China’s trade surplus has surged to unprecedented levels, revealing significant implications for the global manufacturing landscape. In 2025, this surplus increased by 20% to reach a staggering $1.2 trillion, despite the obstacles posed by tariffs during the Trump administration. This development has triggered discussions about the fragility of the international economic order and the potential consequences for countries reliant on manufacturing.
A Surplus That Strangles
At the recent World Economic Forum in Davos, Canadian Prime Minister Mark Carney expressed concerns over the dismantling of the international economic framework, referencing the actions of major powers like the United States and, implicitly, China. In a stark illustration of this shifting dynamic, China reported a growth in its exports despite a backdrop of tariffs; overall exports rose by more than 5%, while sales to ASEAN countries and the European Union surged by over 13% and 8%, respectively. The contrasting stagnation of Chinese imports highlights a worrying imbalance that threatens manufacturers worldwide, from affluent nations in Europe to developing economies in Latin America.
Eswar Prassad, a former head of the China division at the International Monetary Fund, aptly summarises the situation: “Forget Trump’s Tariffs. The Real Danger Lies in China’s Trade Surplus.” This substantial surplus is not merely a statistic; it is an economic phenomenon that is reverberating throughout global supply chains, placing significant pressure on manufacturers who find themselves unable to compete with China’s export-driven economy.
The Shifting Economic Landscape
The ramifications of China’s trade policies extend beyond traditional concerns about tariffs. The United States’ shift away from globalisation and liberal democracy has exacerbated an already precarious situation. As the United States grapples with its internal challenges, including a significant contraction of its manufacturing sector, it must confront the broader implications of its retreat from the global economic order. Other nations have not reacted to similar manufacturing declines with a desire for retribution against global trade; rather, they have sought to adapt and innovate.
The so-called “China shock,” which began with China’s entry into the World Trade Organization in 2001, has had profound political consequences in the United States. The resulting influx of low-cost Chinese goods devastated manufacturing sectors in numerous regions, contributing to the rise of populist sentiments. However, this turmoil is largely attributed to a lack of social infrastructure in the U.S. to manage the industrial upheaval, unlike other affluent nations that have implemented strategies to address such disruptions.
The challenge for China lies in recognising its role in shaping the global economic discourse. Its relentless export policies are contributing to a reevaluation of the benefits of open trade beyond American borders. The World Trade Organization has noted over 300 anti-dumping investigations initiated by lower- and middle-income countries against Chinese products since 2020, signalling a growing discontent with perceived unfair trade practices.
The Need for Reform in Global Trade Governance
The urgency for reform in global trade governance has reached a critical juncture. Maroš Šefčovič, the EU Commissioner for Trade, underscored the need for a new system that reflects the realities of the 21st century. This includes a potential reassessment of the World Trade Organization’s fundamental “most favoured nation” principle, which mandates equal treatment of trading partners. As the EU aligns more closely with the U.S. perspective that the WTO is no longer fit for purpose, the call for reform is gaining momentum.
Concerns over China’s trade practices—such as currency undervaluation and state support for exports—are fostering a consensus that nations require enhanced protective measures against its economic strategies. The United States has articulated that China’s manufacturing output surpasses that of the next nine largest manufacturing nations combined, presenting a significant threat to equitable global trade.
The Way Forward for China
For China, the path forward is fraught with challenges. As the world’s second-largest economy, it has the potential to play a pivotal role in upholding the principles of open trade. However, this requires a recalibration of its approach to trade relations, moving beyond a solely export-led strategy. While Beijing asserts that its investments in raw materials are fostering prosperity in the global South, the overwhelming nature of its exports threatens to undermine manufacturing capabilities in developing nations.
China’s current economic trajectory, reliant on exports, is yielding diminishing returns. With household consumption constituting only 40% of GDP—compared to 60% in OECD countries—ordinary citizens are reaping little benefit from this model. The opportunity exists for China to pivot towards a more balanced economic approach, fostering domestic consumption and engaging more constructively in global trade discussions.
Why it Matters
As the global economy navigates the complexities of trade imbalances, the trajectory of China’s economic policies holds significant implications for international relations and manufacturing sectors worldwide. The current scenario presents both a challenge and an opportunity for China to redefine its role on the global stage. By embracing a more equitable trading system and addressing the concerns of other nations, China could not only mitigate the growing backlash against its trade practices but also contribute to the stability of the global economy. The outcome of this balancing act will undoubtedly influence the future of international trade and economic cooperation for years to come.
