What is China selling to the world? Seemingly everything.
Decades ago, China was known for producing low-value-added products like apparel and stuffed animals. But those days are in the distant past: In 2026, China will export over $300 billion worth of semiconductors and microassemblies as well as approximately $400 billion worth of lithium-ion batteries, motor vehicles, and auto parts.
China’s growing dominance in global supply chains is evident in its trade surplus, which reached $1.2 trillion in 2025—a 1,055% increase over the last 20 years (Exhibit 1). Last week, China reported a new monthly record trade surplus of $133.5 billion on the back of a 36.3% year-on-year (y-o-y) surge in exports to $447.2 billion, as well as a 31% y-o-y increase in imports to $313.7 billion as the country becomes ever more integrated into the global supply chain.
EXHIBIT 1
China’s 2026 Trade Surplus Is Likely to Top $1.2 Trillion
China’s Trade Surplus/Deficit with Key Trading Partners
As of September 2026
Source: Lazard, Bloomberg, China Customs General Administration. China’s trade surpluses are plotted above zero with its deficits below. The black line shows the total trade surplus. Estimate for 2026 is based on seasonally adjusted annualized data through September.
China has benefited from an incredibly successful set of mercantilist industrial policies since joining the World Trade Organization as an emerging economy in 2001, and since then it has built world-leading companies that are increasingly ravaging the industrial bases of developed and emerging economies.
In 2025, over 75% of the countries that traded with China found themselves in a trade deficit. The lucky few countries that generated trade surpluses were generally those selling commodities (e.g., Brazil and Australia) or critical technology inputs like semiconductors (e.g., Taiwan and South Korea).
Amber lights had been flashing in global capitals for years, but now those lights are turning red—and this is not only true in the United States. In the first nine months of 2026, for example, the European Union trade deficit increased 26% from the prior year-to-date (YTD) period with monthly deficits exceeding $30 billion in each of the last six months. The EU deficit now exceeds the US deficit by nearly 19% despite EU GDP being about 40% smaller than that of the United States.
Even India, a nation with significant labor cost advantages relative to China, is burdened with a $106 billion trade deficit YTD (versus $88 billion in the same period in 2025), meaning India’s deficit is 45% of the size of the US deficit even while Indian GDP is 87% smaller.
China’s one surprisingly small export is for rare earths at only $3.4 billion YTD. But the relatively small dollar value of rare earths exports is misleading given the array of manufacturing supply chains that rely on China as the dominant supplier of these inputs. And if China’s ability to limit access to a product that represents only ~0.1% of its exports can cause such consternation in global capitals, how many other chokepoints must be within China’s grasp?
The challenge for trading partners globally is that, over time, as China wins more market share, it tends to drive overseas competitors out of business. Once a chokepoint becomes evident, it could take years for a trade counterpart to rebuild its indigenous production capability if that is even possible.
The European Union is belatedly getting serious about protecting its domestic industries, but the United States has been less aggressive since China demonstrated escalation dominance in 2025 by shutting off access to critical minerals and rare earths.
At some point, I believe the developed world will be forced to act in unison or face a dangerous dependency on a country that has demonstrated a willingness to capitalize on its supply chain dominance—as it did with critical minerals and rare earths.
China, on the other hand, must also recognize that its dependency on exports is unsustainable. As I argued in my mid-year outlook, China needs to address its domestic weaknesses to set the stage for sustained growth. Absent this rebalancing, the risk to global growth will continue to grow.
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Published on 21 October 2026.
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