a tax on foreign producers. It would make Chinese goods cheaper in global markets and foreign goods more expensive in China\u2014precisely the combination that would sustain the China squeeze.<\/p>\n

A BOON FOR BEIJING<\/strong><\/h3>\n

What can be done to redress the China squeeze? Poor countries might look to other trading partners for help. For example, the European Union and Japan can negotiate and deepen free trade agreements with poorer countries so that they can get more favorable terms of access that could partially offset China\u2019s advantage. Large countries and the International Monetary Fund can lean on China to address its undervalued currency.<\/p>\n

Unfortunately, lower- and middle-income countries have only limited negotiating leverage with China. After all, Beijing has been relatively impervious to demands even from Washington to open its markets. U.S. President Donald Trump retreated from imposing high tariffs on China when it threatened to restrict exports of critical minerals.<\/p>\n

Any corrective action, therefore, would have to come from China itself. If it assesses, correctly, that the United States has become an unreliable and unstable hegemon, it could see value in offering an alternative to Washington, as an actor able to help prevent a breakdown of the international trading order. But that would require abandoning actions that inflict harm on poorer countries. It has taken some salutary symbolic steps, giving up its developing-country status at the World Trade Organization, which, in principle, makes it harder for it to dole out subsidies to its firms. It has also lowered tariff barriers to some poorer countries. But it can and must do more.<\/p>\n

China\u2019s dominance narrows the possibilities available to poorer countries.<\/span><\/p><\/blockquote>\n

It could, for example, extend duty-free access to all labor-intensive imports into China from all developing countries. A radical option, consistent with attempting to boost consumption within China, would be to go further and subsidize imports of labor-intensive goods from poor countries so that importers get a payment from the Chinese government, which they pass on to Chinese consumers in the form of lower prices. At the very least, it should not stymie the transfer of valuable expertise to other countries as it did in 2025, when Beijing pressured the manufacturer Foxconn to repatriate 300 managers and engineers from India.<\/p>\n

Beyond trade, China could proactively encourage its entrepreneurs to set up manufacturing plants in poor countries with the greatest potential. This would complement its Belt and Road Initiative, the vast investment program that focuses on infrastructure and commodities. Even on the exchange rate, there could now be an opening. China, like other countries, has long chafed under the dollar\u2019s financial dominance. That dominance is eroding as a result of U.S. actions and growing doubt about the reliability of American institutions. It would make sense for Beijing to now accelerate the internationalization of the renminbi. That would entail real costs in terms of strengthening the currency and potentially hurting Chinese exports, but it could offer a far greater prize: a realistic shot at rivaling dollar dominance. And a correction in the currency\u2019s undervaluation would generate many positive spillovers for poor countries.<\/p>\n

Together, such measures might have some negative consequences, mainly in hitting lower-skilled Chinese exports. But they would be a boon for Beijing in a different way. If China\u2019s leaders want to take on more of the mantle of global leadership, they must understand that leadership works not simply through domination but by facilitating the rise of others. To truly take advantage of the waning of American hegemony, China must not only distinguish itself from this current protectionist and erratic iteration of the United States; it must also break with its own record of mercantilism.<\/p>\n

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