China’s $1-trillion trade surplus: What’s behind it, what it means for India, world

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, which is 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 said to the Les Echos financial newspaper.

China’s manufacturing dominance

There has been an evolving bipartisan consensus in Washington DC that China has gotten away with low cost manufacturing for too long.

Clearly, no other country has had the same level of global dominance across product categories since the early 1970s as China. This is more significant now than in earlier decades, when trade represented a much lower share of global goods production and consumption. For instance, the global trade-to-GDP ratio in 1970 was around 25 per cent, but by 2022, that climbed to over 60 per cent.

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 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 the second World War, according to research by the Rhodium Group and from views flagged by Noah Smith’s ‘Manufacturing is a war now” piece.

What makes China’s extraordinary dominance in manufacturing worse is the continuing weakness in domestic demand. That, too, comes from the problem of China’s unwillingness to vacate its earlier specialisation in low value-added manufactured products as it moved up the global value chain. 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 as it moved up the value chain.

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. While many might not have agreed with Trump’s solution, it’s difficult to wish away the problem he started 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 after the conclusion of the IMF’s annual review of China’s economy Wednesday (December 10), fund 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 CSIS, China’s manufacturing boom has fueled decades of export-oriented economic growth, undercutting foreign competitors and contributing to a growing appetite for tariffs in the US and Europe.

China’s economic rise has been “undergirded by its large manufacturing sector and high volumes of manufactured exports”. Thanks to abundant, low-cost labour, large economies of scale, and significant state support, Chinese net exports of manufactured goods grew more than 25-fold over the last two decades.

In the US and many other developed economies, consumers have enjoyed cheaper products as a result — but their manufacturers have struggled to compete. The subsequent political backlash has contributed to a growing appetite for tariffs and industrial policies in many advanced economies as they attempt to make their own manufacturing sectors more competitive in global markets, the CSIS study of January 2025 said.

In the face of these mounting geopolitical tensions, Chinese President Xi Jinping has only doubled down, with repeated calls for China to become a “manufacturing power” and dominate global markets for advanced high-tech goods such as EVs, high-end electronics and defence equipment.

View in India

The view in India’s policy circles has been that the China-led trade imbalances need to be desperately corrected and that New Delhi is supportive of any global efforts towards that end. That was before Trump’s tariff onslaught ended hitting India and Brazil the most.

More recently, the concerns here have started to focus on a potential deluge of Chinese goods that were originally intended for the US and could end up in India and other countries, especially as New Delhi has started to dismantle some of its protectionist quality control barriers that it had progressively erected across product groups over the last 36 months. Chinese imports into India have surged in the first seven months of this fiscal, threatening to upend a steadily widening trade imbalance between India and China.

“Important to understand China’s trade surplus correctly”

China’s customs agency announced on Monday that the country’s accumulated trade surplus reached .08 trillion through November. (NYT)

Less than 24 hours after the news of its trillion dollar surplus broke, a Global Times editorial Claimed that linking China’s surplus with “false labels” such as dumping and overcapacity are attempts “to frame an economic phenomenon as a geopolitical risk, distorting the normal international division of labor into a structural threat”. This, the Chinese Communist Party-linked mouthpiece said, is “a misinterpretation of China’s development model and the global division of labor that reflects irrational anxiety and prejudice”.

Beijing’s view is that a trade surplus does not equate to “squeezing others out”; rather, China’s surplus “is the outcome of mutually beneficial cooperation among countries”. A significant portion of China’s exports, the Global Times editorial claimed, represents the model of “produced globally, assembled in China and sold worldwide.”

According to data from the General Administration of Customs of China quoted by the publication, in the first 11 months of 2025 (calendar year), the import and export volume of foreign-invested enterprises accounted for 29 per cent of China’s total foreign trade value, while the import and export volume of processing trade, closely related to global division of labour and cooperation, accounted for nearly 19 per cent of China’s total foreign trade value.

This proportion is even higher in highly globalised sectors like electronics and automobiles, it said, adding that this indicated that China’s trade surplus “also drives production and services in other countries” and that China’s trade surplus reflected “the country’s deep engagement in globalisation rather than casting a shadow that threatens the world”.