Why have "The Belt and Road" countries recently experienced frequent trade disruptions?

Since the beginning of this year, some countries along the "Belt and Road" have experienced frequent tariff disturbances. From a local perspective, some countries along the "Belt and Road" are limited in terms of openness due to factors such as their stage of development, with fluctuating trade policies and the presence of both tariff and non-tariff barriers. The above phenomena do not necessarily indicate a sudden shift in these countries' attitudes towards China; globally, the increase in trade disturbances in some "Belt and Road" countries is also due to a series of changes in the international environment, but there is greater room for negotiation. In terms of impact, the direct impact of trade disturbances in some "Belt and Road" countries on exports to China is limited. In particular, the prospects of Chinese enterprises expanding overseas are not affected, and by driving local industries and employment development, they can effectively stabilize and expand economic and trade relations along the "Belt and Road".

▍Since the beginning of this year, tariff disturbances have been frequent in emerging economies, including some countries along the "Belt and Road".

On April 22, 2024, Mexico imposed temporary tariffs ranging from 5% to 50%; on May 3, 2024, Saudi Arabia initiated an anti-dumping investigation on stainless steel products imported from China, and as reported by US News on May 14, 2024, negotiations on a free trade agreement between China and the Gulf Cooperation Council stalled due to Saudi Arabia's concerns about its local industries; on June 8, 2024, Turkey imposed a 40% tariff on Chinese electric cars; on June 27, 2024, India announced tariffs on three types of goods imported from China, including hydraulic breakers; on June 29, 2024, Indonesia announced tariffs ranging from 100% to 200% on imported goods, covering industrial products from footwear to ceramics; starting from July 2024, Brazil adjusted the import tax rates and duty-free quotas for Chinese electric cars according to a plan announced in November last year, with tax rates for hybrid electric cars, plug-in hybrid electric cars, pure electric cars, and electric trucks raised to 25%, 20%, 18%, and 35% respectively.

▍From a local perspective, some countries along the "Belt and Road" are limited in terms of openness due to factors such as their stage of development, with fluctuating trade policies and the presence of both tariff and non-tariff barriers.

Compared to developed markets, some countries along the "Belt and Road" still have significant room for improvement in terms of trade openness and business environment due to factors related to their stage of development. The Heritage Foundation, based on factors such as tax rates, regulatory efficiency, and government credibility, quantitatively evaluated the economic freedom of countries worldwide in 2024. Indonesia, Saudi Arabia, Brazil, and Turkey ranked 53rd, 69th, 102nd, and 124th respectively out of 184 countries evaluated.

At the same time, some emerging market countries also face various non-tariff barriers and lack policy stability. For example, in October 2023, the Indonesian government issued Minister of Trade Regulation No. 36/2023, which requires imported goods such as electronics, cosmetics, and clothing to obtain an "Import License (PI)" and meet "Import Quota" requirements. This regulation officially took effect in March 2024 However, due to the inability of domestic supply in Indonesia to meet market demand, new regulations have significantly increased customs clearance times, directly resulting in tens of thousands of containers piling up at major ports in Indonesia. On May 17, 2024, under the directive of Indonesian President Joko, the Emergency Regulation No. 8/2024 for the Ministry of Trade (Permendag 8/2024) was issued and took effect immediately, easing restrictions on imported products, and the clearance of containers at Indonesian ports began gradually.

Therefore, the above phenomenon does not indicate a sudden shift in the attitude of relevant countries towards China, and there is no need for excessive interpretation.

▍ Globally, the increase in trade disruptions in some countries along the "Belt and Road" is also due to a series of changes in the international environment, but with greater room for negotiation.

Firstly, objectively speaking, in recent times, some European and American politicians have frequently emphasized the so-called "overcapacity" issue, which has strong political mobilization power, leading to the transmission of public opinion in more regions.

Secondly, under the influence of a series of global security events in recent years, countries have significantly increased their focus on industrial security and employment protection, often choosing to strengthen their national security through tariff or non-tariff barriers.

Thirdly, the dispute resolution mechanism based on the WTO framework is gradually failing, and trade rules are evolving towards regionalization and bilateralism, causing some countries to often take unilateral actions first and then engage in bilateral negotiations when dealing with trade issues.

However, overall, unlike the United States' emphasis on strategic competition in trade disputes, the trade policies of "Belt and Road" countries are generally based on industrial development and job creation, with greater room for negotiation and cooperation. The drive of enterprises to go global and the stimulation of local industries and employment are important aspects of bilateral cooperation.

▍ In terms of impact, the direct impact of trade disruptions in some "Belt and Road" countries on exports to China is limited. Especially, the business prospects of Chinese enterprises going global are not affected, and through driving local industrial and employment development, they can effectively stabilize and expand economic and trade relations along the "Belt and Road".

Firstly, the direct impact of trade disruptions in some "Belt and Road" countries on exports to China is limited. For example, although Indonesia recently imposed high tariffs, according to data from the General Administration of Customs of China, in 2023, China's exports to Indonesia of footwear (Chapter 64), clothing (Chapter 61), ceramics (Chapter 69), and cosmetics (Chapter 33) amounted to 980 million, 273 million, 699 million, and 355 million US dollars respectively, accounting for only 1.49%, 0.41%, 1.06%, and 0.54% of China's total exports to Indonesia of 65.89 billion US dollars. Therefore, their trade policy adjustments are only aimed at protecting local small and medium-sized enterprises, rather than representing a overall shift in trade thinking towards China.

Secondly, the current imposition of tariffs by various emerging economies mainly targets industrial finished products, and there have not been additional tariff measures for the raw materials and intermediate goods needed by Chinese enterprises going global, which will not fundamentally disrupt the stability of the supply chain for Chinese enterprises going global. As "Belt and Road" countries all have their own demands for industrial development and employment stability, enterprises going global to these countries are not only unaffected by the above trade disruptions, but may even receive more policy support locally Thirdly, in recent years, cooperation models such as the "Belt and Road" and the BRICS mechanism have continued to deepen. The third Belt and Road Forum was successfully held, and the BRICS members expanded from 6 countries to 11 countries. Emerging economies around the world are calling for a more equitable international governance system. Looking ahead, there is still room for China to expand cooperation with the vast "Global South" countries.

▍Risk Factors:

The vulnerability of the economic fundamentals of emerging economies is increasing; capital outflows and exchange rate risks in emerging economies are intensifying; geopolitical situations are deteriorating; and trade frictions between China and the United States are escalating