China's record trade surplus ensures global turmoil will continue

China's record trade surplus is less a sign of strength than of a stalled growth model-one that deepens global imbalances and fuels the next wave of trade conflict

Official statisticians in China have announced that the export superpower’s trade surplus hit a record $1.2 trillion in  2025. This is in spite of several headwinds, including domestic weaknesses, faltering global growth, and, of course, the new administration in the United States (US) clearly targeting Chinese exports. Most of the time, this might be seen as a sign of resilience on the part of an economy. But this is not one of those times. It is in fact an indicator of weakness at the top of the leadership in Beijing — an unwillingness or inability to restructure the country’s economy in a manner that would provide long-term stability, resilience, and growth for both themselves and the world. 

China’s growth model ran out of steam some years ago. It is designed around state-directed investment and exports and financed by financial repression, in which households and workers save more than they need to and are forced by the state-controlled financial system to pass on the excess to the government. This investment-heavy and consumption-poor model necessitates a surplus of savings — which in macroeconomic terms almost guarantees a giant trade surplus. Beijing has had ample opportunities to address this, but it would require genuine political and economic reforms at home. Local governments and large state institutions would lose power when they no longer have excess savings to draw on. The private sector would grow in power, and the communist party’s subjects would have more economic agency as householders and workers. They might even come to think of themselves as controllers of their own destiny rather than as recipients of the benefits of a state-run model. This would hardly be in the interests of the people who run the system. And thus it has repeatedly responded to successive crises through stimulus without rebalancing — pushing capital back into the creaking pipelines that once shored up its growth. 

As a consequence, China is stuck on a treadmill. It must keep running and growing exports ever faster in order to squeeze out ever smaller amounts of growth. The consequences for international politics and for global development of this failure to reform have been severe. Populist politics has arisen in the US and elsewhere in the West as one consequence of it, destabilising the global trading system. Meanwhile, the natural ladder of development — in which countries climb up the value chain and then leave space for those poorer than them to take over low-end manufacturing — has been broken. China continues to dominate across the entire gamut of factory output, instead of leaving some for its poorer competitors. Left to itself, Chinese capital would flow out of the country to create competitors for its own exports. But regulations do not permit that to happen. Meanwhile, its own domestic demand remains subdued, and its consumers are not allowed to spend what they earn on global goods — the natural form of rebalancing. 

This cannot and will not continue forever. It is in the nature of imbalances to lead to crises. US President Donald Trump’s tariff war is one such crisis, although its effect has not been to force China to change its ways but merely to find mechanisms to divert its trade and covertly access Western markets anyway. The coming year will unquestionably see the multiplication of such crises, including in the developing world. This process will continue until the Chinese Communist Party changes course.