Forget Trump’s tariffs. The real danger lies in China’s trade surplus

Business Standard

Context and Core Thesis

The article argues that China’s persistent and expanding trade surplus, rather than episodic tariff policies associated with the Trump administration, represents the deeper and more structural threat to the global trading system. It situates the debate within concerns about global demand deficiency, asymmetric trade flows, and the fragility of multilateral economic order.

The piece is analytical in tone, combining macroeconomic reasoning with geopolitical implications.

Key Arguments

1. China’s Trade Surplus as a Systemic Risk

The central argument is that China’s large and sustained trade surplus:

• Drains global demand from other economies
• Contributes to deflationary pressures worldwide
• Distorts the balance of the global trading system

Unlike tariffs, which are cyclical and reversible, the surplus is portrayed as a structural imbalance embedded in China’s economic model.

2. Limits of Tariff-Centric Thinking

The article challenges the dominant focus on Trump-era tariffs by arguing:

• Tariffs are politically visible but economically secondary
• They do not address the root cause of global trade distortions
• Excessive attention to tariffs distracts from deeper macroeconomic issues

This reframes protectionism as a symptom rather than the disease.

3. China’s Growth Model Under Scrutiny

China’s reliance on:

• Export-led growth
• Suppressed domestic consumption
• High savings and industrial overcapacity

is identified as a key source of imbalance. The author suggests that without a meaningful shift towards consumption-led growth, global trade tensions will persist irrespective of tariff regimes.

4. Global Spillover Effects

The article links China’s surplus to:

• Reduced growth space for developing and middle-income economies
• Political backlash against globalisation
• Erosion of trust in the multilateral trading system

This positions the surplus as not just an economic issue, but a political and institutional challenge.

Author’s Stance

The author adopts a structuralist and system-level perspective:

• Emphasises macroeconomic fundamentals over headline-grabbing trade wars
• Advocates reform within China’s domestic economic architecture
• Views global trade stability as dependent on balanced demand generation

The stance is reformist rather than punitive, urging adjustment rather than confrontation.

Biases and Silences

1. China-Centric Attribution Bias

While persuasive, the argument:

• Places disproportionate responsibility on China
• Underplays demand-side weaknesses in advanced economies
• Minimises the role of fiscal austerity and inequality in the West

This risks oversimplifying a multi-causal global imbalance.

2. Limited Agency of Other Economies

The article gives insufficient attention to:

• Policy choices of surplus and deficit countries alike
• The capacity of importing nations to stimulate domestic demand
• Structural issues in global value chains shaped by multinational corporations

3. Normative Preference for Multilateralism

There is an implicit bias in favour of:

• Rules-based global trade
• Cooperative adjustment rather than unilateral action

While normatively appealing, this assumes political feasibility that may not exist in practice.

Pros of the Argument

• Shifts debate from short-term trade conflicts to long-term economic structures
• Highlights demand imbalance as a core global economic problem
• Encourages deeper engagement with macroeconomic reform rather than retaliation
• Highly relevant for understanding contemporary trade politics beyond headline events

Cons and Limitations

• Underestimates political economy constraints within China
• Downplays strategic motivations behind trade surpluses
• Offers limited discussion on enforcement mechanisms for rebalancing
• Does not fully address how global institutions can compel adjustment

Policy Implications

1. For China

• Need to boost household consumption
• Strengthen social security to reduce precautionary savings
• Shift growth drivers away from export dependence

2. For the Global Trading System

• Rebalance focus from tariff disputes to macroeconomic coordination
• Reinforce surveillance of persistent trade imbalances
• Encourage cooperative demand expansion across economies

3. For India

• Opportunity to position itself as a demand-driven growth economy
• Need to avoid replicating surplus-led strategies
• Strategic importance of domestic consumption and investment-led growth

Real-World Impact

If the surplus-driven imbalance persists:

• Trade tensions will resurface regardless of leadership changes
• Protectionist politics may intensify globally
• Multilateral trade institutions may lose further legitimacy

Conversely, successful rebalancing could:

• Stabilise global growth
• Reduce geopolitical friction
• Restore confidence in globalisation as a shared-benefit system

UPSC GS Paper Alignment

GS Paper III – Economy

• Balance of payments
• Globalisation and trade imbalances
• Structural reforms and growth models

GS Paper II – International Relations

• Global economic governance
• Trade diplomacy and multilateral institutions

Essay / GS IV (Ethics – Applied)

• Equity and responsibility in global economic systems

Balanced Conclusion and Future Perspective

The article compellingly argues that China’s trade surplus represents a deeper and more enduring challenge than episodic tariff wars. By shifting attention from political spectacle to economic structure, it enriches the trade debate. However, a sustainable solution requires acknowledging shared responsibility across economies and confronting political constraints within and beyond China. For global stability, the future lies not in tariff escalation, but in coordinated rebalancing of demand, income distribution, and growth strategies.