Through the lens of China’s economic landscape, we are witnessing an even bigger picture of change—the increasingly historic ascent of its trade surplus. This alarming trend and especially the aggressive strategic industrial policies behind it should dispel any doubts about China’s desire to lead the fourth Industrial Revolution by mid-century. Analysts are sounding the alarm that these measures will fundamentally change the nature of global trade. This challenge will be felt especially acute for European and US countries.
China’s industrial policy takes up a much bigger slice of its GDP than virtually any other country. China is specifically going after the United States’ competitive advantages in the global order. It hopes to use the new state-imposed governance system, once it’s created, to more accurately align the region’s governance with its political preferences. This ambition is evident in the nation’s top priority for 2026: strengthening domestic demand.
Even with export volumes from China up by 50% compared to 2022, China has struggled with a lack of domestic demand at the same time. The high supply and weak demand has caused a lot of friction in the market. Consequently, trade surpluses are sky-high, and cheap products are overwhelming world markets. China’s trade surplus now stands at a record $1 trillion. Almost a third of that total is generated through trade with Europe and the UK.
The significance of China’s exports goes far deeper than statistics. In Europe too, Chinese manufactured products are coming to be seen as a concrete danger to domestic industrial capacity and employment. European enterprises are struggling as they suffer under a tsunami of low-priced, high-quality goods. In particular, concerns have been raised about the long-term impacts on local manufacturing industries.
Exports to the United States are down about 25%. Not surprisingly, this reduction demonstrates a change in trade patterns. China has vastly increased its use of transshipment and trade diversion strategies, primarily targeting Southeast Asia and Europe. Both China and the world have suffered greatly from its manipulated undervalued currency. By this measure, it is now some 20% lower in real effective terms than three years ago. This currency manipulation makes Chinese exports more competitive in global markets.
China’s GDP deflator, a broad measure of inflation, has declined for ten consecutive quarters. This historic decline makes the complex economic picture even more complicated. Whether this is by design or a confluence of factors, this trend is a boon for undiscouraged and increasingly aggressive export strategies. As import volumes have not increased much at all, the dramatic increase in export volumes is further evidence of China’s growing hegemony on the world stage of trade.
The second shock from China is when it joined the global trading system. These shifts had potentially dramatic implications for labor and resource markets in the offices around the world. The present “shock” comes from China’s aggressive endeavor to surpass the U.S. in all cutting-edge technologies. They are far ahead of us in electric vehicles, batteries, semiconductors, biotechnology, robotics and artificial intelligence. This state-directed industrial policy marks the largest, most intensive effort at intervention in history to guarantee China’s leadership in these emerging industries.
As China continues to implement its ambitious plans, the world will have different reactions. Third, other countries will be forced to reconsider their own economic policies in order to combat China’s predatory tactics. Elected leaders across Europe and the United States are at a turning point. They can’t ignore the rapidly changing dynamics of international trade and technology.