On Monday, China announced that its trade surplus reached nearly $1 trillion last year, as its exports flooded the global market. At the same time, Chinese businesses and households were cautious about spending on imports.

When adjusted for inflation, China’s trade surplus last year was the largest in the world over the past century, even surpassing the surpluses of other export giants like Germany, Japan, or the United States. Chinese factories are now dominating global manufacturing in a way that hasn’t been seen since the United States after World War II. The surge in Chinese exports has sparked criticism from many of its trade partners. Both industrialised and developing countries have imposed tariffs in an effort to slow down this flood of goods. In response, China has retaliated with its own tariffs, bringing the world closer to a trade war that could make the global economy more unstable.

Next week, Donald J. Trump, the president-elect, has pledged to intensify the United States' already hostile trade policies against China. China imported $2.59 trillion worth of goods and services last year while exporting $3.58 trillion, according to the General Administration of Customs on Monday. China's previous record of $838 billion in 2022 was surpassed by the $990 billion surplus. Strong exports in December helped China reach a new one-month record surplus of $104.8 billion, some of which may have been hurried to the US before Mr. Trump could take office and begin imposing tariffs.

China had a deficit in oil and other natural resources, but its trade surplus in manufactured goods made up 10 per cent of its economy. In comparison, the U.S. reliance on trade surpluses in manufactured goods was at its highest, 6 per cent of its economy, during the early days of World War I, when European factories had largely stopped exporting and were focused on wartime production.

Many countries aim for trade surpluses in manufactured goods because factories provide jobs and are also vital for national security. A trade surplus happens when a country's exports are greater than its imports. China's exports, including cars and solar panels, have been a huge economic boost for the country. These exports have created millions of jobs, for factory workers, whose wages have roughly doubled after adjusting for inflation in the past decade. Even engineers, designers and research scientists are now highly paid. At the same time, China's imports of factory goods have dropped significantly. Over the past 20 years, the country has focused on becoming more self-reliant, especially through its Made in China 2025 policy, where Beijing committed $300 billion to support advanced manufacturing. 

China is now the world's greatest auto exporter, surpassing South Korea, Japan, Mexico and Germany, after previously importing cars. A Chinese state-owned company has begun producing single-aisle commercial jetliners to displace Airbus and Boeing aircraft eventually. Nearly a majority of the solar panels made worldwide are made by Chinese businesses. China's exports are doing well, even though its domestic economy is struggling. The trade surplus has helped balance out some of the damage caused by a housing market crash, which has affected businesses and consumers. Millions of construction workers have lost their jobs, and many in China's middle class have lost a large part of their savings. As a result, many families are now hesitant to spend money on either imported goods or domestic products and services.

Many Chinese businesses are suffering from overbuilding factories, which has resulted in declining pricing, significant losses, and even loan defaults. Both developed and developing nations have reacted negatively to China's trade imbalance. Governments are concerned about job losses and factory closures in manufacturing sectors that are unable to compete with China's low costs.

Last year, the European Union and the United States increased tariffs on cars from China. However, some of the biggest barriers to China's exports have been raised by middle-income countries with growing manufacturing sectors, like Brazil, Turkey, India and Indonesia. These countries are close to becoming fully industrialised but fear they might lose that progress.

China's export volume has been growing by more than 12 per cent each year, but the dollar value of those exports has only increased at half that rate. This is because the prices of Chinese goods have dropped as Chinese companies produced more than foreign buyers were willing to purchase. The Biden administration, continuing from Trump’s first term, has criticised Beijing for using its control over state-owned banks to heavily invest in factory capacity.

In 2019, Chinese banks lent $83 billion to industries. By 2023, that amount increased to $670 billion, although the growth slowed in the first nine months of last year. “China is making a major mistake in producing two to three times domestic demand in a number of areas, whether it’s steel or robotics or electric vehicles, lithium batteries, solar panels and then exporting the excess all around the world,” said R. Nicholas Burns, the U.S. ambassador to China.

The deputy minister of the customs administration, Wang Lingjun, denied such accusations during a news briefing on Monday. “It is essentially protectionism to counter China’s development,” he said.

China has not experienced a trade deficit since 1993. Its trade surplus in 2024 is much larger than in previous years when adjusted for inflation. For instance, Japan's trade surplus reached its highest point in 1993 at $96 billion, which is $185 billion in today's money—less than a fifth of China's surplus last year. Germany also had large trade surpluses after Europe's financial crisis a decade ago. However, its surplus peaked in 2017, amounting to $326 billion in today's dollars. The trade surpluses of Germany and Japan combined amounted to around 1% of global economic activity. According to Brad Setser, a senior fellow at the Council on Foreign Relations, China's trade surpluses are double that amount.

“Since 2021, China has pivoted back toward exports in a big way — and its export growth is increasingly coming at the expense of other manufacturing-heavy economies around the world,” he said. According to researchers at the Federal Reserve Bank of St. Louis, the United States had trade surpluses from 1870 to 1970, but most of them were small by today’s standards. After World War II, with much of Europe and East Asia in ruins, American factories switched from making tanks and rifles to producing cars and washing machines. In 1947, the U.S. trade surplus reached $12 billion, which is about $130 billion today. However, because the rest of the world’s production was very low that year, the American surplus accounted for about 4 per cent of the global economy—a level that China has not yet reached.

China's trade surplus widened last year, which was responsible for close to half of the nation's economic growth. Much of the remaining growth came from investments in new plants for exporting. The Chinese government is likely to declare that the country's GDP grew by roughly 5% last year. The report is slated for release on Friday. China now makes about a third of the world's manufactured goods, according to the United Nations Industrial Development Organisation (UNIDO). This is more than the combined total of the United States, Japan, Germany, South Korea and Britain. China has been able to increase its exports by heavily investing in education, factories and infrastructure, while also keeping relatively high tariffs and other trade barriers. Each year, Chinese universities produce more engineering and related graduates than all the graduates from American colleges and universities combined.

The main question is whether China can keep its position if other countries increase their tariffs. However, many importers still find that China remains the most cost-effective place to buy goods. Eric Poses, the owner and CEO of All Things Equal, a company based in Miami Beach that creates and sells board games and electronic tabletop games, relies on suppliers in Shanghai. Printing board games in the United States is twice as expensive, and the U.S. doesn't even produce many of the electronic components needed for tabletop games. “I wish I could do it here in a cost-effective manner, but it’s just not possible,” he said.