China’s caught cold in a US$1 trillion trade trap
A record-breaking surplus would pile pressure on Beijing and trigger a global tariff war
China is poised to rack up a record-breaking US$1 trillion trade surplus this year. The eye-watering number will only create even greater global friction ahead of American President-elect Donald Trump’s return to the White House in January.
The sheer scale of these cut-priced exports is a stark reminder of anemic domestic demand as spiraling deflationary pressure on the world’s second-largest economy continues.
“With Chinese export prices still falling, export volume growth was enormous. The overall story is of an economy that is again growing off exports,” Brad Setser at the Council on Foreign Relations posted on X, which was formally Twitter.
Behind the numbers:
- China’s surplus soared to $785 billion in the first 10 months, according to data released last week, Bloomberg News reported.
- Nations across South America and the European Union have already imposed tariffs on steel and electric vehicles to protect crucial industries.
- The United States has also targeted Chinese exports. But now Trump is threatening to impose a 60% baseline tax on all Chinese goods next year.
Delve deeper: Beijing has a major economic crisis on its hands. Last week, it unveiled an $840 billion stimulus package to deal with ballooning local government debt after the property market collapsed nearly three years ago. But the problems run deeper.
Between the lines: “There are deep-seated doubts as to whether [Beijing] has the political conviction to address China’s deflationary economy,” George Magnus at Oxford University wrote in a commentary for The Wire China.
Big picture: “Stabilizing the domestic economy is necessary, but can only get the government so far. It is unwilling to embrace a more radical, pro-consumption and pro-services shift,” the author of Red Flags: Why Xi’s China is in Jeopardy, said.
China Factor comment: Magnus strikes at the heart of the matter. Stagnate wages, rising unemployment, falling home prices, and inadequate social services have left consumers struggling. An exodus of foreign direct investment has only increased the risks.