China’s export machine is driving the global economy toward a breaking point as a record trade surplus and aggressive state-backed overcapacity fuel rising international protectionism. According to Michael Froman, president of the Council on Foreign Relations and former U.S. Trade Representative, the country’s growth model is running out of road and threatening to trigger a global economic crisis.
Record Trade Surplus and Global Market Flooding
China posted a $1.2 trillion trade surplus in 2025, marking the largest figure in recorded history, according to data outlined in Foreign Affairs. The country’s trade surplus expanded by more than 20% in early 2026, growing three times faster than global goods trade as worldwide GDP growth hovers around 3.1%, according to International Monetary Fund estimates cited in the reports. Based on studies of the export wave, Chinese enterprises price their goods up to 30% below international competitors, aided by a suppressed currency.
State subsidies and mandates from Beijing have encouraged excess production and cutthroat price wars known domestically as involution. These pressures force manufacturers to rely heavily on export markets, leaving nearly a third of Chinese industrial firms operating at a loss. Torsten Slok, chief economist at Apollo, warned that the country is increasingly exporting products that advanced economies once expected to dominate domestically, a phenomenon often described as China shock 2.0. Federal Reserve economists noted a similar acceleration in these specific export categories.
International Pushback and Rising Protectionism
Trading partners are rapidly erecting trade barriers to stem the flood of cheap goods. President Donald Trump hiked tariffs on China, making trade restrictions the centerpiece of his Liberation Day trade war. Meanwhile, the European Union is implementing its own trade barriers against Chinese imports. As Froman noted, the political appetite for accepting deindustrialization and critical dependencies is finite and shrinking, which will likely cut off Chinese manufacturers’ market access as protectionism rises.
Beijing has acknowledged the need to rebalance its economy away from exports by supporting consumer spending and cracking down on over-competition. However, Froman emphasized that China cannot fully abandon its export-led growth model because it functions as both an economic grand strategy and a political project. This rigidity leaves the industrial machine unable to stop or slow down, even as it approaches the limits of global demand.
Economic Fallout and Global Cleanup
If foreign markets close off access, the collapse of the export-led model could trigger widespread business failures within China. State-owned banks would record losses on zombie firms, cascading defaults would hit local government financing vehicles, and provincial revenues would collapse. This contraction would quickly diminish China’s demand for raw materials and intermediate goods, dealing a severe blow to commodity-exporting economies and developing nations.
The Chinese government has demonstrated minimal enthusiasm for assuming the global economic responsibilities currently shouldered by the United States. Consequently, Froman warned that even if the next crisis is made in China, the cleanup will likely fall, as it often does, on the United States and the institutions it anchors.
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