China Shock 2.0 – Record China Trade Surpluses Worsen Global Disruption

As China’s policies continue unchecked, the world is experiencing China Shock 2.0, with devastating economic, social, and political consequences.


  • Chinese exports have increased $893 billion since 2018 and the China trade surplus has increased by 36%, putting a huge strain on the global trading and financial system.
  • As China’s policies continue unchecked, the world is experiencing China Shock 2.0, with devastating economic, social, and political consequences.
  • Trade data from 2023 shows that Europe and East Asia are absorbing most of China’s direct export surge.
  • The EU is now absorbing as much of China’s exports, about $500 billion, as the U.S.
  • Chinese exports to Russia have more than doubled, the fastest growth seen worldwide.
  • While the Section 301 tariffs, implemented in 2018, have reduced direct Chinese exports to the U.S., indirect Chinese exports are still finding their way here through Southeast Asia, Mexico, Canada, and other countries.

Chinese Exports Increase $893 Billion Since 2018, Trade Surplus More than Doubles

China is the largest manufacturing power in the world by far. In 2022, China’s total manufacturing value added reached nearly $5 trillion (31% of the world total). As shown in Figure 1, this value far exceeds the second-largest manufacturing bloc, the European Union / European Free Trade Association (EFTA)[1], and is nearly twice the manufacturing value of the United States.

[1] European Union / EFTA includes the 27 nations of the EU plus the four additional nations that are part of the single market (Switzerland, Norway, Iceland, and Liechtenstein).

Figure 1

This massive Chinese manufacturing output is not being absorbed domestically within China. China still has a smaller overall GDP compared to either the United States or the European Union / EFTA bloc, despite having far more manufacturing output. China’s manufacturing accounted for 28% of its total GDP, compared to only 15% in the EU and 10% in the United States. China’s manufacturing output has always been export-focused, with trade now accounting for 38% of China’s total GDP.

In recent years, these exports have grown rapidly. Between 2018 and 2023, China’s exports to the world increased by $893 billion, a 36% total increase. As shown in Figure 2, export growth was slow during 2019 and 2020, in the immediate aftermath of the Trump Administration’s Section 301 tariffs against China and the beginning of the COVID crisis. Then, in 2021, China’s exports took a massive jump, increasing 28% in a single year. In total, China’s overall trade surplus has more than doubled (133%) since 2018.

Figure 2: Total Chinese Exports, Imports, and Trade balance (2018-2023)

Source: UN Comtrade, China GACC

The Chinese government reacted to its domestic economic slowdown by driving its manufacturers to produce more and export more. These huge levels of exports and trade surpluses are increasing financial, trade, and economic instability around the world. Its massive exports and trade surplus create a global imbalance and financial instability by forcing other nations to run deficits.

As shown in Figure 3, 2022 Chinese exports at $3.6 trillion have reached over 3.5% of total world GDP and China’s doubled trade surplus of $878 billion has reached 0.87% of world GDP. These imbalances are being created because China’s export growth has far outpaced global GDP growth. Overall global GDP increased by 17% from 2018 to 2022. During this same time, Chinese exports increased 45%.

Figure 3: Chinese Exports as a % of World GDP

Source: UN Comtrade, China GACC, World Bank

These massive Chinese manufacturing exports threaten to drive other nations’ manufacturing bases out of business and create millions of unemployed. The U.S. experienced all these effects in the first China Shock, from roughly 2001 to 2019. This new phase of instability caused by China’s beggar-thy-neighbor policies looks like China Shock 2.0. Due to U.S. policies under Trump and Biden that have made it harder for China to export to the U.S. directly, and the fact that Chinese competition has already decimated many American industries, other nations are likely to experience China Shock 2.0 more severely than the U.S.

Export Growth Largest for East Asia, Facilitated by Supply Chain Integration

China’s export surge since 2018 varied greatly from region to region. As shown in Figure 4, exports to East Asia & the Pacific, followed by Europe, increased the most. These two regions together account for nearly 60% of China’s total export growth.

