Have US tariffs failed to bite? China’s trade surplus hits a record US$1.2 trillion

The numbers are in, and they paint a picture that defies the conventional wisdom of Washington’s trade hawks. In 2025, China’s trade surplus surged to a record high of US$1.2 trillion (£900 billion). In December alone, the surplus reached US$114 billion, driven by a higher-than-expected 6.6% growth in exports and 5.7% growth in imports.

The trade surplus refers to the amount by which Chinese exports outnumber its imports. And far from being strangled by external pressure – in particular from the US under Donald Trump – China’s export engine is running hotter than ever.

This creates a paradox for the ordinary observer. For several years, the narrative has been that the US is locked in a divisive trade war with China. This has brought sweeping tariffs intended to decouple the two economies and reduce American reliance on Chinese manufacturing.

Wrangling following Trump’s liberation day tariff announcement on April 2 2025 was apparently settled in November. This left the average tariff imposed on Chinese goods being imported to the US at 47%, down from 145%.

So if the world’s largest economy is shutting the door on Chinese goods, how can Beijing be posting its best export numbers in history? The answer suggests that the US has not won the trade war, and that China’s economy has proven far more adaptable than anticipated.

What happened in 2025 reveals a massive pivot in global trade flows. The tariffs did bite where they were intended: China’s direct exports to the US plummeted by 20% last year, and imports into China from the US fell by 14.6%. But while the front door to the American market was closing, China found other routes.

In 2025, exports to Africa continued to grow strongly by 26%, shipments to countries in the Association of Southeast Asian Nations (Asean) grew by 13%, and trade with Latin America climbed by 7%. Even exports to the EU managed an 8% rise, despite growing friction over European concerns about unfair competition from Chinese state-supported industries.

So, the 20% loss in the US market was mathematically overwhelmed by double-digit gains in the developing regions and emerging markets.

The ‘great reallocation’

Is this something completely new? No – China has been balancing its trade network continuously over the past decade, utilising its belt and road initiative. This is its strategy to boost trade through investment in new land and sea routes, which covers the historic Silk Road trade route.

In this way, China is seeking to reduce its dependence on western consumers. But there is a deeper layer to this success that explains why the trade war hasn’t reduced China’s global footprint.

Research has documented something called a “great reallocation” in supply chains, observed both in the first trade war – which began in 2018 when the US and China hit each other with tariffs in a struggle for trade dominance – and the current one. While direct US-China trade has decreased since 2018, the US has significantly increased imports from countries such as Vietnam and Mexico. And these “third-party countries” have simultaneously increased their imports of intermediate parts from China.

In 2025, this trend accelerated. Chinese firms are not just exporting final goods – they are shipping components to factories in south-east Asia and Mexico, which are then being assembled and shipped to the US at very low or zero tariffs, under respective bilateral trade agreements with the US.

This means the US is still effectively buying Chinese goods. It’s just paying a middleman to dodge the tariffs.

The implications of this ballooning surplus are different from previous eras. When China joined the World Trade Organization in 2001, the world worried about it “dumping” cheap textiles and toys.

Today, the friction is over high-value industries. China’s 2025 export boom was driven by cars plus mechanical and electrical products – specifically, the “new three”: electric vehicles, lithium batteries and solar panels.

China is no longer just the world’s factory floor. It is becoming a hi-tech supplier and often a competitor to advanced economies’ own suppliers – which is where the ongoing tension arises from.

However, this export reliance also signals a domestic weakness. With China’s housing market still subdued and domestic investment declining, Chinese firms are eager to find demands elsewhere to keep their factories humming.

In 2026, this momentum shows little sign of slowing. The Global PMI (purchasing managers’ index, an indicator that assesses global market conditions) showed five consecutive months of expansion in 2025. This suggests the global economy is picking up some speed, which is good news for Chinese exporters.

However, in the long run, China running a trade surplus with more than 170 countries creates a structural imbalance that may become politically unsustainable. The challenge in Beijing, Washington and beyond is to find an equilibrium before this “winner-takes-all” dynamic forces even more drastic protectionist responses.

Jiao Wang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.