China’s trade surplus surged to a record US$1.2 trillion in 2025, defying expectations that US tariffs would significantly curb its exports. Even as direct exports to the US plummeted by 20% last year, and imports from the US into China fell by 14.6%, Beijing successfully redirected trade flows, bolstering exports to Africa by 26%, to Southeast Asian nations (Asean) by 13%, and to Latin America by 7%.
The resilience of China’s export engine, however, masks a growing reliance on overseas demand to fuel economic growth. Analysis indicates that net exports accounted for more than a third of China’s GDP growth in 2025 – the highest proportion since 1997, when the Chinese economy was significantly smaller. This dependence comes as domestic drivers of growth falter.
Fixed asset investment, encompassing property, infrastructure, and factories, experienced its first annual decline in over two decades, falling nearly 4% in 2025. New housing starts are down more than three-quarters from their 2021 peak, and local governments, facing financial constraints, have scaled back infrastructure spending. Attempts by Beijing to stimulate consumer demand have yielded limited results, with consumption’s contribution to GDP growth declining in recent years.
The shift towards export-led growth is not without broader implications for the global economy. Unlike previous periods where increased Chinese output provided a net positive for global growth, the current dynamic suggests a growing imbalance. China is now selling proportionally more than it is buying, raising concerns about trade imbalances and potential disruptions to global markets.
Europe is particularly vulnerable to this trend, with French President Emmanuel Macron warning of a “Chinese tsunami” of exports. The continent’s trade deficit with China is expanding, with Chinese exports to Europe increasing by over 8% in 2025. This pressure has been compounded by the diversion of exports previously destined for the US, and a more than 8% depreciation of the renminbi against the euro.
Brussels has responded with a series of defensive trade measures, including tariffs on electric vehicles, restrictions on public procurement, and retaliatory actions against companies benefiting from subsidies, all while adhering to World Trade Organisation rules. However, these measures have been largely piecemeal.
The European Commission is now advancing the Industrial Accelerator Act (IAA), aiming for a more systemic approach. The IAA, backed by France, would introduce a “buy local” requirement for public procurement, which is valued at approximately €2 trillion (US$2.37 trillion) annually. The draft proposal, expected later this month, could mandate a minimum percentage of local content for successful tenders and products receiving public funds, with some initial discussions suggesting a figure as high as 70% for certain sectors.
The IAA too proposes restrictions on investments from countries like China in strategically important sectors, making such investments contingent on technology transfer and local employment. Determining the precise definition of “European content” and prioritizing sectors remains a point of contention.
Concerns are particularly acute in the automotive sector, which employs around 14 million people in Europe. Chinese investments, often with limited local employment or content, have raised alarm in Brussels and throughout the supply chain. European automakers, facing intense competition from Chinese brands, have increasingly shifted production to China and sourced more Chinese components, contributing to the loss of over 100,000 jobs in the European auto parts industry in the last two years.
This creates a complex dilemma for European industry, where actions that benefit individual companies may not align with the broader interests of European supply chains. Balancing competitiveness with the need to adapt to a more assertive global economic landscape presents a significant challenge.
