China’s trade surplus hit almost a trillion dollars in 2024, driven by record exports of $3.6 trillion, according to official data.
The surplus, which is equivalent to 992.2 billion in US dollars, has sparked concerns about a new wave of global trade tensions, especially as Donald Trump prepares to re-enter the White House with promises of steep tariffs on Chinese goods.
However, this surplus exposes deep vulnerabilities in China’s economic model and its heavy reliance on exports to compensate for weak domestic demand.
Why is China’s surplus so high?
China’s exports grew 6.7% in value terms and 11.6% in volume year-to-date through November, reflecting a surge in shipments to key markets like the U.S. and Southeast Asia.
Source: Bloomberg
Exports to the US alone reached $525 billion in 2024, a 4.9% increase from the previous year, with a sharp 15.6% jump in December.
This growth was partly fueled by “front-loading,” as companies rushed to complete shipments before Trump’s anticipated tariffs.
However, imports told a different story. China’s imports grew by just 1.1% in 2024, constrained by sluggish domestic consumption and falling commodity prices.
The weak import growth highlights an unbalanced economy, where export gains mask structural issues at home.
What’s driving the trade imbalance in China?
The surplus specifically highlights China’s heavy reliance on exports to power its economy.
Domestic demand remains weak despite government incentives like trade-in subsidies for cars, home appliances, and electronics.
While these measures have spurred some activity, they have failed to offset the larger issues of low consumer spending and stagnant income growth.
China’s focus on advanced technologies such as electric vehicles, solar panels, and semiconductors has also contributed to the imbalance.
These sectors are still grappling with overcapacity since they are burdened by heavy subsidies.
Excess production has driven down factory prices for more than two years and led to accusations of dumping cheap goods in global markets.
China’s weak domestic demand
Low domestic consumption is one of China’s biggest economic vulnerabilities.
The Consumer Price Index (CPI) rose by just 0.1% in December 2024, while the GDP deflator, which adjusts for inflation, flatlined at zero.
Economists fear China could slip into a deflationary trap similar to Japan’s “lost decade.”
The middle class, battered by the collapse of the real estate sector and pandemic-related uncertainties, is saving more and spending less.
Efforts to stimulate consumption, such as expanding the social security system and offering subsidies, are yet to show meaningful results.
For an economy of China’s size, this lack of robust domestic demand creates ripple effects that extend far beyond its borders.
Global trade tensions heat up
China’s export surge has not gone unnoticed. The US trade surplus with China grew by 6.9% in 2024 to $361 billion, reigniting calls for tougher trade measures.
Trump has pledged to impose tariffs of up to 60% on Chinese goods, a move that could slice between 0.5 and 2.5 percentage points off China’s GDP, according to various economists.
But the US isn’t the only country taking action. The European Union has already imposed tariffs on Chinese electric vehicle imports, citing market dumping concerns.
Brazil and Mexico have introduced measures to protect their domestic industries, with Mexico targeting Chinese textiles and electronics.
These responses suggest a growing global backlash against China’s export-driven strategy.
How is Beijing responding?
China’s policymakers are aware of the risks and have started shifting their focus from investment to consumption.
In December, Pan Gongsheng, the governor of China’s central bank, emphasized the need to raise incomes, improve social security, and expand consumer subsidies to reduce the economy’s dependence on exports.
At the same time, Beijing is trying to stabilize its financial system. Measures such as refinancing local government debt and supporting property markets have been rolled out, though with mixed success.
The People’s Bank of China has also taken unusual steps, including halting bond purchases, to prevent a potential bond bubble.
However, private investment remains subdued due to credit constraints and low confidence, while fiscal deficits are rising.
The National People’s Congress in March is expected to announce further measures aimed at boosting domestic demand, but analysts caution that such initiatives may take time to deliver results.
Could a new trade war hurt China more?
China is better prepared for a trade war today than it was during Trump’s first term.
It has diversified its export markets, with exports to ASEAN countries growing by 12% in 2024, nearly double the overall export growth rate.
However, this strategy has limits. Diversion of goods to third countries, such as Vietnam, to circumvent US tariffs has drawn scrutiny and could face crackdowns.
A prolonged trade war would likely exacerbate existing imbalances. Overcapacity in manufacturing could worsen as domestic consumption struggles to absorb excess production.
Additionally, retaliatory tariffs from other trading partners could limit China’s ability to find alternative markets.
Beijing’s big policy meeting in March will likely roll out more measures to get people spending. But the real challenge is for China to find a way to grow without relying so heavily on exports.
Until then, that massive trade surplus might look impressive on paper, but it’s really a warning sign of an economy that’s still struggling to find its balance.
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