China’s Record Trade Surplus Tests Global Markets as US Influence Wanes
Beijing, Monday, 2 February 2026.
China’s trade surplus hit a record $1.19 trillion in 2025, defying US tariffs as exports shifted to Southeast Asia. Yet, this external strength masks severe internal weakness, highlighted by a staggering 17.2% collapse in property investment and stalling consumer demand.
Tariff Walls and Trade Diversification
China’s export machine has proven remarkably resilient in the face of protectionist headwinds. By the end of 2025, the nation’s trade surplus swelled by 20% to a historic $1.19 trillion [1][2][4]. While shipments to the United States contracted by 20% due to heightened tariffs, Beijing successfully pivoted to other markets [2]. Exports to the ASEAN bloc surged by over 13%, and sales to the European Union rose by more than 8%, allowing overall exports to expand by over 5% for the year [1]. This diversification strategy has allowed the Chinese economy to bypass the “China shock” constraints that previously defined its relationship with Western manufacturing [1].
The Strategic Workaround
Beyond merely finding new buyers, Chinese manufacturers have adapted their supply chains to circumvent trade barriers. Data indicates a significant rerouting of production through Southeast Asian nations, including Vietnam, Thailand, Malaysia, and Indonesia [3]. While these goods are finished in lower-tariff jurisdictions, the majority of the value creation remains within China, transforming transshipment from a temporary loophole into a long-term structural adjustment [3]. This adaptability has frustrated US efforts to isolate its manufacturing sector from Chinese competition [3].
The Geopolitical Vacuum
The economic divergence coincides with a palpable shift in global leadership dynamics. During the World Economic Forum in Davos held the week of January 20, 2026, former central banker Mark Carney warned that “great economic powers” were effectively dismantling the established international order [1]. This sentiment was underscored by Carney’s visit to Beijing on January 16, 2026, where he signed a new strategic partnership with President Xi Jinping [1]. As Washington’s commitment to globalization wavers, analysts argue that Beijing is leveraging its economic mass to fill the void, presenting itself as a stable alternative for global trade governance [1].
A Hollow Victory?
Despite the external triumphs, China’s domestic economy is showing signs of severe strain. While the country met its official growth target of 5% for 2025, momentum faded rapidly toward the end of the year, with fourth-quarter growth slipping to an annualized 4.5% [2][4]. The disconnect between industrial output and domestic consumption is widening; household spending in China accounts for only 40% of GDP, leaving a massive gap of 20 percentage points compared to the 60% average in OECD nations [1]. This imbalance was further highlighted by December 2025 retail sales, which grew by a meager 0.9%, the slowest pace since late 2022 [2][5].
The Property Anchor
The collapse of the real estate sector continues to act as a heavy anchor on the broader economy. In 2025, property investment plummeted by 17.2%, driving a 3.8% decline in total fixed-asset investment—the first annual drop in this metric since 1996 [2][5]. With an estimated 80 million homes standing unsold or vacant, the sector that once drove a quarter of China’s GDP has become a liability [4]. The deflationary pressure is evident in housing prices, which fell 2.7% year-on-year in December 2025 [2][5].
Outlook for 2026
As we move further into 2026, the economic outlook remains precarious. Fitch Ratings forecasts that China’s GDP growth will cool to 4.1% this year, weighed down by the “local-government debt overhang” and persistent deflationary pressures [4]. In response, Beijing is preparing to release a new five-year plan in March 2026, with a promised pivot toward a “new model” focused on affordable housing and domestic consumption [2][5]. However, as Eswar Prasad of Cornell University notes, the immediate danger to the global economy is no longer just US tariffs, but the distortions created by China’s overwhelming trade surplus [1].