A year ago, Donald Trump waged a tariff war to curtail China’s relentless industrial manufacturing growth in a bid to revive US factories. One measure of that failure became abundantly apparent this week when China announced the world’s largest ever trade surplus – of almost $1.8 trillion.
In trade terms, Trump has been stumped.
A tsunami of Chinese exports to the rest of the world has blunted Trump’s tariff strategy. The world’s second-largest economy has adapted quickly and vigorously to the new world trade order. It has found new customers and new workarounds.
Despite Trump’s attempts to curb Chinese advancements in technology, the nation reported strong demand for electronics and lower-grade AI chips and booming electric vehicle shipments, which are up almost 50 per cent. China has set the stage to be the world’s top automobile exporter for the third year in a row.
Its trade numbers blew economists’ expectations out of the water, with Chinese outbound shipments across all categories year on year in December surging 6.6 per cent and prompting a consensus that this surplus is set to rise further this year.
Over the past year, China has successfully embarked on an export binge, redirecting many of its products previously sold to the US to other markets in Latin America, Europe, Africa and Asia. It has been additionally enabled by the weak Chinese currency.
It has also managed to skirt some of the US tariffs by using proxy nations, subject to smaller tariffs, through which to ship goods imported into the US.
Using these circuitous routes – known as trans-shipping – has exaggerated the extent of the reduction in China exports to the US which have officially slumped by 20 per cent in dollar terms.
China’s exports have grown particularly rapidly to South-East Asia and Africa. Many companies in these regions, including subsidiaries of Chinese businesses, assemble components in China and ship them to the United States, bypassing recently imposed US tariffs.
For example, in the first eight months of last year, US imports from Indonesia increased by a third – an outcome experts reportedly believe is the result of goods being redirected.
What sounds like a first world problem for China isn’t all good news for a nation that is also pushing hard for economic self-reliance. The country’s domestic economy remains weak, with spending having been hit hard since the real estate crash in 2022 blew a hole in the Chinese consumers’ savings and curbed local spending. This had also led to a weakness in Chinese imports, further widening the trade surplus.
The boost in cheap Chinese exports to other countries has meanwhile created its own global tensions as various nations such as France have concerns about eroding their sovereign manufacturing capacity.
The trade imbalance between China and large parts of the world is clearly creating an optics issue about which Beijing is becoming increasingly aware, not the least of which is the sharp contrast between its sluggish domestic demand and strong international demand.
But inflation in many other countries in the world has made Chinese imports more appealing and the country’s weak currency has made its imports more expensive.
Chinese exports to Africa grew by a massive 26 per cent while in the European Union, exports rose 8 per cent, and in South East Asia, they were up 13 per cent.
These represent tectonic shifts in world trading which will have their own ramifications.
But for the US, Trump’s attempts to thwart the rise and rise of Chinese manufacturing appears to be an experiment that has turbocharged its biggest economic rival.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
