China’s $1 trillion trade surplus! Winning on the export front - how is Beijing dealing with Trump’s tariff hit

China has achieved a record $1 trillion trade surplus despite tariffs imposed by the United States, demonstrating the world's appetite for its goods. Chinese exporters successfully shifted their focus from the U.S. to markets in Europe, Asia, and Africa.

This export resilience, driven by a powerful manufacturing sector and weak domestic demand, strengthens China's position in ongoing trade discussions. That said, the reality is a bit more complicated. questions remain about the long-term sustainability of this export-driven model and the broader implications for global trade.

**How China Navigated U.S. Tariffs**

Despite President Trump's tariffs aimed at curbing America's trade deficit, China's export economy accelerated, resulting in the unprecedented trade surplus in the first 11 months of the year. Anticipating renewed trade conflict following Trump's election, Chinese manufacturers ramped up exports. When the tariffs materialized, instead of declining, China's exports increased.

Customs data reported by CNN indicates a 5.7% year-on-year increase in exports between January and November. While shipments to the U.S. decreased by 18.3%, exports to Europe rose by 8.9%, to Southeast Asia by 14.6%, and to Africa by a substantial 27.2% during the same period. This export surge has reinforced Beijing's confidence in reducing reliance on the U.S. market and strengthened President Xi Jinping's determination to maintain a firm stance in trade negotiations with Washington. Although tensions eased during talks in October, resulting in a fragile truce, a comprehensive trade agreement remains elusive.

Chinese exporters adapted to the tariffs by adjusting supply chains, rerouting shipments, and expanding into markets with strong demand for affordable goods. This company-led approach helped China withstand the impact of U.S. tariffs. Furthermore, weak domestic demand and low consumer confidence within China have pushed manufacturers to seek growth opportunities abroad. Imports, a measure of internal consumption, increased by only 0.2% during the first 11 months of the year.

China's position as a global manufacturing hub has facilitated this export shift. Investments under the “Made in China 2025” strategy have expanded production capacity. According to Nomura, Chinese exports have increased by nearly 45% over the past five years, boosted by global demand during the pandemic. That said, the reality is a bit more complicated. this investment has also led to overcapacity, intensifying domestic price competition and compelling firms to seek overseas markets. Many developing economies have become increasingly reliant on Chinese components and finished goods, as competitors struggle to match China’s scale and pricing.

Wang Jun, of the General Administration of Customs, stated that China’s trade performance reflects the strength of its industrial supply chain, the growth of higher-tech industries, and the resilience of exporters.

**Sustainability Concerns**

While Hu Xijin, former editor-in-chief of the Global Times, believes Chinese products have an “irresistible appeal” due to their quality and low prices, economists caution that some export growth may be inflated by transshipments – goods routed through other countries before being re-exported. This practice complicates tariff enforcement. Concerns are also rising about the sustainability of China's rapid export growth. While analysts anticipate continued export strength, they expect the growth rate to slow. Zichun Huang, at Capital Economics, suggests China’s trade surplus may widen further due to rerouted trade supporting exports, while soft domestic demand weakens imports.

China's export surge has also heightened trade tensions beyond the U.S., with the EU, India, and Brazil expressing concerns about Chinese “dumping”. The EU has already implemented tariffs and anti-dumping measures on Chinese electric vehicles and other products. French President Emmanuel Macron described trade imbalances between Europe and China as “unbearable” and warned of potential additional tariffs.

**Domestic Economic Challenges**

China faces economic vulnerabilities, including a five-year decline in the property sector, which has reduced household wealth and spending. High youth unemployment and limited social security coverage continue to constrain consumption. Deflationary pressures, driven by overcapacity and intense price wars, have also affected the economy. Authorities have intervened to control manufacturers, but economists believe deflation is unlikely to ease soon. With Beijing hesitant to implement a major stimulus package, exports have become vital for growth.

China’s Central Economic Work Conference acknowledged these challenges, stating that the economy faces “old problems and new challenges” and that the impact of the external environment is intensifying. The government plans to continue a “more proactive fiscal policy” and a “moderately loose monetary policy” next year. China is also developing its next five-year economic plan, expected in March, which will prioritize strengthening its “economic strength, scientific and technological capabilities, national defense strength” and accelerating development in key sectors.