THE LONG VIEW

Bottom Line Up Front: China’s record $1.189 trillion trade surplus in 2025 underscores its growing geoeconomic dominance and the failure of U.S. tariffs to meaningfully curb exports, posing systemic risks of global overcapacity, trade imbalances, and retaliatory protectionism[1]. Threat Identification: The primary threat is the sustained and expanding export surplus driven by Chinese manufacturing overcapacity, particularly in strategic sectors like electric vehicles (up 48.8% in EV shipments) and electronics, enabled by a weakened yuan, overseas production hubs, and aggressive market diversification into Southeast Asia, Africa, and Latin America[1]. This surplus—equivalent to Saudi Arabia’s GDP—exacerbates global trade imbalances and undermines industrial policies in advanced and developing economies alike[1]. Probability Assessment: High likelihood of continuation into 2026–2028. Chinese firms are institutionalizing low-tariff access via overseas manufacturing, and demand for mid-tier electronics and EVs remains robust. Despite a U.S.-China tariff truce, 47.5% U.S. duties remain above the ~35% threshold for profitable exports, yet China has compensated by rerouting trade, indicating structural resilience[1]. Impact Analysis: The surplus risks triggering broader trade wars, especially with the EU, which has already clashed with China over solar panel subsidies[1]. It also destabilizes domestic industries in developing nations unable to compete with subsidized Chinese goods. Internally, China faces pressure to rebalance its economy, as Premier Li Qiang has urged greater imports to stabilize trade flows[1]. However, without deeper reforms, global reliance on Chinese supply chains may deepen, creating strategic vulnerabilities. Recommended Actions: (1) Strengthen multilateral coordination through the WTO and Indo-Pacific Economic Framework to challenge non-market trade practices; (2) Expand domestic production incentives in critical sectors (e.g., semiconductors, clean tech) via targeted subsidies; (3) Diversify supply chains by supporting tier-2 manufacturing hubs in India, Vietnam, and Mexico; (4) Monitor and restrict market access for Chinese firms benefiting from prohibited export rebates or state overcapacity. Confidence Matrix: - Threat Identification: High confidence (supported by customs data, export figures, and sectoral trends[1]) - Probability Assessment: High confidence (based on sustained export momentum and corporate behavior[1]) - Impact Analysis: Medium-high confidence (observed diplomatic tensions with EU, U.S. policy continuity) - Recommended Actions: Medium confidence (dependent on geopolitical alignment and domestic policy execution) [1] Reuters (2026). 'China’s 2025 Trade Surplus Hits Record $1.2 Trillion Despite US Tariffs.' Bloomberg.com, January 14, 2026. —Marcus Ashworth