Trade tensions with Beijing have reached a breaking “point.” In the first half of the year, China’s surplus hit nearly US$576 billion, which was slightly down from $586 billion during the same period in 2025. But it is still on course to rival last year’s $1.2 trillion trade surplus.
The fallout has been seismic inside the European Union and across major global democracies. Amid shrinking spending at home, China’s GDP is being propped up by a tsunami of exports, fueled by “massive subsidies” throughout the entire value chain.
“State-capped cheap energy and a yuan [currency] kept persistently undervalued … [gives the world’s second-largest economy a] competitive advantage,” China Business Spotlight pointed out earlier this week.
Mark Sobel, a former senior United States Treasury official and later involved in the International Monetary Fund, described the Chinese currency as being between 20% and 30% below its true value in a Wall Street Journal newsletter.
“By [his] calculations, China’s manufacturing export surplus alone tops 10% of GDP, feeding trade tensions many economists call ‘China Shock 2.0’,” Sobel told Lingling Wei, the WSJ chief China correspondent, in a report released over the past 24 hours.
For a long time, we underestimated China’s power and economic strength.
German Chancellor Friedrich Merz
Barrier grief:
- Yet, these trade tactics are hollowing out the manufacturing base of major economies, triggering a flood of Chinese exports aimed at the EU and its partners.
- At the same time, Beijing “maintains various internal import barriers,” amid its obsession with dominating the worldwide industrial landscape.
Delve deeper: Germany, for example, has been flattened by the Made in China export avalanche. Up to 15,000 manufacturing jobs are being lost each month, according to Deutsche Welle, or the DW media group, based in Berlin and Bonn.
Between the lines: “For a long time, we underestimated China’s power and economic strength. We’re facing a major strategic turning point,” German Chancellor Friedrich Merz said in the city of Cologne last month.
Big picture: Germany is not alone in cranking up the pressure. “France is also pushing hard for a tougher line and has lobbied Berlin. Italy is watching and willing to move if Paris and Berlin align,” EU Perspectives reported in July, referring to the big three of the EU.
China Factor comment: Next month is being billed as “crunch time” for the largest trading bloc in the world. It will likely arrive when European Commission President Ursula von der Leyen delivers her state-of-the-union address in Brussels.