China is hurtling towards a record $1.2 trillion trade surplus.
(Bloomberg) — President Xi Jinping’s export engine has proved unstoppable during five months of sky-high US tariffs, sending China toward a record $1.2 trillion trade surplus.
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With access to the US curtailed, Chinese manufacturers have shown they aren’t backing down: Indian purchases hit an all-time high in August, shipments to Africa are on track for an annual record and sales to Southeast Asia have exceeded their pandemic-era peak.
That across-the-board surge is causing alarm abroad, as governments weigh the potential damage to their domestic industries against the risk of antagonizing Beijing — the top trading partner for over half the planet.
While so far only Mexico has hit back publicly this year — floating tariffs as high as 50% on Chinese products including cars, auto parts and steel — other countries are coming under increasing pressure to act. Indian authorities have received 50 applications in recent weeks for investigations into goods dumping from nations including China and Vietnam, according to a person familiar with the matter who asked not to be identified as the information isn’t public. Indonesia’s trade minister pledged to monitor a deluge of goods, after viral videos of Chinese vendors touting plans to export jeans and shirts for as little as 80 US cents to major cities caused an outcry.
For all the pain, the chances of more meaningful action are limited. Countries already embroiled in tariff negotiations with the Trump administration appear reluctant to take on a separate trade war with the world’s second-largest economy. That’s giving Beijing breathing room from US levies at heights economists previously predicted would halve the nation’s annual growth rate.
“The subdued response is probably informed by ongoing US trade negotiations,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics. “Some countries may not want to be seen as contributing to a breakdown in the global trading system. Some may also be holding back on tariffs against China in order to offer them as concessions to the US during their own trade negotiations.”Officials shielding their economies from Beijing are treading carefully. South Africa’s trade minister has advised against punitive tariffs on Chinese car exports — which nearly doubled this year — and is instead seeking more investment. Chile and Ecuador are quietly imposing targeted fees on low-cost imports, after Chinese e-commerce giant Temu’s monthly active users in Latin America soared 143% since January. While Brazil has threatened more aggressive retaliation, this summer it gave China’s biggest electric car maker, BYD Co Ltd, a tariff-free window to ramp up local production.
A BYD Brazil factory under construction in Camacari, Brazil in January. Photographer: Tuane Fernandes/Bloomberg
Beijing is using both diplomatic charm and economic threats to prevent countries from taking outright retaliation. Earlier this month, China’s president rallied BRICS nations to forge a united voice against protectionism during a leaders’ call of the bloc, while Commerce Ministry officials have warned Mexico to “think twice” before acting, making clear such steps will have recriminations. Adding to the risks, Trump is pressuring NATO nations to impose tariffs up to 100% on China over its support for Russia. Chinese officials say their trade with the world is within reasonable bounds and that Beijing isn’t out to dominate global markets. “When there’s demand from abroad, China exports accordingly,” Vice Finance Minister Liao Min said in July. The state-run People’s Daily newspaper on its social media account last month hit back against Western criticisms of “dumping,” arguing that China’s exporters don’t sell below cost. If Trump does corral other countries to gang up on China, it’ll make dealing with internal challenges such as a prolonged property crash and an aging population harder, according to Chang Shu and David Qu of Bloomberg Economics. “Beijing will likely hit back with reciprocal tariffs immediately, but that risks alienating partners at a time when it critically needs allies,” they said. “Over time, it may also encourage firms to localize production in partner countries.”
While Chinese exporters are defying the odds, surging trade isn’t making them richer — or helping the nation’s domestic issues. Profits at industrial firms fell 1.7% in the first seven months, as manufacturers trying to reduce overcapacity at home under Xi’s “anti-involution” drive slashed prices to sell more overseas. That’s only worsening China’s sticky deflation, on track for its longest spell since the country began opening up in the late 1970s.
The export explosion could also undermine Beijing’s efforts to rebalance its economy toward stimulating consumption — defying foreign officials such as US Treasury Secretary Scott Bessent, who has urged Beijing to make boosting the Chinese consumer a pillar of its blueprint for the next half-decade. China’s policy document outlining those plans will be in focus in the coming weeks at a key Communist Party meeting.
For Xi, the risks might just be worthwhile. Showing the world China doesn’t need the US consumer strengthens his hand going into a high-stakes meeting with Trump at a summit in South Korea. The world’s biggest economies are still hashing out a possible trade deal, with a 90-day pause on tariffs as high as 145% currently keeping the peace.
