Name: Why China’s Trade Surplus Just Keeps Growing
Uploaded: 2026-01-16T04:32:53.000Z
Duration: 9 min 12 s
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Earlier this week, China released new data suggesting that after a slight slowdown in October, China's exports returned to growth in November, taking China's total trade surplus this year to over $1 trillion.

It's already the largest trade surplus in recorded history and implies that China's trade surplus has grown 20 fold in the past 20 years, from about $50 billion in 2004.

Moreover, this mind boggling figure might actually be an underestimate.

Analysis of Chinese data by economist Brad Sester at the Council on Foreign Relations suggests that the real surplus is nearer $1.2 trillion.

So in this video, we're going to explain how this surplus actually happened, why Trump's tariffs haven't really affected it, and

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So, to understand how China's trade surplus got so massive, we sort of need to answer two separate questions.

One, how come China exports so much stuff in the first place?

And two, how come it imports less than it exports?

How come China exports so much stuff to the rest of the world?

Well, some of this is just a consequence of the fact that the Chinese economy is massive.

China's GDP has risen from less than $1 trillion in the late 1990s to about $18 trillion today, averaging nearly 9% annual growth.

A $1 trillion trade surplus might sound absurd to us, Brits and Europeans, who generally talk about billions rather than trillions, but

becomes less absurd once you recognise the sheer size of the Chinese economy.

This speaks to a common misconception about China's trade balance.

Commentators often tout China's massive surpluses as proof that China's economy is uniquely unbalanced.

But relative to gdp, China's surpluses aren't actually that big.

For context, having peaked at around 10% of GDP in 2007.

For the past decade or so, China has run a trade surplus averaging about 3% of GDP, according to World bank data.

This is obviously above the international average, but

below that of other chronic surplus countries like Japan and Germany, which have run surpluses averaging about 4 and 7% of GDP, respectively.

Nonetheless, the size of the Chinese economy alone can't fully account for its dominance in global export markets.

It's also because Chinese industry is incredibly competitive Internationally, Chinese industrial workers are incredibly productive.

A study published last month found that in industries where output can be measured in physical terms, a Chinese worker produces two to three times as much output as an American one, despite being paid 80% less.

This has helped China become the world's largest industrial exporter.

China accounts for about 20% of all manufacturing exports globally, up from barely 5% in 2001 and more than twice that of second place Germany.

According to an analysis by economist Richard Baldwin over at the Centre for Economic Policy Research.

China now accounts for something like 35% of total global manufacturing output, roughly quadruple what it was when China joined the World trade organisation in 2001, and

roughly the same as the next 10 countries combined.

China is now the top source of imported goods for roughly two thirds of all countries worldwide, including the majority of countries in Africa, South America and Southeast Asia.

Much of the recent growth in Chinese exports has been driven by high tech manufacturing like semiconductors and electric vehicles, which have grown particularly fast over the past year or so.

So that's why China exports so much stuff.

It's both that China is just a massive economy, but

also also that its exports are internationally competitive, especially when it comes to manufacturing and industry.

How come China imports less than it exports?

After all, when China exports loads of stuff, it gets lots of foreign currency and exchange, which you'd then expect Chinese households and businesses to spend on an equivalent amount of imports, thus balancing the overall trade account.

Well, frustratingly, there's nothing no clear consensus among economists.

But it's worth noting that for every trade surplus, you need an equivalent trade deficit.

After all, one country's export is another's import, which means the world's overall trade accounts must balance.

For decades, the US has run a massive trade deficit, essentially absorbing China's surpluses.

This has given way to an ongoing debate amongst economists as to which country is primarily responsible for a trade imbalance.

Some economists blame surplus countries like China, accusing them of doing stuff like devaluing their currency and underpaying workers so they can't afford as many imports.

While other economists blame deficit countries like the us, accusing them of recurrent budget deficits and inflows of foreign money to cover the gaps between exports and imports, we think it's probably a bit of both.

While Chinese workers have actually seen some pretty steep wage increases in recent years, and

the CCP have quietly taken steps to improve China's social safety net, it's nonetheless clear that China is actively devaluing the yuan, which makes China's exports extra competitive and reduces the amount of imports households and businesses can afford.

It's also true, however, that the Trump administration is running massive budget deficits while pressuring other countries to invest in the US and buy US Debt, which are essentially a means to finance America's trade deficits anyway.

This takes us on to the next part of this video.

Why didn't Trump's tariffs reduce China's trade surplus?

After all, the US has long been China's largest export market.

How come whacking massive tariffs on Chinese goods hasn't led to a marked decline in China's exports and thus trade surplus?

Well, at first glance, it looks like China has just been able to redirect its existing surplus to other destinations.

While China's exports to the US have fallen, China's exports to other regions, including Europe and Southeast Asia, have surged.

This has led many commentators to conclude that China just redirected goods that were originally going to America to consumer markets in Europe and Asia.

But while this is probably partly true, China is probably also using third countries for trans shipments.

In other words, exporting to America via some third country to take advantage of that third country's lower bilateral tariff rate.

This would explain why once you strip out pharmaceuticals and gold, which saw a massive surge in imports ahead of the tariffs, America's overall trade deficit is as big as ever.

While America's bilateral deficit with China has shrunk.

This just suggests China is rerouting exports via third countries.

This was a predictable consequence of Trump's insistence on bilateral tariffs.

They're easy to get around because you can just reroute via some third country.

A universal tariff would thus probably have been more effective in reducing America's trade deficit, although even then we should say the economic data is a bit murky.

As a final thing, commentators often argue that China's imbalances are ultimately unsustainable.

They're not what orthodox economics would predict, and they irritate China's trade partners, especially in Europe.

But we should note that China's ability to find new export markets in the face of tariffs and and America's apparent inability to meaningfully reduce its overall trade deficit suggest that China's imbalances might persist longer than expected.

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