Trump has China on a foreign debt borrowing spree

Official data revealed on Monday that China’s trade surplus surged to an unprecedented $1 trillion in 2024. President-elect Donald J. Trump is set to take office in less than a week, and his vows to impose punitive tariffs on China are escalating geopolitical tensions with the United States, its largest trade partner.

The General Administration of Customs reported that China exported $3.58 trillion worth of goods and services last year while importing $2.59 trillion, resulting in a surplus of $990 billion. The December trade data alone showcased a record monthly surplus of $104.8 billion, driven by strong export growth of 10.7% compared to a modest 1% rise in imports.

Economists suggest the figures reflect a “front-loading” of exports as manufacturers rush to ship goods ahead of the anticipated trade policies under the Trump administration. 

“Given the threatened tariffs, we expect export growth to remain robust in the near term because of front-loading,” denoted market observers from Nomura in a research brief.

China could shift towards regional trade partners

In fear of the stringent policies implemented by countries overseas, Chinese exporters have increasingly turned to Southeast Asian markets. Exports to ASEAN countries rose to 16.4% of China’s total exports in 2024, up from 15.5% the previous year.

This regional diversification could provide a buffer against the anticipated trade tensions with the US, according to Nomura economists. “The decline in the share of exports to the US and the significantly increased share to ASEAN could provide some buffers,” they noted. 

However, if the US targets rerouted exports to Southeast Asia, the region’s share could also face economic pressure and stalled market growth. Manufacturers have also begun diversifying production to neighboring countries to avoid tariffs and trade restrictions, possibly from fears of the 47th US President’s promises to slim China’s influence in the trade map. 

HSBC economists also warned that the effects of front-loaded exports could diminish as US tariffs take hold. They added, “With global trade uncertainties likely to pick up, the front-loading boost may fade, and more policy support will be needed to boost domestic demand.”

PBOC to defend yuan and domestic trade

In other news, China’s central bank is taking steps to stabilize the yuan, which has faced pressure from the dollar to depreciate. Earlier today, the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange jointly announced an increase in the macroprudential adjustment parameter for cross-border financing. 

The adjustment raises the upper limit of foreign debt that enterprises and financial institutions can borrow. Mounting devaluation pressures are tied to concerns over an impending trade war with Washington, which could exacerbate the yuan’s struggles.

Recently, the PBOC reaffirmed its commitment to stabilizing the currency. “We have the confidence, conditions, and ability to maintain a stable foreign exchange market,” said PBOC Governor Pan Gongsheng in a recent statement.

Economic experts see the central bank’s move as a preemptive measure ahead of Trump’s inauguration. 

Zhu Tian, an economics professor at the China Europe International Business School, explained, “This move can go some way in easing the pressure of depreciation and increasing the amount of overseas financing for enterprises. If more US dollars flow in as a result, it will certainly help stabilize the yuan.”

Trade tensions escalate with record surplus

China’s record-breaking surplus has prompted harsh condemnation from its trading partners. Recent data shows the US accounts for more than one-third of this surplus. The Trump administration, however, is headstrong in combating China’s dominance in global manufacturing.

Many other countries, both industrialized and developing, have erected tariffs to curb the influx of Chinese goods, while China has often responded with retaliatory measures. The rising trade disputes risk destabilizing the global economy.

The scale of China’s 2024 surplus also exceeded past records held by economic powerhouses such as Germany, Japan, and the United States. Comparatively, China’s surplus in manufactured goods accounted for 10% of its GDP, a level of dominance unseen since the United States during the post-World War II boom.

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