Figure 1 shows the role of trade in China’s exceptional economic performance over recent decades. From the mid-1980s until the Global Financial Crisis (GFC) of 2008, the ratio of China’s imports to GDP more than doubled, from roughly 14% to around 33%. But China’s current account balance (the excess of exports over imports) swung from a deficit of 4% of GDP to a surplus of nearly 10%.
China’s trading partners are again fretting about the country’s supposedly unfair economic practices. This time, the focus is on China’s alleged attempt to export its excess capacity, especially in emerging sectors such as electric vehicles (EVs), and to undermine domestic industries in the United States and Europe.
But before the world embarks on the next round of retaliatory action against China, it is critical to understand the stubborn, even mystifying, resilience of the Chinese export juggernaut. As my co-authors and I document in a recent paper, China’s share of global exports has continued to soar despite other countries’ more restrictive trade responses and domestic actions that should have corrected the imbalance. This paradox has serious policy implications.
