China’s trade with ASEAN faces more barriers amid fears of overcapacity, imbalance

A total of 96 trade barrier investigations targeting China were announced by its trading partners from January to July, already exceeding the 63 in the whole of last year.

At least 74 cases were related to anti-dumping practices (exporting a product at a price lower than the price normally charged in its own market), with two ongoing cases in Vietnam focusing on steel and one in Thailand on aluminum, according to China Trade Remedies Information, a platform under the Ministry of Commerce.

Among China’s trading partners, the United States, India and the European Union have issued the most complaints.

ASEAN countries have reported that their growing trade deficit – as they import more goods and services than they export – with China has widened from $44.8 billion in 2013 to $137.3 billion in 2022.

And new trade barriers from ASEAN bloc countries appear to be on the way.

Malaysia’s commerce ministry said this week it would table its proposed anti-dumping legislation in parliament next year to protect industries from “the effects of unfair trade resulting from the massive influx of cheap imported products from countries including China.”

In June, Indonesia’s trade ministry also announced plans to impose tariffs of up to 200 percent on some Chinese-made products to protect its manufacturing industry from dumping practices triggered by Western nations’ trade wars with China.

Indonesia and Japan on Thursday agreed to amendments to an economic deal aimed at reducing or removing trade barriers, Reuters reported.

The moves by China’s neighbors suggest that the region sees a more imminent need to rebalance some of its trade relationships with China, as a growing proportion of cheaper Chinese imports could hurt their domestic industries.

Steel is a sector that has attracted increasing attention, with Vietnam accounting for 11.9% of China’s steel exports in the first half of this year.

This is a slight increase amid growing accusations of Chinese export overcapacity, potentially exposing China to more trade barriers.

“This trend is fueled by growing trade imbalances and concerns about economic dependency,” said Shay Wester, director of Asian economic affairs and outreach director at the Asia Society Policy Institute.

“This imbalance is due to a sharp increase in Chinese imports, ranging from low-cost consumer goods to high-tech products such as electric vehicles.

“These imports put considerable pressure on local industries and raise concerns about over-reliance on China, especially since ASEAN’s manufacturing sector relies heavily on Chinese components.”

Wester said the geopolitical considerations of Southeast Asian countries are that China could use its economic influence in a “punitive” way.

Yet Beijing officials have repeatedly touted China’s relations with Southeast Asian countries and members of its Belt and Road Initiative as thriving, and since 2020 the ASEAN bloc has overtaken the EU to become China’s largest trading partner.

With the Regional Comprehensive Economic Partnership (RCEP) trade pact, which came into effect in January 2022 and includes the ASEAN bloc as well as Australia, Japan, South Korea and New Zealand, Beijing has presented its trade relations with its regional partners as strong despite “uncertainties in the geopolitical environment.”

Deborah Elms, head of trade policy at the Hinrich Foundation, said the changing global trade landscape represented a combination of issues, including a shift in reliance on new economic players, concerns about potential future supply chain disruptions, technological acceleration and a strong sense of drift among major economic players.

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“It is now much easier to resort to protectionist tools of all kinds, even with minimal justification,” Elms said.

“If protectionist behavior is allowed and even encouraged, then more governments are likely to follow suit.

“National pressures can be very strong to keep markets closed, while the benefits of openness are still diffuse.”

Other trading partners, including Mexico and Turkey, have imposed tariffs on China over the past year.

And Elms said that while RCEP and other trade deals are a useful way to resist protectionist impulses, “even RCEP provides protection in some circumstances” because unfair practices would have to be “adjusted.”

“It would be strange if a rapidly changing business landscape were not faced with a review of existing policies to make them as fit for purpose as possible,” she said.

Wester also expects trade barriers preventing Chinese exports from entering the ASEAN market to increase, “but not to the level of the US or the EU,” he said.

“ASEAN countries are likely to take a nuanced approach, selectively protecting key industries while maintaining overall economic openness,” he added.

“There will likely be an increasing emphasis on developing local manufacturing ecosystems and promoting investment in high value-added industries.”

Meanwhile, Beijing has sought to deepen its trade ties with the region by negotiating a version 3.0 of the ASEAN-China Free Trade Area, with the latest round of talks taking place in Beijing in May.

But Alicia Garcia-Herrero, chief economist for Asia-Pacific at French investment bank Natixis, “frankly doubts” the progress of the upgrade of the agreement signed in November 2002.

“The world is becoming very protectionist, I think all these Beijing targets in free trade agreements, if they are signed, will mainly serve to promote branding like RCEP,” she said.