Dear readers,

The latest data coming out of China shows that its trade surplus hit a record high of $1.2 trillion in 2025. This is noteworthy because successive US administrations since 2016-17 (led by both Donald Trump and Joe Biden) have been trying to arrest this rise.

Trade surplus — or, more precisely, a surplus on the trade balance — is the situation that arises when a country’s earnings through its goods exports are greater than what it pays for its imports.

China’s trade balance has been in surplus for a while now because it has become a manufacturing powerhouse — a veritable factory of the world — that exports all kinds of goods to the rest of the world. Because Chinese goods are cheap, they have tended to capture markets. Up to a point, this is a win-win for everyone: People in the rest of the world get something cheaper and China can pull millions out of poverty by earning that money.

But as can be seen from the chart below, China’s trade surplus started increasing significantly since 2005. Over the past two decades, it has increased 10 times in size. It is also noteworthy that since 2017, the trade surplus has tripled despite US administrations openly targeting China over this very issue.

What does the latest data show? 

👁 China trade surplus

The latest data from China’s official sources shows that China’s trade surplus went from just under a trillion dollars ($993 billion to be exact) in 2024 to $1.2 trillion at the end of 2025. This appears odd, considering that Donald Trump, since taking over as President for the second time in January 2025, slapped tariffs rates as high as 145% on imports from China (which are China’s exports to the US) in a bid to contain its trade dominance. Trump repeatedly pointed to China’s “trillion-dollar trade surplus” to justify those high tariffs. As it turns out, the year has ended with China’s trade surplus increasing by more than 20%.

No, and yes. No, because if one looks only at the trade surplus that China enjoyed with the US — that is, only based on direct export and import of goods between these two countries — Trump can justify that his tariffs have worked very well.

That’s because China’s trade surplus with the US fell from $327 billion in November-end 2024 to $257 billion in November-end 2025 (disaggregated data is only available up to November).

At one level, this was not surprising. When a country (in this case, the US) imposes tariffs on imports (in this case, China), the prices of those imports go up and the demand (in the US for Chinese goods) falls in response.

This is exactly what happened when Trump imposed tariffs, which now stand at a base rate of 10% after a truce was signed. China had exported goods worth more than $475 billion in 2024 (till November). This number fell to $386 billion in 2025 (till November).

But it can also be argued that Trump’s tariffs have been a colossal failure.

That’s because China’s overall trade surplus — that is the trade surplus with the whole world put together — has actually gone up by more than 20% in just one year.

👁 China's trade balance

Given that Trump had always prefaced his tariff actions by pointing to China’s trade surplus with the whole world — “trillion-dollar surplus” — his tariffs have not only failed in reducing that figure but resulted in the country gaining greater global dominance. This came even as US consumers ended up paying more for their imports from China or went without them altogether. Not to mention the hit US exports to China took following Beijing’s tariffs. They fell from $149 billion in 2024 to $129 billion in 2025.

Up to a point, it doesn’t. The fact is that free international trade is hugely beneficial for consumers everywhere. It enables the delivery of the best product at the lowest price across the world and addresses demand-supply mismatches.

Of course, this involves a country running a trade deficit with one country and a surplus with another. These trade deficits and surpluses tend to cancel each other out. But the free trade utopia has hit a massive roadblock because one country has started dominating trade against every other country and in almost every commodity.

For instance, US actions only led to Chinese goods flooding other markets. As the chart shows, China increased its trade surplus in all the regions across the world.

This level of dominance creates three specific problems.

First, a problem of finances. Where is the money to buy Chinese goods? Typically, consumers sell to Country A, get the foreign exchange (read money) and use that to buy goods from Country B. But this model starts to creak if everyone buys from only one country — China. How long can each country run a trade deficit? India’s foreign exchange reserves, for instance, are high enough to finance imports for a full year, even if no additional money comes into the country. But this comfort zone shrinks considerably if a country keeps importing far more than what it exports.

Second, a macroeconomic problem. If China alone makes all the cars and steel and toys, and so on, what happens to the domestic producers of other countries? Where do people work? Where do they earn the money to buy things?

The first two problems combine to turn high trade imbalances into the third problem — a political one. This is being witnessed across the world in the form of a deep resentment against globalisation, liberalisation of trade and immigration.

Experts point to China winning because it doesn’t follow the rules of free market economics — it artificially keeps its wages low and exchange rate weak in order to make its exports “cheaper”. Similarly, there are question marks about the Chinese government’s role in financing its private sector through massive subsidies. A firm that would have failed in another country survives in China because the government may be providing its financial means to sell at a loss and overproduce.

Would these problems go away if the world was one country?    

Yes, and no. Yes, because it will all be one economy. For one, if the whole world was one economy or country, people would presumably be free to move to areas of greater productivity and that movement would, over time, equalise economic prosperity.

Also, in a single economy, the government is in a position to tax the better off regions and use that money to take care or provide some help to the worse off regions.

But at the heart of the matter is regional economic imbalance — one region dominating another, leading to a situation where one bunch of people are worse off.

As can be seen in any country, including India, economic growth often unfolds in an unequal manner with some regions growing faster than others. Persistent economic divergence creates social and political unrest even within a single country.

Even though India has tried to protect its domestic industry from Chinese imports in the recent past, China continues to increase its trade surplus with India. What should India do? Open its markets thus providing its consumers with cheap goods? Or clamp down on trade with China to protect its domestic industry?

Share your views and queries at udit.misra@expressindia.com

Take care,

Udit