The balance of trade is the difference between what a country exports and what it imports. A country importing more than it exports runs a trade deficit and depends on foreign capital to fund it; a country exporting more runs a surplus and accumulates foreign currency. China has run a surplus almost every year since the 1990s, and the China trade surplus reached US$1.197 trillion in 2025, up 21% on the year and the largest any country has ever recorded (International Trade Centre). A surplus that size is not simply a sign of strength. It creates structural problems for China and political problems with everyone else, and both affect anyone trading with the country.
The China Trade Surplus Problem
The China trade surplus has grown from around US$600 billion in the mid-2010s to over US$1 trillion, and the trend is upward: exports reached US$3.78 trillion in 2025 while imports were US$2.58 trillion. China runs a surplus with the great majority of its trading partners; the exceptions are commodity exporters, Australia, Brazil, Saudi Arabia, and Russia, that sell China the iron ore, soybeans, oil, and gas it cannot produce enough of at home.
The foreign currency that flows in, mostly US dollars, ends up with the central bank, which holds over US$3.2 trillion in reserves, the largest in the world. Those reserves were built in part to keep the renminbi from appreciating, which kept Chinese exports cheap and imports expensive and so sustained the China trade surplus. The cost was an economy that relied on investment and exports for growth while household consumption stayed a smaller share of GDP than in any other major economy. That imbalance, more than the surplus itself, is China’s structural problem, and it has been official policy to correct it since at least 2007. Progress has been slow.
China’s trade balance is positive with nearly every country except the commodity exporters that supply it.
Why Did the China Trade Surplus Occur?
The China trade surplus has three causes. The first is policy. Export-led growth was the development model from 1978 onward, and the tools that supported it, VAT rebates on exports, cheap credit for manufacturers, subsidised land and energy, and a managed exchange rate, are still in place. They keep export employment high, but they neither stimulate domestic demand nor allow the flexible monetary policy that would rebalance the economy. The renminbi is managed against a basket of currencies rather than floated, and the capital controls that make that possible keep Chinese savings inside China rather than invested abroad.
The second cause is capacity. After the 2008 financial crisis, and again after 2020, Chinese factories built more capacity than domestic demand could absorb, and the surplus went abroad. The most recent version is in electric vehicles, batteries, solar panels, and steel, where Chinese capacity exceeds world demand, and the export surge in those products since 2023 is the main reason the surplus passed US$1 trillion.
The third cause is that China moved up the value chain faster than expected. The old argument was that China could not compete with poorer countries on price and would lose its surplus as wages rose. Wages did rise, and China lost the low end of manufacturing to Vietnam and Bangladesh, but it replaced that with higher-value exports, chips, machinery, vehicles, and ships, that those countries cannot make. The China trade surplus is now built on products where China competes with Germany, Japan, and South Korea, not with Bangladesh.
What Is the Solution to the China Trade Surplus?
Economists and China’s own government agree on the answer: rebalance toward domestic consumption. That means raising household incomes, strengthening the social safety net so that families save less, and shifting investment from export capacity to services. It has been stated policy for nearly two decades and it is happening, slowly; consumption’s share of GDP has risen, and China’s domestic market is now the largest in the world for cars, e-commerce, and many consumer goods. But exports keep growing faster, and the surplus keeps widening.
The alternative, which is what China’s trading partners have chosen, is to force the adjustment from outside. US tariffs since 2018, EU countervailing duties on Chinese EVs since 2024, and the anti-dumping and safeguard measures spreading across Brazil, Mexico, Turkey, India, and Southeast Asia are all responses to the China trade surplus. They do not reduce the China trade surplus much in aggregate, because Chinese exporters redirect to other markets, but they change where Chinese goods go and what they cost when they arrive.
The managed renminbi and China’s foreign reserves are two sides of the surplus.
Conclusion
The China trade surplus is the largest in history and shows no sign of shrinking. For China it represents an economy still tilted toward production over consumption; for its partners it represents competition their industries cannot match on price, and a political problem that tariffs are the standard answer to. For a company sourcing from China, the practical consequences are on the tariff side of the ledger: the surplus is why tariffs on Chinese goods keep rising, why they are unlikely to fall, and why where a product is assembled has become a cost decision.
A managed currency also means the yuan does not adjust to absorb those tariffs, so their cost lands on the importer. Structuring a supply chain around that reality, including which country a product ships from, is part of what our product sourcing service does.