China Shock 2.0
Even before Trump stunned the world with America’s steepest tariffs since World War II in April, emerging markets at risk of shedding millions of manufacturing jobs were worried about a glut of Chinese goods. Indonesia’s previous president threatened a 200% tariff to protect local industry, while Brazil has hiked duties on Chinese steel. Even Vietnam took temporary action against Chinese online retail giants that undercut local sellers.
Ultimately, it’s been hard for foreign leaders to protect their economies from China’s vast fleet of factories.
“Protectionism from the US and other countries has turned into a paper tiger because Chinese exporters are extremely competitive,” said Arthur Kroeber, head of research at Gavekal Dragonomics. They “can absorb some of the tariff hit and also have plenty of workarounds through transshipment and relocating late-stage production to lower-tariff countries.”
China’s trade surplus last year was almost $1 trillion and is on track to exceed that in 2025, based on Bloomberg calculations.
Cambodia’s central bank governor Chea Serey was candid about the balancing act smaller economies reliant on Beijing are having to perform. “We do import a lot from China,” she told Bloomberg Television earlier this month, when asked about Chinese dumping. “We also rely a lot in terms of foreign direct investment from China.”
While a rise in shipments to Vietnam suggests some goods destined for US shores and other places are being re-routed to bypass Trump’s wall of tariffs, that’s only part of the picture. Demand for China’s world-beating, high-tech innovations helped drive much of the recent traffic. Rising sales to wealthy markets in Europe and Australia also indicate Beijing simply found new buyers for many products.
India shows how Trump’s redrawing of the global trade map is benefiting Beijing in new ways. Exports to China’s neighbor hit a record $12.5 billion last month, driven largely by Apple Inc.’s suppliers rapidly shifting output of iPhones to India from its Asian neighbor. Those companies, however, still depend on parts and tooling made mostly in China.
In July, Chinese firms shipped almost $1 billion worth of computer chips to India and billions of dollars more worth of phones and parts, according to data released by Beijing. That puts exports on track to exceed last year’s record, with the value of shipments so far this year almost as large as the whole of 2021.
“China has performed better than expected in the first half,” JPMorgan Chase & Co.’s chief India economist Sajjid Chinoy told Bloomberg Television. “Some of this is the fact that China has very cleverly found other export markets, including Europe, which has been a key hedge to slowing exports to the US.”
Read more on Chinese trade:
China Exports to US Slump 33% But Trade Surplus Heads for Record
China Pours Exports Into Africa Faster Than Anywhere Else
A Chinese E-Commerce Glut Is Meeting Resistance in Latin America
Shanghai’s Yangshan Deepwater Port in May.Photographer: Qilai Shen/Bloomberg
A weaker currency gave China another edge. The yuan has depreciated along with the dollar against currencies such as the euro. Macquarie Bank previously estimated the yuan’s real effective exchange rate — which accounts for inflation differentials between a nation and its main trading partners — was at the weakest level since December 2011.
And the Federal Reserve’s rate cut this month could drag the dollar and possibly the yuan down further, boosting both global demand and also the competitiveness of Chinese exports.
For all the consternation around the world, the glut of goods cascading from China won’t be easy to stop. Chinese electric car exports have continued to power ahead despite steps by the US and Canada to curb them with punitive tariffs and bans.
In the first seven months of this year, carmakers such as Nio, BYD and Xpeng Inc. exported more than $19 billion worth of electric-powered vehicles, about the same as in the same period last year, with Europe being the largest market even after the EU imposed tariffs last October.
China’s in a better position than many other countries to find alternative markets to the US, according to Adam Wolfe of Absolute Strategy Research. Its analysis shows there’s almost a 50% overlap between what China sold to the US and what it exports to BRICS nations, suggesting much of what America no longer buys can be shipped to other markets.
“China’s shown this ability to move into other markets and get market share abroad and that probably continues,” said Wolfe. “I don’t know that China is going to see a contraction in exports over the rest of the year.”
–With assistance from Shruti Srivastava, Philip Heijmans, Claire Jiao, Haslinda Amin, Linda Lew, Ntando Thukwana, Andy Lin and Alex Vasquez.
(Updates with details on China’s trade surplus this year.)
