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China is hurtling towards a record $1.2 trillion trade surplus.
 

China Floods the World With Exports

Bloomberg reports China Floods the World With Cheap Exports After Trump’s Tariffs

With access to the US curtailed, Chinese manufacturers have shown they aren’t backing down: Indian purchases hit an all-time high in August, shipments to Africa are on track for an annual record and sales to Southeast Asia have exceeded their pandemic-era peak.

That across-the-board surge is causing alarm abroad, as governments weigh the potential damage to their domestic industries against the risk of antagonizing Beijing — the top trading partner for over half the planet.

While so far only Mexico has hit back publicly this year — floating tariffs as high as 50% on Chinese products including cars, auto parts and steel — other countries are coming under increasing pressure to act. Indian authorities have received 50 applications in recent weeks for investigations into goods dumping from nations including China and Vietnam, according to a person familiar with the matter who asked not to be identified as the information isn’t public. Indonesia’s trade minister pledged to monitor a deluge of goods, after viral videos of Chinese vendors touting plans to export jeans and shirts for as little as 80 US cents to major cities caused an outcry.

Officials shielding their economies from Beijing are treading carefully. South Africa’s trade minister has advised against punitive tariffs on Chinese car exports — which nearly doubled this year — and is instead seeking more investment. Chile and Ecuador are quietly imposing targeted fees on low-cost imports, after Chinese e-commerce giant Temu’s monthly active users in Latin America soared 143% since January. While Brazil has threatened more aggressive retaliation, this summer it gave China’s biggest electric car maker, BYD Co Ltd, a tariff-free window to ramp up local production.

While Chinese exporters are defying the odds, surging trade isn’t making them richer — or helping the nation’s domestic issues. Profits at industrial firms fell 1.7% in the first seven months, as manufacturers trying to reduce overcapacity at home under Xi’s “anti-involution” drive slashed prices to sell more overseas. That’s only worsening China’s sticky deflation, on track for its longest spell since the country began opening up in the late 1970s.

The export explosion could also undermine Beijing’s efforts to rebalance its economy toward stimulating consumption — defying foreign officials such as US Treasury Secretary Scott Bessent, who has urged Beijing to make boosting the Chinese consumer a pillar of its blueprint for the next half-decade. China’s policy document outlining those plans will be in focus in the coming weeks at a key Communist Party meeting.

For Xi, the risks might just be worthwhile. Showing the world China doesn’t need the US consumer strengthens his hand going into a high-stakes meeting with Trump at a summit in South Korea. The world’s biggest economies are still hashing out a possible trade deal, with a 90-day pause on tariffs as high as 145% currently keeping the peace.

China Shock 2.0

Even before Trump stunned the world with America’s steepest tariffs since World War II in April, emerging markets at risk of shedding millions of manufacturing jobs were worried about a glut of Chinese goods. Indonesia’s previous president threatened a 200% tariff to protect local industry, while Brazil has hiked duties on Chinese steel. Even Vietnam took temporary action against Chinese online retail giants that undercut local sellers.

“Protectionism from the US and other countries has turned into a paper tiger because Chinese exporters are extremely competitive,” said Arthur Kroeber, head of research at Gavekal Dragonomics. They “can absorb some of the tariff hit and also have plenty of workarounds through transshipment and relocating late-stage production to lower-tariff countries.”

China’s trade surplus last year was almost $1 trillion and is on track to exceed that in 2025, based on Bloomberg calculations.

While a rise in shipments to Vietnam suggests some goods destined for US shores and other places are being re-routed to bypass Trump’s wall of tariffs, that’s only part of the picture. Demand for China’s world-beating, high-tech innovations helped drive much of the recent traffic. Rising sales to wealthy markets in Europe and Australia also indicate Beijing simply found new buyers for many products.

In July, Chinese firms shipped almost $1 billion worth of computer chips to India and billions of dollars more worth of phones and parts, according to data released by Beijing. That puts exports on track to exceed last year’s record, with the value of shipments so far this year almost as large as the whole of 2021.

“China has performed better than expected in the first half,” JPMorgan Chase & Co.’s chief India economist Sajjid Chinoy told Bloomberg Television. “Some of this is the fact that China has very cleverly found other export markets, including Europe, which has been a key hedge to slowing exports to the US.”

Not the Road to Rebalancing

China is not doing itself any good with these tactics. Exporting goods at a loss does not benefit China.

The net result for China is that it is subsidizing its exporters at the expense of Chinese consumers, who foot the bill.

The other beneficiaries are global consumers. I would love to buy a pair of jeans for 80 cents.

But few countries want that. Trump in particular wants consumers to pay more and get less. And manufacturing jeans will not return to the US anyway. So all we get are higher prices.

Trump does not distinguish between strategic items and toilet paper. To him, trade deficits are trade deficits, and they are all equal.

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