How Xi Jinping beat Donald Trump in trade war

Despite nearly 10 years of United States tariffs imposed during President Donald Trump's administration, China's trade surplus has surged, reaching $1.08 trillion by November - the highest figure ever recorded worldwide and a milestone that China only achieved at the end of last year. This record, revealed by China's customs agency this week, signifies a 21.7% increase compared to the same timeframe in 2024 and highlights China's growing dominance in global exports.

“They should not be surprised that China is able to find markets outside of the advanced economies,” Mary Lovely, senior fellow at the Peterson Institute for International Economics, told the New York Times.

President Trump's trade war approach - characterised by extensive tariffs, aggressive rhetoric, and commitments to revitalise US manufacturing - has failed to hinder China's export capabilities.

On the contrary, China has adapted, redirected, and modified its strategies, increasing the flow of goods to emerging markets, Europe, and Southeast Asia - frequently by relocating final assembly outside its borders to evade tariff restrictions.

“Despite persistent trade tensions... we believe China will gain more share in the global goods export market,” said Morgan Stanley’s Chetan Ahya. This enhances China's position not only as the leading supplier of goods globally but also as a significant geopolitical player, utilising exports to forge connections - and dependencies - throughout the Global South.

Details

Here’s how China’s $1.08 trillion trade surplus was achieved:

Diversified markets

• Exports to Africa increased by 42%, to Europe by 15%, and to Latin America by double digits.
• Shipments to the US dropped by 29% year-over-year in November, marking the eighth consecutive month of double-digit declines.
• However, sales to France, Germany, and Italy flourished - all experiencing double-digit growth.

Manufacturing shifts

• Chinese firms relocated segments of their supply chain to Southeast Asia, Mexico, and Africa, which then export to the US, in effect circumventing Trump-era tariffs.
• These "trans-shipping" strategies enabled Chinese companies to continue supplying American retailers while concealing the origin.

Currency advantage

• The renminbi has depreciated considerably, especially against the euro, resulting in lower prices for Chinese products overseas.
• Prices in China are decreasing, while those in the US and Europe are increasing - remarkably enhancing competitiveness.

“With the renminbi undervalued by 30% against the euro... it will be exceedingly difficult... to compete against Chinese manufacturers,” said Jens Eskelund, president of the EU Chamber of Commerce in China.

Interpretation

Trump’s tariffs, initially perceived as a daring attempt to bring jobs and production back to the US, have caused only minor disruptions to China’s growth trajectory.

• Exports of toys, electronics, and plastic products to the US have declined, but this loss has been more than offset by surging sales in other markets.
• China is strategically selling at low profit margins to emerging markets to establish long-term geopolitical and economic dominance.

“The margins may not be as high,” Ilaria Mazzocco of the Center for Strategic and International Studies told the NYT, adding, “but for those markets, it's entirely transformational."

At the same time, US importers are increasingly looking to India, Vietnam, and Taiwan - yet many of those supply chains still originate in China.

President Trump’s trade war aimed to lessen America’s dependence on Chinese products and provide US factories with a competitive advantage.

However, China has demonstrated its ability to adjust its export strategy, regain global market share, and navigate tariff challenges - more swiftly than Washington expected.

• China is currently the largest global producer of electric vehicles, batteries, solar panels, and consumer electronics.
• In numerous African nations, Chinese vehicles and technology - once nearly nonexistent - now dominate the markets.
• Sales of Chinese-manufactured EVs and solar panels to Nigeria and Algeria have surged, disrupting local industries.

This transformation was not coincidental. It is the outcome of years of strategic industrial planning from Beijing, coupled with decades of underinvestment in manufacturing capabilities in the West.

“China’s trade surplus in factory goods is even bigger... than the US after World War II,” notes the New York Times.

Trump factor

Despite President Trump reaching a one-year trade truce with Xi Jinping in October, his administration is still considering imposing additional tariffs, especially on sectors like pharmaceuticals and drones, where China holds ample advantage.

Although some tariffs have been reduced, they remain at 45% - a historically elevated rate.

Critics contend that Trump’s trade war has primarily altered supply chains instead of rejuvenating American manufacturing.

“November’s stronger-than-expected export growth demonstrates the resilience and competitiveness of China’s exporters,” said David Qu, chief China economist at Bloomberg Economics.

“The rebound of export growth in November helps to mitigate the weak domestic demand,” added Zhiwei Zhang of Pinpoint Asset Management.

However, while exports are flourishing, domestic consumer spending continues to be weak, and factory activity has contracted for eight consecutive months, raising concerns about the viability of export-driven growth.

What next?

The International Monetary Fund is visiting China this week to evaluate its currency practices, including whether the renminbi is being maintained at an artificially low level to enhance exports. A preliminary report is anticipated on Wednesday.

Simultaneously, there are increasing calls within China to permit the currency to appreciate - a change that would:

• Lower import costs
• Enhance household purchasing power
• Adversely affect exporters by diminishing the value of foreign earnings

“To expand domestic demand, it is necessary to minimise the trade surplus,” said Zhang Jun of Fudan University.

What to monitor

Global resistance: With China's exports saturating markets, the EU is contemplating new anti-dumping regulations. Other areas, such as India and Brazil, are also looking into safeguard tariffs.

Risk of slowdown: In spite of robust export figures, China's economy is losing steam as it approaches 2026, and the growth in exports may not sufficiently counterbalance the sluggish domestic demand.

Shift in policy: During a recent meeting of the Politburo, President Xi highlighted domestic demand as the foremost priority for 2026, indicating a long-term strategy to shift the economy's focus away from exports.

The key takeaway

Trump's tariffs made a lot of noise, but China's approach was even more pronounced.

Through currency strategies, transhipment, and industrial capabilities, China has not only endured the trade conflict but has also prospered, achieving a record-breaking $1.08 trillion trade surplus.

If the US aims to contest China's supremacy, it will require more than just tariffs. It will necessitate reinvestment, innovation, and partnerships, along with a thorough reassessment of what constitutes a "victory" in global trade.