While President Donald Trump\u2019s tariffs have caused much heartburn on Wall Street, China\u2019s cheap and overwhelming exports have also been rippling through the global economy.<\/p>\n
But the Chinese growth model is running out of road, setting the stage for another global economic crisis, according to Michael Froman, a former U.S. Trade Representative and current president of the Council on Foreign Relations.<\/p>\n
Writing in Foreign Affairs<\/a> last month, he warned \u201cthe world\u2019s ability to absorb Chinese overcapacity is approaching a breaking point.\u201d <\/p>\n For example, the International Monetary Funds estimated that global GDP growth is running around 3.1% this year, while China\u2019s trade surplus expanded more than 20% in early 2026. That\u2019s after China posted a $1.2 trillion trade surplus in 2025\u2014the largest in recorded history\u2014growing three times faster than global goods trade.<\/p>\n Now there\u2019s widespread pushback against the flood of Chinese exports. Most notably, Trump hiked tariffs on China last year and made it the centerpiece of his \u201cLiberation Day\u201d trade war. But even once-stalwart defenders of open markets, like the European Union, are racing to put up trade barriers against China. <\/p>\n \u201cThe political appetite for accepting the deindustrialization and critical dependencies that come with the flood of Chinese imports is finite and shrinking,\u201d Froman wrote. \u201cAs these trends continue, protectionism is likely to rise, cutting off Chinese manufacturers\u2019 market access.\u201d<\/p>\n Helped by an undervalued currency, Chinese companies charge as much as 30% less than rivals in other parts of the world. State subsidies and mandates from Beijing have also encouraged excess production and cutthroat price wars, forcing them to turn to export markets and resulting in nearly a third of Chinese industrial firms operating at a loss. <\/p>\n Add it all up, and China\u2019s export machine is poised to stall as it nears the point where it basically runs out of customers, Froman explained.<\/p>\n \u201cThe result is an industrial machine that cannot stop and cannot slow down\u2014but that, owing to the limits of demand, cannot keep going,\u201d he added.<\/p>\n Global fallout, U.S. response<\/p>\n To be sure, Beijing has acknowledged it must rebalance its economy away from exports and industry, taking some steps to support consumer spending. China\u2019s government is also trying to crack down on over-competition, or so called involution. <\/p>\n But Froman said China can\u2019t fully commit to abandoning its export-led growth model, because it\u2019s an economic grand strategy and a political project.<\/p>\n \u201cAs Beijing debates whether to embrace the reforms necessary to avert disaster, other countries are likely to try to stem the flow of Chinese exports,\u201d he predicted. \u201cSuch moves could suddenly close off China\u2019s access to a broad swath of foreign markets, accelerating the failure of its export-led growth model and raising the prospect of a global economic crisis.\u201d<\/p>\n The fallout in China would see already-fragile businesses failing en masse, state-owned banks recording losses on \u201czombie firms,\u201d cascading defaults in local government financing vehicles, and provincial revenues collapsing.<\/p>\n Meanwhile, China\u2019s demand for raw materials and intermediate goods would dry up, hitting commodity-exporting economies and other developing countries that depend on China as a top trading partner.<\/p>\n But don\u2019t expect China to come to the rescue, Froman wrote, pointing out Beijing has shown little interest in taking on the role the U.S. now plays in the global economy. <\/p>\n \u201cEven if the next crisis is made in China, the cleanup is likely to fall, as it often does, on the United States and the institutions it anchors,\u201d he said.<\/p>\n China shock 2.0<\/p>\n Others have sounded the alarm on the \u201cChina shock 2.0<\/a>,\u201d including Apollo<\/a> chief economist Torsten Slok, who said last month the country is increasingly exporting the kinds of products that advanced economies once expected to dominate domestically.<\/p>\n Federal Reserve economists penned a similar\u00a0note in May<\/a>, finding that the products driving China\u2019s export boom changed from labor-intensive goods in the early 2000s to capital- and tech-intensive industries now.\u00a0<\/p>\n \u201cTaken together, these elements suggest that \u2018China Shock 2.0\u2019 is not simply a continuation of earlier trends, but a new phase of global trade integration,\u201d they wrote.\u00a0<\/p>\n And last year, former Treasury official Brad Setser warned China\u2019s flood of exports could pose the worst threat to the global economy<\/a>, even eclipsing Trump\u2019s tariffs.<\/p>\n Imports of manufactured goods into China have grown by an average of just $15 billion annually over the last six years, essentially unchanged after accounting for inflation. But exports from China have shot up by more than $150 billion.<\/p>\n Now, China alone has the capacity to produce two-thirds\u00a0of the world\u2019s demand for cars, Setser estimated. China also makes more than half the world\u2019s supply of steel, aluminum, and ships. <\/p>\n \u201cThis points to a world economy in which China has no need for the industrial inputs of other countries while leaving those countries dependent on Chinese-made goods\u2014and vulnerable to Beijing\u2019s political and economic pressure,\u201d\u00a0he said in a\u00a0New York Times\u00a0op-ed<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"While President Donald Trump\u2019s tariffs have caused much heartburn on Wall Street, China\u2019s cheap and overwhelming exports have…\n","protected":false},"author":3,"featured_media":1048356,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[6],"tags":[64,74,264,2175,67,132,68],"class_list":["post-1048355","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-business","tag-china","tag-exports","tag-tariffs","tag-united-states","tag-unitedstates","tag-us"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/117228377692818054","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/1048355","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=1048355"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/1048355\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/1048356"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=1048355"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=1048355"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=1048355"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}