US President Donald Trump’s tariff war seems to have had little effect on China’s export-driven economy with the country clocking a record $1-trillion trade surplus with the rest of the world in 2025.
The landmark is clearly a reaffirmation of China’s stranglehold over global merchandise trade and a stark reminder of the fact that while Trump’s tariffs may have thwarted shipments to the US, exports to South and Southeast Asia, Africa and Latin America have correspondingly spiked.
And the deluge may have only started, which some analysts say could be the beginning of a “second China shock”.
This could potentially lead to economic and social consequences in countries such as Indonesia, Thailand, Malaysia and India, as well as much of Africa and Southeast Asia. Europe, already bracing for the impact of Chinese electric vehicles and consumer electronics, is perhaps now stuck “between an ultra-competitive China and a protectionist America,” said Politico. Beijing’s trade surplus “is untenable,” French President Emmanuel Macron told the Les Echos financial newspaper.
Manufacturing dominance
There has been an evolving bipartisan consensus in Washington DC that China has gotten away with low-cost manufacturing for too long. This is more significant now than in earlier decades, when trade represented a much lower share of global goods production and consumption.
Weakening domestic demand, alongside export-facilitating policies in products, where China is the world’s dominant manufacturer, has led to prices collapsing globally and driving other national producers out of business. While the benefit of this has been a phase of sustained lower global inflation, China has simultaneously created a progressive stranglehold over global manufacturing: a level of manufacturing dominance by a single country seen only twice before in world history — by the UK at the start of the Industrial Revolution, and by the US just after World War II, according to research by the Rhodium Group and Noah Smith’s opinion article, Manufacturing is a war now.
Domestic demand
This has concomitantly led to a weakness in Chinese domestic demand for imported goods, which was expected to rise if China had ceded the manufacture of low value-added manufactured goods. So, more than Beijing’s export competitiveness, weak Chinese imports explain this continuing imbalance.
Trump had ostensibly set out to address this imbalance early into his second term. So, while many might not have agreed with Trump’s solution, it’s difficult to wish away the problem that he set out to address.
Responding to the Chinese trade surplus, the International Monetary Fund linked China’s rising exports and growing trade imbalances in part to “a real depreciation of the yuan”. In a carefully-worded note Wednesday, IMF officials said the country’s low inflation relative to price levels among its trading partners has led to a weaker yuan in real terms. They urged Chinese policymakers to adopt bolder stimulus to boost consumption, which would lift consumer prices, while allowing more exchange rate flexibility.
According to analysis by Brian Hart, Hugh Grant-Chapman and Leon Li of the non-profit thinktank Center for Strategic and International Studies (CSIS), China’s manufacturing boom has fuelled decades of export-oriented economic growth, undercutting foreign competitors and contributing to a growing appetite for tariffs in the US and Europe.
