China's robust export sector is overcompensating for its weak domestic property market. This is projected to create a current account surplus equal to 1% of global GDP—a historical record—which will act as a significant headwind for its trading partners, particularly industrial economies in Europe like Germany.
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From China's perspective, producing more than it needs and exporting at cutthroat prices is a strategic tool, not an economic problem. This form of industrial warfare is designed to weaken other nations' manufacturing bases, prioritizing geopolitical goals over profit.
Contrary to its goals, the U.S. trade war has resulted in self-isolation. Data shows the U.S. is the only country buying less from China, while U.S. allies and developing nations have increased their trade, leading to a record $1 trillion surplus for China. This highlights a strategic miscalculation in U.S. foreign trade policy.
China's trade surplus is on track to exceed $1.2 trillion, a scale unprecedented in modern peacetime history. This massive imbalance, driven by a strategy of import substitution, raises critical questions about whether the global economy can absorb these surpluses without significant political and economic backlash.
China's economy presents a stark contrast: a collapsing domestic property market versus a remarkably resilient export sector. Despite tariffs, exports remain strong because China continues to improve product quality and price competitiveness, maintaining global manufacturing dominance.
China's economic model, driven by internal provincial competition, creates massive overcapacity. This is intentionally turned into an asset by dumping subsidized products (like EVs) into foreign markets below cost. The goal is to eliminate foreign competitors, create dependency, and convert domestic economic chaos into international power.
According to IMF data analysis, China's manufacturing surplus as a share of its GDP has surpassed 2%, exceeding the levels of Japan and Germany during their most dominant export eras. This indicates China is achieving global manufacturing dominance at a scale and speed that is historically unprecedented, fundamentally altering global trade dynamics.
China deliberately maintains an undervalued renminbi to make its exports cheaper globally. This strategy props up its manufacturing-led growth model, even though it hinders economic rebalancing and reduces the purchasing power of its own citizens.
As China's domestic growth slows, it is flooding the world, particularly Europe, with cheap exports. This acts as a powerful disinflationary force that may compel the European Central Bank (ECB) to cut interest rates sooner than anticipated, regardless of their current hawkish rhetoric.
Germany is planning significant fiscal stimulus via infrastructure and defense spending. However, as a highly trade-open economy, the positive domestic impact could be largely offset by headwinds from a slowing China and potential U.S. tariffs. This limits its ability to meaningfully boost overall European growth.
While the U.S. oscillates between trade policies with each new administration, China executes consistent long-term plans, like shifting to high-quality exports. This decisiveness has enabled China to find new global markets and achieve a record trade surplus, effectively outmaneuvering U.S. tactics.