Figure 4: Chinese Export Growth by Region (2018-2023)

Source: UN Comtrade, China GACC

China’s largest total export increase was to East Asia & the Pacific, rising $288 billion from 2018 to 2023 (45%). The largest part of this regional increase was taken by the Association of Southeast Asian Nations (ASEAN) countries. These ten countries accounted for $205 billion of China’s overall export increase.

The U.S. Section 301 tariffs of 2018 and 2019 on roughly half of U.S. imports from China made Chinese exports more expensive in the U.S. and consequently led many manufacturers to relocate production to Southeast Asian countries such as Vietnam or Thailand. These countries became the lowest-cost foreign producers for many manufactured goods and were not subject to the same tariffs as China. From 2018 to 2022, total value-added manufacturing production in ASEAN countries increased by $103 billion and total ASEAN global exports increased by $499 billion.

China’s $205 billion export increase to ASEAN countries reflects China’s deepening supply chain integration with the region. China supplies large amounts of components, materials, and investment equipment that go into ASEAN manufacturing and exports. This integration has also been accelerating in recent years. The free trade agreement that China signed in 2020 with ASEAN nations and others, known as the Regional Comprehensive Economic Partnership (RCEP), has accelerated the integration of these economies and China’s growing role in the Southeast Asian supply chain.

A significant part of increased U.S. imports from Southeast Asia contains parts and in some cases complete products manufactured in China. This is also true for U.S. imports from both Mexico and Canada. There is evidence that basic products such as steel and rubber hoses are coming from China through Mexico and Canada to reach the U.S. market unaffected by tariffs. More complex products like electronics or clothing are increasingly manufactured in Vietnam and Mexico using Chinese materials or parts.

Nevertheless, China’s direct export surge since 2018 has affected Europe far more than North America. According to China’s data, export growth to North America has been close to flat, absorbing only 4% of the total export increase. (In the U.S. data, imports from China are actually down since 2018).

China’s exports to developing markets have also increased rapidly since 2018. China’s exports to the Middle East & North Africa, Latin America & the Caribbean, South & Central Asia, and Sub-Saharan Africa altogether increased by 66%. These four regions are all the fastest-growing regions for Chinese exports and together account for 37% of China’s overall export growth. This further shows China’s increasing export diversification from North America and strengthening presence in developing economies throughout the world.

EU, Russia, and Vietnam Absorbing Most of China’s Export Surge

As shown in Figure 5, the market with the largest total Chinese export growth has been the European Union / EFTA (27 EU members + 4 non-EU single market countries). From 2018 to 2023, exports increased by $152 billion (42%). The export destination in Europe with the largest total increase was the Netherlands (up $27 billion), which acts as a major distribution point of goods from outside the EU to other EU countries. During this time, the EU also surpassed the United States as the overall largest market for Chinese exports, with 2023 Chinese exports to the EU $8 billion higher than exports to the United States. This is due to the surge in exports to the EU, and the relatively flat export growth to the United States.

Figure 5: Top Chinese Export Markets by Total 2023 Exports

Source: UN Comtrade, China GACC

The second largest export country by total increase was Russia, where Chinese exports more than doubled. The 2022 Russian invasion of Ukraine and the Western sanctions that followed caused substantial trade growth between Russia and China. Russia needed many goods it could no longer import from Western nations, and China filled that gap with its own products. As shown in Figure 6, Chinese exports to Russia started increasing in 2021, shortly before the outbreak of the war, but most of the surge occurred after the invasion began and after Western sanctions were implemented. Exports in 2023 surged by 46% over the previous year.

Figure 6

Between 2018 and 2022, Mexico experienced its own manufacturing and export boom, with value-added manufacturing increasing by $61 billion and total exports increasing by $127 billion. Similar to ASEAN countries, Mexican manufacturing and exports benefited greatly from the 2018 U.S. tariffs on Chinese products. Mexican exports also benefited from the United States-Mexico-Canada Agreement (USMCA), effective July 2020.  USMCA reduced trade barriers with the United States and increased business confidence for manufacturers in Mexico. Mexican export growth to the United States had been near flat before 2020, only gaining 4% from 2014 to 2020. From 2020 to 2023, Mexican exports to the U.S. boomed by 43%.

