China’s industrial policy and persistent overcapacity are reshaping the global economy, with profound implications for the European Union, but also for the so-called Global South. While many expected China to gradually climb up the value chain, moving away from low-tech manufacturing as its economy advanced, recent policy signals suggest otherwise. China’s 14th Five-Year Plan, passed in March 2021, speaks of a strategic commitment to maintaining large-scale production in low-tech sectors, contradicting previous expectations that developing nations would take over these industries.
In fact, China’s pursuit of self-reliance to shield itself from potential geopolitical tension has intensified state-driven industrial expansion, leading to significant overproduction across multiple sectors. Instead of adjusting production to global demand, Beijing has prioritized economic security, ensuring domestic industries remain dominant, even at the cost of trade imbalances.
For Global South economies striving for industrialization, this presents a significant challenge. Instead of opening space for local manufacturers, China’s continued dominance in low-value industries—coupled with its ability to produce at scale and at lower costs—undercuts domestic production in developing countries. This dynamic not only stifles local industry growth but also reinforces trade imbalances, keeping many nations dependent on China for affordable imports while limiting their ability to build competitive manufacturing sectors of their own.
Deepening Trade Imbalances
Over the past five years, China’s manufacturing trade surplus with both lower- and upper-middle-income countries has expanded significantly. In upper-middle-income nations, such as Brazil and South Africa, China has transitioned from being a net importer of machinery and equipment to establishing a dominant surplus. These economies, once expected to strengthen their domestic industrial bases, now struggle to compete with China’s export strategy.
In lower-middle-income countries such as India, Indonesia, and Nigeria, the situation is even more pronounced. China’s exports of consumer goods, intermediary goods, and industrial machinery have surged, widening the trade imbalance. While these nations benefit from access to affordable Chinese products, their growing reliance on imports and intermediary goods hinders local value-chain development and slows industrialization efforts. Instead of moving up the global production ladder, many developing nations remain locked in a cycle of raw material exports and high-tech imports, reinforcing China’s economic dominance.
The Global South Is Pushing Back
As China’s manufacturing trade surplus grows, middle-income countries have taken the most aggressive action to curb the influx of cheap Chinese imports, surpassing those of high-income economies. India, Brazil, and Argentina have implemented import tariffs, anti-dumping duties, and local content requirements to protect their industries from Chinese competition.
While early trade restrictions primarily targeted steel and textiles, they have expanded across multiple sectors over time. Today, industries such as machinery, electronics, transport equipment, and renewable energy components are subject to intensified protectionist policies. Notably, unlike Western states, Global South countries that have implemented defensive trade measures have not faced significant retaliation from Beijing, possibly because China is seeking to maintain its broader economic and diplomatic ties with these markets.
Beyond the broadening scope of targeted industries, the types of trade restrictions have also evolved. Upper-middle-income countries have adopted more sophisticated tools, moving beyond basic tariffs to subsidies for domestic firms, local content requirements, and strict technical regulations that make market entry harder for Chinese products.
In contrast, low-income countries are exposed to a much lesser degree to Chinese imports, due to very limited economic ties but also lack the regulatory capacity and legal expertise to implement such measures effectively. Without well-established trade monitoring institutions, many of these economies remain more vulnerable to China’s export dominance, relying instead on informal trade barriers or political negotiations to curb imbalances.
At the same time, some Global South countries are adopting measures to encourage Chinese investment and to ensure greater local value-added processing. Turkey, Brazil,Indonesia, and Zimbabwe have been proactive in attracting Chinese capital into sectors such as automobiles, renewable energy, and electronics, but under conditions that require technology transfer and local sourcing. Even smaller economies like Benin are seeking to balance trade relations by pushing for Chinese investments in agro-processing and manufacturing, rather than just raw material extraction.
The EU’s Opportunity
In short, many Global South countries are increasingly prioritizing higher value-added investments to reduce their dependence on China and diversify their economies. Many are also looking to the EU for support in strengthening trade resilience.
Herein lies a strategic opportunity for the EU: By assisting developing nations in reinforcing regulatory frameworks, industrial policies, and enforcement mechanisms, the EU can position itself as a key economic ally in balancing China’s growing dominance. With China’s overcapacity unlikely to ease in the near future, fostering stronger partnerships and adopting proactive trade strategies will be essential to creating a more sustainable and equitable global trade environment.
While China’s economic model has prioritized self-reliance and exports, concerns over its impact on global markets have intensified among both developed and developing nations. This growing shared concern enables the EU to position itself as a proponent of global trade solidarity, advocating for reforms that protect both advanced and emerging economies.
The shifting global trade landscape further reinforces this urgency. Following the recent hike of US tariffs on China imports in March 2025, bringing duties up to 20 percent, Beijing has retaliated by imposing import tariffs on US agricultural goods, which is likely to increase China’s agricultural imports from Global South nations. While this could bring short-term export opportunities with it, it also risks reinforcing commodity-driven trade patterns that limit industrial development in developing countries.
A More Strategic EU Trade Approach
If the EU seeks to present itself as an alternative to China’s economic model, it must do more than provide market access—it must align investments with industrial capacity-building and diversification goals, ensuring Global South economies do not remain locked into low-value commodity exports.
To do so, the EU must move beyond conventional development aid and adopt a targeted approach that enhances industrial competitiveness in Global South economies. Strategic investments in manufacturing, technology transfer, and the green energy sector could offer developing nations viable alternatives to China’s dominance in low-cost goods. Countries such as Brazil and Kenya are already benefiting from EU-backed investments in high-value manufacturing and sustainable industries, which suggests that such a framework could be expanded. Additionally, the EU is in a good position to support legal and regulatory frameworks that help Global South nations better enforce trade policies, an area where many lower-income countries struggle to counterbalance Chinese imports effectively.
At the same time, for the EU to solidify its role as a fairer trade partner, its own trade policies must be carefully calibrated to avoid unintended harm. The EU’s Carbon Border Adjustment Mechanism (CBAM), while designed as a climate policy measure, could unintentionally disadvantage Global South exporters if compliance costs remain high. Without targeted EU support, this could push developing nations further toward China’s green technology solutions, weakening the EU’s trade influence.
However, by advocating for global trade reforms while offering practical economic alternatives, the EU can establish itself as a credible counterweight to China’s exports-driven, dependency-inducing model—one that prioritizes economic resilience, equitable partnerships, and sustainable trade relationships.
NB. This article draws on research conducted during a fellowship supported by the Bundeskanzler-Helmut-Schmidt-Stiftung (BKHS); the author acknowledges the foundation’s valuable support.
Aya Adachi is an independent analyst focusing on Chinese and Japanese foreign economic policies and geoeconomics.
