China’s aggressive export policies and President Xi Jinping’s focus on manufacturing dominance may pose the most significant threat to the global economy—potentially even greater than former President Donald Trump’s unpredictable tariffs. This concern was raised by Brad Setser, a former Treasury official and senior fellow at the Council on Foreign Relations, in a recent op-ed for The New York Times.
China’s Unbalanced Trade Strategy
Setser argues that China’s economic policies, which heavily favor manufacturing and exports while limiting imports, are distorting global trade. Over the past six years, China’s imports of manufactured goods have remained nearly stagnant, increasing by just $15 billion annually when adjusted for inflation. Meanwhile, its exports have surged by over $150 billion.
“When it comes to manufactured goods, trade with China is virtually a one-way street,” Setser emphasized. This imbalance has put major export-driven economies like Germany and Japan at risk, as their industries struggle to compete against China’s aggressive production and pricing strategies.
The Roots of China’s Overproduction Problem
Following the 2008 global financial crisis, Beijing resisted calls to rebalance its economy toward domestic consumption. Instead, it fueled an infrastructure and real estate boom. However, as concerns about a potential economic bubble grew, Xi Jinping imposed restrictions that slowed growth in these sectors—without offering significant consumer stimulus during the pandemic.
Unlike Western countries that boosted household spending, China provided substantial support to its manufacturing sector, leading to massive overproduction. The consequences are clear:
- China now has the capacity to produce two-thirds of the world’s demand for cars.
- It manufactures over half of the world’s steel, aluminum, and ships.
- Its export volume is growing three times faster than global trade, meaning other economies are losing market share.
This shift has created a situation where China has little need for industrial imports from other nations while making them increasingly dependent on Chinese-made goods. Setser warns that this dynamic leaves countries vulnerable to economic and political pressure from Beijing.
Can Trump’s Tariffs Solve the Problem?
Trump’s tariffs on Chinese imports—along with duties on steel, aluminum, and other goods—were meant to correct trade imbalances. However, Setser believes they may not be the solution.
“Trump’s trade policy has been so unpredictable that businesses and trade partners struggle to adapt,” he noted. While one-off tariffs and retaliatory measures disrupt supply chains, they do little to address China’s structural advantage in manufacturing. Instead, they add more instability to an already fragile global economy.
Trump has also threatened tariffs on Europe, targeting auto exports and semiconductor industries, further fueling uncertainty. “Mr. Xi has a one-way vision of trade. Mr. Trump often sounds as if he doesn’t believe in any trade. Between the two of them, the global economy is in for a rough ride,” Setser concluded.
The Bigger Risk: A Global Trade Crisis
China’s overproduction is not just a problem for its trading partners—it also poses a risk to its own economy. As foreign demand struggles to keep up with supply, falling prices could lead to deflation, factory closures, and job losses.
Zongyuan Zoe Liu, a China scholar at the Council on Foreign Relations, described China’s situation as a “doom loop” where excessive output depresses prices, pushing industries toward insolvency. If this cycle continues, China could face an economic downturn that sends shockwaves through global markets.
