China's Export Surge and the Persistence of Machinery Competitiveness: Panel Evidence From 25 Countries

ABSTRACT

China's rapid ascent as a global machinery exporter raises fundamental questions about competitive resilience of incumbent economies. This paper examines whether China's gains in revealed comparative advantage (RCA) are associated with declining competitive positions among 24 incumbent economies and whether such changes coincide with structural regime transitions. Using a balanced panel of 25 economies over 2009–2024, we decompose machinery into five sub‐sectors (MC1–MC5) and combine fixed‐effects panel regressions with a Hidden Markov Model (HMM) to identify gradual erosion and regime‐level transitions. A one‐unit increase in China's machinery RCA is associated with a decline of 0.531 units in competitor RCA ( p  < 0.05) and 0.370 units in the Trade Specialisation Index ( p  < 0.01), concentrated in processing machinery and intensifying after 2016. HMM transition matrices reveal that Germany, Japan and Italy maintained perfectly stable competitive regimes (P(S2 → S2) = 1.000)—gradual erosion without structural collapse—while the United States exhibits selective collapse, retaining comparative advantage only in IT machinery. Because China's RCA is itself a relative measure, we treat these estimates as conditional associations rather than definitive causal effects. The negative association is robust in processing machinery—the most exposed sub‐sector—to non‐relative outcomes (export growth and levels) and to using China's absolute export share, though it is heterogeneous across other segments; an exploratory shift‐share instrument yields imprecise second‐stage estimates and is reported as supportive rather than confirmatory. These results suggest that path‐dependent structural buffers insulate the strongest incumbents from regime‐level displacement even as China's pressure intensifies.