China: Export and Power
By Henrique Schneider
China recently overtook Germany to become the world's largest exporter. Its share of the world's exports jumped to almost 10 percent while having been at just 3 percent in 1999. Analysts were quick to point at the correspondence of one's importance in world trade and one's relative political power on an international level. As the claim goes, the higher a country's export share, the more important it is.
In the 1950s, the U.S. accounted for an 18 percent share of the world's exports but has been declining, reaching some 8 percent today. Germany went from 0 percent in the '50s to reach almost 12 percent in 1971 and stabilize at 9 percent today.
Japan peaked in the '80s at 10 percent but now it has just a 5 percent share of world's exports. By the end of the '90s, the Asian Tigers (South Korea, Taiwan, Hong Kong and Singapore) also reached the 10 percent mark and remained there. What does this say about the relative power of these countries in their international relations?
Practically nothing! Examine the claim in terms of its logical consequences: If international power corresponds to a country's share of exports, then, its power will decline with its shrinking relative share. This is, however, simply not true. In the aftermath of the USSR's breakdown, the U.S. came to be the sole superpower with its strongest period in the '90s. By then, it had just 12 percent of the world's exports whereas it is doubtful that the U.S. was the most powerful country in the '50s.
As Japan peaked, Tokyo never cashed in on any power on international relations. Not because it would not have liked to, but because it could not afford to. Europe ― the Union taken together ― with a 25 percent share of world's exports never ascended to a corresponding dominance. To claim that China will become a new superpower because of its export share is simply wrong.
If seen from the perspective of absolute numbers, the claim is even more inaccurate. Export shares are relative numbers; hard facts, however, Chinese merchandise exports fell from 36 percent of its GDP in 2007 to some 24 percent in 2009. China's current account surplus has fallen from 11 percent to 6 percent of GDP. In other words, China's export share is bigger but the world's net trade volume is smaller and even China's volume has shrunk.
On the other hand, one's importance in world trade roughly corresponds to one's importance in diplomacy-at-large. This means, without actively pursuing political power-plays, trading nations should consider their peers, just as South Korea's, Japan's or the U.S.'s diplomatic needs are considered, as for example, Seoul was asked to chair the G-20.
In order to fruitfully position itself as a trading nation, China should keep a close eye on its export growth. If the Middle Kingdom remains as dependent on exports as in recent years, then its share could rise to 17 percent in 2020. Can the world absorb this?
To achieve this export growth, China would have to reduce prices, which is increasingly hard to manage, whether through productivity gains or a squeeze in profits. In many export industries, particularly steel, margins are already very thin. Lowering prices makes China even more vulnerable for populist outrage and protectionist measures, especially in the U.S. and Europe.
Lowering prices also conflicts with other Chinese aspirations, especially with its urgency to upgrade some of its exports. But exactly therein looms the opportunity for growing and joining the group of economic powers thus gaining leverage in international diplomacy.
In order to achieve this qualitative growth, at least the Pacific-shore industry would have to upscale the goods it manufactures moving from textiles and toys to computer chips and cars. It would not only assemble iPods, it would develop the next-generation of portable music players.
As the low cost industry moves westward to the central provinces, the home market expands and absorbs a good deal of the formerly export-oriented output. The new industries engage in the competitive international markets for technologies and other countries, Laos or Vietnam for example, fill in the export-gap generated by China's upscaling.
At least, this would be the vision for a positive scenario in which China's export share diminishes but the country and the world profit from new and better products.
Henrique Schneider is a traveler in Asia as well as a political analyst. He works as a consultant and analyst in Vienna, Austria, and publishes regularly in German and English on economic and security issues related to China and other Asian countries. He can be reached at email@example.com.