As with ASEAN countries, China is also a sizeable supplier of parts, materials, and manufacturing equipment to Mexican manufacturing, as reflected in China’s increased exports to Mexico.

China Now Leads the World in Motor Vehicle Exports

The top sectors for Chinese export growth are all manufactured goods. The sector with the largest total 2023 exports is electrical machinery & equipment at $896 billion, followed by machinery & mechanical appliances at $511 billion. These sectors include both finished consumer goods for export, as well as various manufactured parts going to ASEAN countries and other rising manufacturing exporters such as Mexico.

Within electrical machinery & equipment, the largest 2023 export sub-sectors were telephone sets (at $219 billion), and electronic integrated circuits (at $136 billion). Within machinery & mechanical equipment, the largest sub-sectors were computers (called automatic data processing machines in trade data, at $149 billion) and appliances for pipes, boiler shells, tanks, etc. (at $21 billion exports).

Figure 7: Top Chinese Export Sectors by Total 2023 Exports

Source: UN Comtrade, China GACC

China’s fastest-growing export sector was motor vehicles and parts, reflecting China’s rising automotive industry. China is now the number one automotive exporter in the world, surpassing the previous top automotive exporter, Japan. This trend reflects China’s transition into higher-value manufactured products as its manufacturing industry continues to develop and mature. Much of China’s increase in motor vehicle exports has been to Asia and Europe, in line with China’s overall trade surplus growth.

United States Absorbing Less Direct Chinese Exports, but More Indirect Exports

Since 2018, total U.S. imports have experienced substantial growth, with 2023 imports up $548 billion compared to 2018 (a 22% increase). However, this import growth has been from countries other than China.

As shown in Figure 8, U.S. imports had the highest growth from countries in Europe, North America, and Southeast Asia. Imports from the European Union / EFTA saw the largest total increase, up $159 billion or 34%. A large part of this import increase is due to general inflation. According to government data, 2023 consumer prices were 21% above those of 2018. The next highest total import increases were from Mexico and Canada, up $132 billion and $103 billion respectively. This surge from Mexico and Canada has been facilitated both by increased tariffs on Chinese goods and by the USMCA trade agreement.

Figure 8: Top U.S. Import Partners by Total 2023 Imports

Source: U.S. Census Bureau

Imports from Southeast Asia experienced the fastest growth. Imports from Vietnam increased by 133%, from Taiwan 92%, and from Thailand 77%. Along with Mexico, these countries have become some of the primary alternative low-cost manufacturing hubs for the U.S. market after the 2018 tariffs made multinationals more reluctant to depend on Chinese production.

From 2018 to 2023, Chinese imports to the United States decreased by $111 billion (21%), according to U.S. import data. China is now only the third largest country by total imports into the U.S., being surpassed by both the European Union / EFTA and Mexico. The U.S. is not directly absorbing China’s current export surge, but nonetheless remains a large destination for Chinese goods, with $427 billion in total U.S. imports from China in 2023, along with the unknown amount of Chinese goods and components going through third countries before reaching the United States.


In the past five years, China has posed a new challenge to the world economy with a huge 36% increase in its exports and a more than doubling of its trade surplus. This export-driven economic policy poses new challenges for the entire world, and especially for those regions that have been somewhat shielded from the full force of China’s exports before now. China’s export growth is worsening global imbalances.

Global markets in all regions of the world are becoming increasingly reliant on Chinese imports, and China is becoming increasingly reliant on its trade surplus to hit its government-mandated GDP growth targets, with manufacturing and trade accounting for huge shares of China’s GDP. And it is no longer primarily the United States feeling the consequences of this trade imbalance. China’s exports and trade surplus are increasingly affecting all regions of the world, developed and developing countries alike. Previous global imbalances have led to debt crises in Asia, Latin America, and Southern Europe. Excessive exports have led to deindustrialization crises in the U.S. and Western Europe. The current set of global imbalances, China Shock 2.0, could lead to equally serious consequences.

[1] European Union / EFTA includes the 27 nations of the EU plus the four additional nations that are part of the single market (Switzerland, Norway, Iceland, and Liechtenstein).


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