China’s record trade surplus fuels global jitters
The loudest complaints about Beijing’s surplus are expected from the European Union
China’s industrial juggernaut is terrifying the world after racking up a record US$1.2 trillion trade surplus last year. Shrugging off the shocks of Trump’s tariff war, the manufacturing powerhouse flooded Southeast Asia, Africa and Latin America with cheap exports.
Europe was also targeted as Chinese goods heading to the United States shrank after President Donald Trump rolled out eye-watering trade sanctions. As The Wall Street Journal reported last month, “all that cheap Chinese stuff is now Europe’s problem.”
At the same time, it is “feeding anxiety that local industries may be decimated by cheap Chinese imports,” the Semafor news site pointed out this week.
“The data showed that while Chinese exports to the United States were hit with heavy tariffs, the country compensated by exporting more to the rest of the world,” the Council on Foreign Relations stressed in a newsletter.
“China’s exports rose year-on-year by 26.5% in Africa, 14% in Southeast Asia, 9% in the European Union, and 8% in Latin America,” the New York-based think tank stated.
An artificially low currency is fueling China’s export drive.
Behind the numbers:
- The factors driving China’s booming trade and large surpluses are unlikely to fade soon, according to Bloomberg News.
- At the heart of the problem is anemic domestic demand, evaporating household wealth and rising unemployment. Also, the stench of stagnation is everywhere.
Delve deeper: “The loudest complaints about China’s surplus are expected from the EU [European Union]. The bloc has called for Beijing to stimulate domestic demand and reduce its own barriers to manufactured imports,” the Financial Times reported.
Between the lines: An artificially low currency is fueling China’s export drive. “The [yuan] is so deeply undervalued, the strengthening we project would still leave [it] comfortably in inexpensive territory,” Goldman Sachs strategist Teresa Alves wrote in a note last month.
Big picture: Yet, there are other issues at play, including “the discrepancy between propaganda and reality,” China Business Spotlight highlighted today.
Bottom line: “Despite Beijing’s rhetoric about technological independence, imports of high-end chips from Taiwan and the US continue to rise,” it said in a newsletter.
China Factor comment: Currency manipulation, heavy state-subsidies and deepening supply chains stretching across ASEAN nations underline Beijing’s trade policies. Left unchecked, they threaten to hollow out Europe’s manufacturing base.