China’s foreign trade exports are facing severe challenges as the possibility of the United States canceling China’s Most Favored Nation status looms. China’s exports to the European Union through Hong Kong and via Mexico into the United States are also under threat. Additionally, China’s application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has once again been rejected.
Currently, the United States is considering revoking China’s Permanent Normal Trade Relations status. It is expected that relevant legislation may be introduced to Congress after the new session begins.
The US-China Economic and Security Review Commission (USCC) under the US Congress officially recommended in its annual report on November 19th the termination of China’s Permanent Normal Trade Relations status, stating that it allowed China to receive similar trade treatment to US allies amid intellectual property theft and market manipulation.
Chairman of the Congressional-Executive Commission on China, Representative John Moolenaar, recently introduced a bill to formally terminate China’s Permanent Normal Trade Relations status, echoed by Senator Marco Rubio who also proposed a similar bill in September.
“Permanent Normal Trade Relations” was previously known as “Most Favored Nation status,” which entails a country providing non-discriminatory trade policies to its trading partners, offering the same tax rates and import quotas to all.
Since the granting of Permanent Normal Trade Relations status to China in 2000, bilateral trade between the US and China has significantly increased. According to China’s customs data, Chinese exports to the US have grown from approximately $50 billion in 2000 to around $500 billion by 2024.
Currently, the average US Most Favored Nation tariff rate is around 2.2%. Should the US revoke China’s Most Favored Nation status, the average non-MFN tariff rate is estimated to increase to over 60%.
On November 28th, the European Parliament passed a non-binding resolution condemning the Hong Kong and mainland China governments for violating Hong Kong people’s freedoms under the National Security Law. The resolution calls for the EU to revoke Hong Kong’s special tariff treatment and review the status of the Hong Kong Economic and Trade Office in Brussels.
Hong Kong, as a free port and separate customs territory, allows goods to enter international markets without high tariffs. The majority of goods exported from Hong Kong to the EU are re-exported Chinese goods.
According to data from the Hong Kong Trade Development Council, approximately 25.2 billion euros worth of goods exported from mainland China to the EU in 2023 went through Hong Kong.
In 2020, the US under the Trump administration revoked Hong Kong’s special trade status, which was not followed by the EU at the time.
Although the European Parliament’s resolution is not legally binding, it carries moral weight and urges the new EU Commission to address the Hong Kong issue on its agenda.
On November 29th, Mexican authorities conducted a sudden raid on the “Yiwu International Trade City” in its capital, seizing over 262,000 products without receipts, import documents, or labels from China, Malaysia, Indonesia, Bangladesh, and Vietnam.
The “Yiwu City” in Mexico City is renowned for its Chinese influence, with most shops displaying Chinese signs. The seized products were reported to originate from China, Malaysia, Indonesia, Bangladesh, and Vietnam.
Mexico’s Economy Minister Marcelo Ebrard announced the confiscation of the building, destruction of contraband goods, and investigation into the owners and shipping agents. This operation is expected to be long-term and nationwide.
Since the US-China trade war, a large influx of Chinese goods has entered Mexico, circumventing into the US through the North American Free Trade Agreement’s low tariffs. China’s General Administration of Customs shows that in 2023, the China-Mexico trade volume reached $100.2 billion, with China’s exports totaling $81.5 billion.
Mexico’s sudden raid raises questions, particularly as President Trump recently threatened to impose a 25% tariff on Mexican products. Concerns also linger regarding the potential rerouting of Chinese goods into the US market.
To safeguard against potential disruption in trade routes, President Claudia Sheinbaum announced initiatives for local part replacements to counter China’s parts in Mexican products.
The rejection of China’s access routes into the US via Mexico is worth monitoring, as China strives to expand its export avenues amid challenging circumstances.
Lead by Asia-Pacific countries, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) concluded its annual meeting in Vancouver on November 28th. The CPTPP announced the acceptance of the UK and Costa Rica, omitting any mention of China’s application.
China’s repeated application for CPTPP membership has been rejected for the fourth consecutive year since 2021. Unlike the World Trade Organization’s acceptance system, CPTPP mandates specific criteria for entry, including tariff reductions, non-tariff barriers removal, and competition and intellectual property regulations.
However, China’s practices such as subsidies for state-owned enterprises, restricted data flows, intellectual property theft, and technology transfer stipulations are seen as conflicting with CPTPP standards.
Japan, being the largest economy in the CPTPP, plays a pivotal role in the agreement’s functioning. Despite recent gestures toward Japan, such as gradually resuming imports of Japanese seafood and unilateral visa exemptions, China’s application to join CPTPP continues to be rebuffed.
With the CPTPP eliminating trade barriers among member states, it can effectively boost trade growth, especially in light of the weakened position of the World Trade Organization. The CPTPP currently comprises 11 member countries.
Taiwan’s application to join the CPTPP has also been denied, potentially due to the “veto power” mechanism where all member countries need to approve new entries. Given China’s continued suppression of Taiwan, obstacles to Taiwan’s inclusion in the agreement are considerable.
China’s economic model reliant on investment, consumption, and exports has become increasingly export-driven amid foreign investment withdrawals and a lack of domestic consumption. If export routes continue to narrow, China’s economy could face further challenges.
China is seeking to broaden its export channels, yet the outlook is uncertain. As global trade dynamics evolve, China’s economic resilience will be tested.