China's trade surplus reaches a record of nearly $1 trillion

China said on Monday its trade surplus reached nearly $1 trillion last year as exports swept the world while its businesses and households spent cautiously on imported goods.

Adjusted for inflation, China's trade surplus last year was far greater than the world's trade surpluses over the past century, including those of exporting giants such as Germany, Japan and the United States. Chinese factories dominate global manufacturing on a scale not seen in any country since the post-World War II United States.

The flow of goods from Chinese factories has drawn criticism from a growing number of China's trading partners. Developed and developing countries alike are imposing tariffs to try to slow the flow. In many cases, China has retaliated in kind, moving the world closer to a trade war that could further destabilize the global economy.

President-elect Donald J. Trump, who takes office next week, is threatening to further escalate the already aggressive U.S. trade policy targeting China.

China's General Administration of Customs said on Monday that the country exported goods and services worth $3.58 trillion last year and imported $2.59 trillion worth. The surplus of $990 billion broke China's previous record of $838 billion in 2022.

Strong exports in December, including exports that may have been rushed to the United States before Trump took office and began raising tariffs, helped China deliver a record 104.8 billion yen in a single month. buoyed by dollar surplus.

While China had a deficit in oil and other natural resources, its trade surplus in manufactured goods accounted for 10% of the Chinese economy. By comparison, U.S. dependence on trade surpluses for manufactured goods reached 6% of U.S. output early in World War I, and European factories had largely stopped exporting and shifted to wartime production. .

Many countries seek trade surpluses in manufactured goods because factories create jobs and are important to national security. A trade surplus is the amount by which exports exceed imports.

China's exports of everything from cars to solar panels have been an economic boon for the country. Exports have created millions of jobs not only for factory workers, whose inflation-adjusted wages have nearly doubled over the past decade, but also for well-paid engineers, designers and research scientists.

At the same time, China's imports of factory products slowed sharply. China has pursued national independence over the past two decades, most notably through its Made in China 2025 policy, for which the Chinese government pledged $300 billion to promote advanced manufacturing. .

China has gone from being a car importer to becoming the world's largest car exporter, surpassing Japan, South Korea, Mexico, and Germany. A Chinese state-owned company has begun building a single-aisle commercial jetliner with the aim of one day replacing jets from Airbus and Boeing. Chinese companies produce almost all of the world's solar panels.

While the domestic economy is in a slump, China's exports are booming. The trade surplus offset some of the damage from the housing market crash, which hurt businesses and consumers. Millions of construction workers lost their jobs and China's middle class lost much of its savings. As a result, many households are reluctant to spend on imported or domestic goods and services.

China's overbuilding of factories is starting to take its toll on many Chinese companies, which are facing falling prices, heavy losses and even loan defaults.

The backlash against China's trade imbalance is occurring in developed and developing countries alike. The government is concerned about factory closures and job losses in manufacturing industries that cannot compete with low prices from China.

The European Union and the United States increased tariffs on cars from China last year. But some of the most pervasive barriers to China's exports are erected by less wealthy countries with middle-income manufacturing industries, such as Brazil, Turkey, India and Indonesia. They are on the cusp of industrialization, but they fear it will disappear.

China's exports are increasing by more than 12% annually. The dollar value of exports has grown at half that pace as prices plummeted as Chinese companies produced more goods than foreign buyers were prepared to buy.

The Biden administration has regained momentum from Trump's first term and has led bipartisan criticism that Beijing is using its control of Chinese state-owned banks to overinvest in factory capacity. Before the pandemic, banks' net lending to industry in 2019 was $83 billion. This rose to $670 billion by 2023, although the pace slowed slightly in the first nine months of last year.

“China has made the big mistake of producing two to three times more than its domestic needs in many areas, including steel, robotics, electric vehicles, lithium batteries, and solar panels, and exporting the surplus around the world.” he said. Nicholas Burns, US Ambassador to China.

Wang Lingjun, vice-minister of the customs authority, denied such criticism at a press conference on Monday. “Countering China's development is essentially protectionism,” he said.

China has not had a trade deficit since 1993. Adjusting for inflation, the trade surplus in 2024 will be smaller than previous records. For example, Japan's surplus peaked at $96 billion in 1993. This is equivalent to $185 billion in today's dollars, less than one-fifth of China's surplus last year.

Germany ran a huge trade surplus in the years following the European financial crisis a decade ago. However, that surplus peaked in 2017, when it amounted to $326 billion in today's money.

Japan's and Germany's trade surpluses each amounted to about 1% of the rest of the world's economic output. Brad Setzer, a senior fellow at the Council on Foreign Relations, said China's trade surplus would have doubled by that measure.

“Starting in 2021, China has made a major shift toward exports, and export growth has increasingly come at the expense of manufacturing-based economies around the world,” he said.

According to researchers at the Federal Reserve Bank of St. Louis, the United States ran a trade surplus from 1870 to 1970. Most of them were relatively small amounts in today's dollars.

After World War II, much of Europe and East Asia lay in ruins, and American factories shifted from tanks and rifles to automobiles and washing machines. The United States' postwar trade surplus reached a peak of $12 billion in 1947, or about $130 billion in today's dollars. But that year, as the rest of the world's production fell sharply, America's trade surplus was equal to about 4 percent of the world economy. That is a level that China has not yet reached.

China's expanding trade surplus accounted for up to half of the country's overall economic growth last year. Investment in new factories for export accounted for most of the remaining growth. The Chinese government is expected to say in a report scheduled for Friday that the country's economy expanded by about 5% last year.

According to the United Nations Industrial Development Organization, China currently produces about one-third of the world's manufactured goods. This is more than the United States, Japan, Germany, South Korea, and the United Kingdom combined.

China has expanded its exports through massive investments in education, factories and infrastructure, while maintaining fairly high tariffs and other import barriers. Each year, the university produces more graduates in engineering and related subjects than graduates in all majors at American colleges and universities combined.

The question is whether China can maintain its lead if other countries raise tariffs. However, many importers still find China to be the most competitive place to buy goods.

Eric Paws, owner and CEO of All Things Equal, a Miami Beach company that invents and sells board games and electronic tabletop games, uses suppliers in Shanghai. Board games cost twice as much to print in the U.S., and the U.S. doesn't even manufacture the electronics needed for tabletop games.

“I wish we could do it cost-effectively here, but we can’t,” he said.