1. China’s trade surplus is reaching record levels: the merchandise trade surplus approached $1.2 trillion in 2025 [para. 2], and in the first nine months of 2026 it reached nearly $940 billion, up 7.8% from a year earlier [para. 2]. The article argues that this does not prove an economy out of balance [para. 1].
2. The surplus has renewed international criticism. The IMF attributes China’s export reliance to weak domestic demand and industrial-policy support [para. 4], and advocates stronger consumption, industrial policy adjustments, and exchange-rate flexibility [para. 5]. Washington sees unfair competition, subsidies, and overcapacity, and has responded with tariffs and investigations [para. 6]. The EU is concerned about exports in autos, steel, and chemicals, and uses trade-deficit and subsidy arguments to justify restrictions [para. 7].
3. Does a widening surplus prove an external imbalance? No. An external imbalance requires an excessively large gap that cannot be justified [para. 10]. China runs a services trade deficit, so the current account and surplus relative to GDP matter [para. 11]. In 2025, China’s current-account surplus was $735 billion, or 3.8% of GDP, well below the 9.8% in 2007 and below Germany, Japan, and South Korea as a share of GDP [para. 13]. A large economy can have a large surplus without it being disproportionate [para. 14].
4. China can sustain the surplus due to growing competitiveness of its manufacturing, with extensive supply chains, economies of scale, and innovation [para. 17]. In contrast, the U.S. has offshored manufacturing [para. 18], and Europe faces high costs and slow adjustment [para. 18]. The Russia-Ukraine conflict’s energy shock hit Germany’s auto industry, while Chinese new-energy vehicles gained market share in Europe [para. 19]. Western export controls on advanced chips and equipment restrict U.S. and European exports to China; opening those markets would narrow deficits and China’s surplus [para. 20][para. 21].
5. Would America and Europe achieve balance without China? No. America’s deficit is rooted in its savings and spending patterns, manufacturing organization, and the dollar’s role [para. 23]. In 2025, China accounted for about 16% of the U.S. merchandise trade deficit [para. 24]. Cutting imports from China would shift deficits to other partners like ASEAN [para. 24]. The EU has an overall merchandise surplus outside the bloc despite its deficit with China [para. 25]. Restricting Chinese exports would not resolve structural problems [para. 26].
6. A bigger surplus is not always better for China. Exports support employment and technology [para. 28], but large surpluses can intensify trade disputes and create dependence on foreign demand, making the economy more vulnerable [para. 29]. A large current-account surplus also means savings exceed domestic investment, leading to foreign asset accumulation that requires careful assessment of returns and risks [para. 30][para. 31]. A trade surplus should be a result, not an objective [para. 32].
7. The surplus reveals domestic problems: household consumption is a small share of GDP due to income distribution and social-safety-net gaps [para. 35]; investment faces pressure from property-market adjustment and diminishing returns on infrastructure [para. 36]; and financial resource allocation is inefficient, preventing some savings from becoming productive domestic investment [para. 37]. The article emphasizes recognizing both the industrial advantages and these weaknesses [para. 38].
8. What should China do? Abroad, it should reject attempts to blame China for others’ imbalances, defend fair trade, diversify export markets, and promote two-way opening [para. 40]. At home, it should improve income distribution and social protection to boost consumption [para. 41], shift investment from “investing in things” to “investing in people” [para. 42], and reform finance to make savings-to-investment conversion more efficient [para. 43]. China need not weaken manufacturing, but should not overlook domestic structural problems [para. 44]. The purpose of reform is to improve welfare, allocate resources efficiently, and strengthen domestic growth foundations [para. 45]. The trade balance should be an outcome, not a target [para. 46].
AI generated, for reference only
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