Introduction
A recent study by the Banco Central Europeo (BCE) suggests that the primary reason for China’s product dumping in European markets, undercutting local producers, is not the U.S. tariffs but rather China’s internal demand weakness.
Internal Demand Weakness: The Main Culprit
According to the BCE, the surplus of products being poured into European markets at extremely low prices is mainly due to China’s internal demand issues, not the U.S. tariffs. This situation has intensified as U.S. tariffs force China to seek new markets for products facing difficulties in export.
Trade Tensions and Chinese Exports
The BCE argues that escalating trade tensions between the U.S. and China could lead to increased Chinese exports to Europe. However, the BCE also points out that the rise in Chinese exports to the EU predates recent tensions and aligns more with China’s internal demand weakness starting in 2021.
The Trigger: China’s Internal Factors
In 2021, a Chinese real estate downturn depressed internal demand, affecting investment in housing—a sector sensitive to imports. Meanwhile, state-driven manufacturing investment aimed at stabilizing growth created excess capacity and pushed companies into price wars, prompting them to redirect sales to foreign markets.
Chinese Factors Contributing to Product Dumping
Several factors in China, including weak consumer demand, trade policies, and a strategic focus on domestic production of key goods, continue to suppress import demand. These elements indicate a lasting shift in China’s import behavior, widening the trade gap.
Understanding Product Dumping
Product dumping refers to the practice of selling a product below its normal price or even below production cost to gain competitive advantages.
Key Questions and Answers
- What is product dumping? Product dumping is the practice of selling a product at a price lower than its normal market value or even below production cost to gain competitive advantages.
- Why is China dumping products in Europe? According to the BCE, it’s primarily due to weak internal demand in China rather than U.S. tariffs.
- When did this trend start? The BCE traces the current trend back to 2021, when a Chinese real estate slump began affecting internal demand.
- How are Chinese companies responding to reduced demand? To expand overseas, companies are cutting marginal costs and short-term prices, accepting narrower profit margins, or even operating at a loss in some cases.
- What factors are contributing to this situation in China? Weak consumer demand, trade policies, and a strategic focus on domestic production of key goods are fueling the suppression of import demand in China.
