China should prepare for stricter US and EU regulations on global rules of origin – as signalled in the recent trade deal between the Western economic powers – with the changes potentially weighing on its export sector by redefining global trade patterns, according to a Chinese economist.
“Trump’s current measures are temporary – tariffs can be imposed today and rolled back or even eliminated tomorrow. The real question for us is what the future global trade framework looks like,” said Zhang Yuyan, an academician at the Chinese Academy of Social Sciences.
Zhang said Western countries could introduce a more granular approach to rules of origin – the criteria used to determine where a product comes from, often for tariff purposes – turning it into a central pillar in shaping future trade.
“This is very important … The current rules of origin are relatively coarse,” Zhang said on Tuesday at the International Forum on China’s Economy and Policy in Hong Kong.
“China needs to be prepared for the likelihood that these rules could be directed at it,” he added, noting that about 60 to 70 per cent of the country’s exports are intermediate goods – often processed in third countries, complicating tariff enforcement.
A shift to more detailed value-added calculations along supply chains could lay the foundations for a more targeted tariff system, Zhang said.
A White House fact sheet on the US-EU trade deal, released in July, said the two sides would establish “strong rules of origin to ensure that the benefits of this agreement flow directly to the United States and the European Union, not to third countries”.
However, Zhang cautioned that even if Washington and Brussels move in this direction, intention does not automatically translate into implementation. Multiple rounds of negotiations would inevitably take place, while China’s comprehensive industrial chain puts it in a strong bargaining position, he added.
Zhang highlighted the rare earth industry as an example, noting that China’s advantage lies not in the size of its reserves but in its dominance across the entire supply chain – from refining to end-product manufacturing – giving Beijing leverage in trade talks with the US this year.
“Advanced economies may hold advantages in particular segments of the supply chain,” he said, citing as an example the lithography machines used to make semiconductors, the most advanced models of which are exclusively sourced from Europe.
“But China usually has the entire industry chain within its borders.” “If others try to target China, Beijing can still use its strengths [to retaliate]: the breadth and completeness of its manufacturing ecosystem.”