Evolution of the Emerging Markets Trade Landscape: The Rise of China and the Growth of South-South Trade
Summary:
- Since the early 2000s, emerging countries have undergone a transformation in their trade patterns. The United States and other developed economies, once major trading partners for these countries, have seen their dominance decline over the past two decades. They have been gradually replaced by other emerging markets, particularly China, which has become an indispensable trading partner.
- One of the most notable changes is the rise of China as the main trading partner for many emerging economies, thereby replacing the United States. Concurrently, trade between emerging countries—often referred to as South-South trade—has grown significantly. It now accounts for nearly half of the total trade of emerging markets, compared to just 24% in 1990, illustrating the intensification of economic connections.
- In recent years, the United States has revived a wave of protectionist trade policies, expanding tariffs not only on Chinese products but also on imports from a wide range of global partners, including key allies. Officially justified by national security, industrial relocation, and industrial policy considerations, these new tariff measures are once again reshaping global trade flows. However, after decades of trade diversification, emerging markets have become less vulnerable to U.S. economic cycles and policy decisions. The U.S. share of emerging country trade, which fluctuated between 18% and 22% in the 1990s and early 2000s, has fallen to just 12% today, signaling greater resilience in the face of evolving global dynamics.
Chart 1: Evolution of Emerging Markets Trade Flows
Evolution of the Emerging Markets Trade Landscape
Chart 2: Number of Countries Trading more with China than with the United States
In 2000, the United States was the primary trading partner for over 80% of emerging market economies. By 2023, the trend had reversed: China became the main trading partner for over 65% of emerging countries.
This transition is largely due to several factors:
- China’s rapid economic expansion, which stimulated global demand for raw materials;
- Its accession to the World Trade Organization;
- Its strategic will to increase its influence in emerging markets, notably illustrated by initiatives like the “Belt and Road Initiative,” which has significantly strengthened China’s trade and infrastructure ties with many emerging economies.
For example, Brazil’s exports to China reached $104.3 billion in 2023, driven primarily by soybeans, iron ore, and oil. Similarly, Indonesia exported $64.9 billion worth of goods to China in 2023, mainly iron and steel, mineral fuels, and nickel.
This strengthening of trade relations with China has reduced emerging markets’ dependence on the United States for exports and capital goods, thereby reducing their exposure to U.S. economic cycles. Concurrently, this evolution opens significant long-term opportunities, thanks to the size and continued growth of the Chinese economy, which is increasingly driven by consumption, as well as its vast domestic market, offering attractive prospects for emerging market exporters.
As part of the Belt and Road Initiative, China has significantly strengthened its economic and political ties with many emerging countries. Since the launch of the Belt and Road Initiative in 2013, China’s trade with participating countries has more than doubled, exceeding $2.1 trillion in 2023. This growth has been particularly pronounced in the sectors of machinery, electronics, textiles, and raw materials.
The Growth of Intra-Emerging Market Trade
Another significant trend is the sharp increase in trade between emerging market countries. South-South trade has risen from approximately 5% of total global trade in 1990 to 21% in 2024, which reflects a strengthening of economic ties among emerging countries.
Chart 3: Distribution of Global Trade
A significant portion of South-South trade involves China, whose trade multiplied by 162 between 1990 and 2024, now representing 13% of total emerging market trade. However, trade between emerging markets excluding China has also grown significantly—it multiplied by 31 over the same period, compared to a 10-fold increase in trade with developed markets. As illustrated in Chart 1, intra-emerging market trade (excluding China) now accounts for 38% of total emerging market trade, highlighting the growing importance of broader South-South economic ties.
Key Factors:
- Regional trade agreements have facilitated the increase in intra-emerging market trade; countries trading within their own region generally benefit from lower tariffs.
– Several regional trade agreements have been established over the past 5 to 10 years in different regions, such as the African Continental Free Trade Area, USMCA in North America, the Eurasian Economic Union (EAEU) in Eurasia for post-Soviet states, RCEP in Asia, and CPTPP in the Trans-Pacific region. This is in addition to older regional blocs, such as ASEAN and MERCOSUR.
– Regional trade agreements are generally considered more resilient than trade with other countries. This is partly because these agreements provide mechanisms that can contribute to economic stability and resilience.
– The U.S. withdrawal from certain key multilateral trade agreements, such as RCEP and CPTPP—particularly during the first Trump administration—has paved the way for emerging markets to take the initiative in developing alternative trade frameworks and redirecting trade flows. Before the implementation of U.S. tariff increases, trade between emerging market regions often faced relatively high tariffs, limiting their competitiveness. For example, exports from Latin America to South Asia face average tariffs of 14.9%. However, with the recent increase in U.S. import duties, emerging countries could increasingly direct their trade towards other emerging regions, thereby fostering stronger South-South integration.
U.S. tariffs on China, particularly during the 2018–2019 trade war, prompted many companies to relocate their production to other emerging markets such as Vietnam, India, Indonesia, and Mexico. This redistribution of manufacturing production has strengthened the trade of intermediate goods between emerging markets and has allowed several emerging economies excluding China to position themselves to benefit from the next wave of global supply chain realignment.
Conclusion: a New Trade Map
Emerging market countries are no longer merely reacting to the actions of advanced economies. They are:
- Increasing their trade among themselves,
- Deepening their strategic partnerships with China,
- Are gradually moving away from U.S.-dominated trade dynamics.
Over the next 10 to 20 years, this evolving trade architecture could strengthen the resilience of emerging markets through diversified partnerships, alter the global economic balance, and foster greater autonomy in the formulation of emerging markets’ policies and development strategies.
The sustained momentum of intra-emerging market trade and the diversification of trade flows represent a positive structural shift for investors. As this trend continues, investors and policymakers will need to re-evaluate their long-held assumptions about global trade, recognizing that emerging countries are now capable of shaping their own economic future.
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