By Amitendu Palit, Senior research fellow and research lead (trade and economics), Institute of South Asian Studies, National University of Singapore
China’s $1 trillion trade surplus is not just a statistic. It is an affirmation of its ability to control global trade in a strategic fashion of its choice.
Notwithstanding the brushes it had with the US during 2025, the year ended on a high note for China. The trillion-dollar surplus coupled with renewed access to Nvidia’s H200 chips mark the end to a year that saw the US and China scaling new highs of tariffs. At one stage, Chinese exports to the US and US exports to China were grappling with prospects of facing nearly 150% effective tariffs. From there, the year is ending on a much sober note, with most Chinese exports to the US now facing effective tariffs below 50% and US exports to China being taxed at just above 30%. These tariffs are a result of the November truce between Presidents Donald Trump and Xi Jinping.
China’s trade surplus of $1 trillion was for up to November. The eventual full-year surplus will be larger. A simple learning from this huge surplus is that the rest of the world, like in the past several years, continues to buy much more from China than selling to it. The reorientation in global trade driven by US tariffs has not adversely affected China’s capacities in this regard, at least not yet. China continues to produce almost all of what the world needs and can sell it at competitive prices.
This economic efficiency has prevailed in spite of the efforts to decouple and diversify from it. While most major economies have introduced industrial policies for increasing local production to reduce sourcing from China, the results are yet to be visible.
It is noteworthy that China hasn’t been rushing into free trade agreements (FTAs) for avoiding high US tariffs. Having absorbed exports of $525 billion, the US is still the largest export market for China. Russia and Germany are among the other $100 billion plus export markets for India, and none of them have FTAs with China. The US, India and Germany have also applied various tariffs on Chinese exports. But if Chinese exports have prevailed nonetheless, then it points to a certain indispensability that many of them have achieved.
This indispensability and the fact that many new restrictive efforts haven’t been able to thwart Chinese exports has an uncomfortable implication—China can heavily ‘influence’ industrial supply chains and global trade as it can control the flows of goods and services. The control imparts it a powerful and decisive geo-economic advantage. The strength of the advantage is evident from the outcomes of its recent trade brush with the US.
Unilateral US trade actions against China weren’t able to achieve much. The truce struck since November has brought in a fragile equilibrium positioned on higher, but ‘agreed’ upon tariffs by both sides. The US decision to allow Nvidia to sell advanced H200 chips to China further shows China’s geoeconomic edge in being one of the largest consumers of chips, a fact that has incentivised the US government to allow sale of the chips under a revenue-sharing arrangement with Nvidia.
Going forward, China is likely to use its geo-economic advantage as a global consumer more effectively. Power competition with the US will turn demand to be domestic market-driven on both sides.
The US has been using tariffs as a strategic tool for controlling access to its domestic market and extracting strategic concessions from other trade partners. China too played the ‘market’ card by stopping purchase of US corn, soybeans, and wheat leading to weak prospects for US agricultural exports. It has agreed to resume buying only after the truce in November. China’s geo-economic advantage therefore is not just in controlling producer supply chains: it is also in its ability to influence global exports by limiting their consumption.
China is aware of the global efforts to reduce sourcing dependency on it. It is also aware that in foreseeable future, these efforts will start producing results impacting its control over global supply chains. For China, therefore, it does not make strategic sense to keep producing all that the world requires. It will specialise in producing what the world will find difficult to make locally. Electric vehicles, artificial intelligence-led machine applications, green products, legacy chips, rare earth elements, aircrafts, drones, and industrial robots are some of the areas where it will heavily focus. By pushing scale in these industries, it will, in turn, become the largest consumer of intermediate products used by these industries. This will ensure its control over the strategic supply chains as several intermediate exporters from other countries will suffer if they cannot sell to China.
The trillion-dollar surplus is not a flash in the pan. It marks China’s capacity to exert geo-economic influence over the world. As it strengthens state-driven industrial policies for expanding the influence, larger surpluses can result in future.
What might change the scenario? The most critical variable is the Chinese state’s ability to keep funding strategic economic specialisation the way it has for decades. If that ability reduces, then the specialisation efforts might be stunted, compromising China’s geo-economic influence. Till now, notwithstanding cynical perspectives on China’s domestic debt and its impact on industrial funding, funds for critical sectors have not reduced. The large language models developed by DeepSeek demonstrate scale-intensive use of state funds even in areas of non-traditional expertise.
A lot of domestic economic upsets are necessary to make the Chinese state less capable of funding its strategic economic expansion. Till then, trillion dollar-plus trade surpluses are likely to repeat as China’s geo-economic capacities keep expanding.