China’s economic growth is slowing, and instead of addressing its structural issues, Beijing is intensifying its reliance on exports—a strategy that is prompting global backlash. Once celebrated as an engine of growth, China’s economy now faces stagnation due to a combination of internal policy choices and shifting global dynamics. Despite calls for reform, China appears to be doubling down on policies that are exacerbating its trade surplus, increasing global competition, and fostering trade conflicts. This article examines China’s current economic trajectory, the risks associated with its policies, and the growing likelihood of international pushback.
China’s shift from consumption to exports
China’s economy has been underperforming for several years. Although it averaged 7.7% GDP growth annually from 2010 to 2019, recent growth has slowed sharply due to declining property investment, strict “zero-COVID” policies, and lagging private-sector confidence. The root causes, however, are more deeply embedded in China’s economic structure, which remains heavily dependent on exports and state-driven investment rather than on domestic consumption. President Xi Jinping declared China a “moderately prosperous society” in 2021, marking its rise to middle-income status. Yet, this status should ideally prompt a pivot toward a consumption-based economy—one that supports higher household spending and reduces reliance on foreign demand.
Despite the need for domestic reform, Beijing’s recent policy moves reveal an intent to continue pushing exports. China’s trade surplus hit a record $1.7 trillion in 2023, indicating its overwhelming reliance on global markets to absorb its production. Domestic demand remains weak, and rather than bolstering household income to stimulate consumption, China is channeling resources into industries poised to export even more. This export-reliant strategy not only risks saturating international markets with low-cost goods but also risks political backlash from trade partners who feel threatened by the flood of inexpensive Chinese products.
Global concerns about China’s export-led growth
The persistence of China’s trade surplus is alarming to both advanced and developing economies. As China doubles down on sectors like electric vehicles, batteries, and solar panels, these products undercut foreign industries, especially in countries that support their own green energy transitions. For instance, Chinese companies have come to dominate the global solar and EV markets by exporting at lower prices, benefiting from extensive government subsidies that foreign companies lack. Western economies, fearing domestic job losses and market disruptions, are increasingly resorting to trade defenses like tariffs to protect against China’s aggressive export policies. Europe, the U.S., and even emerging economies like India and Brazil are adopting anti-dumping measures and tariffs to counter the influx of cheap Chinese goods.
Trade conflicts between China and developing nations are also on the rise. Brazil, for example, has begun anti-dumping investigations into Chinese steel imports, and South Africa recently confirmed that China’s steel exports were indeed undercutting local industries. India, a major economy in the BRICS bloc, has introduced more anti-dumping orders against China than any other country. These responses highlight the broad concern over China’s practices, suggesting that if China does not address these issues, it may face increasingly severe trade restrictions globally.
The National People’s Congress (NPC) and the absence of reforms
Hopes for an economic pivot were high in March 2024 during China’s National People’s Congress (NPC), but the meeting dashed any expectations for reform. Instead of prioritizing domestic consumption, Beijing opted to continue channeling funds into local investment projects that drive production rather than consumption. No concrete measures were introduced to boost household income or support consumer spending, such as cash transfers or expanded social services. Instead, Beijing’s 2024 budget indicates an intent to maintain its focus on export-led growth.
For instance, China’s fiscal revenue targets show a 9.9% increase in spending on export tax rebates, while taxes collected on imports are expected to rise by only 4.1%. This signals that China does not plan to shrink its trade surplus in the near future. Furthermore, the NPC allocated an increase of 7.2% to the defense budget, significantly higher than the overall government spending growth rate. By prioritizing defense and manufacturing over household support, China is sending a message to the world that it values military and industrial expansion over sustainable economic reform.
Lessons from Japan’s trade disputes in the 1980s
China’s trade practices bear a striking resemblance to Japan’s export strategy of the 1970s and 1980s. During that period, Japan faced increasing pressure from the U.S. and other advanced economies to address its growing trade surplus, which was achieved through tight government control over the economy and aggressive industrial policies. In response, the U.S. and its allies negotiated agreements with Japan, culminating in the Plaza Accord of 1985 and the Louvre Accord of 1987. These agreements forced Japan to adjust its currency value and impose “voluntary” export restrictions, which alleviated some trade imbalances and preserved Japan’s relationships with its trading partners.
Today, many are questioning whether similar collective pressure could prompt China to make adjustments. However, Beijing has so far resisted such reforms and appears less open to external pressure. Unlike Japan, China’s recent messaging indicates it is unlikely to agree to currency adjustments or export limits, opting instead to defend its current policies. Consequently, if China refuses to cooperate, G-7 nations may consider coordinated action to counter Chinese exports through higher tariffs or direct subsidies for their domestic industries.
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Challenges to rebalancing China’s economy
China’s fiscal system complicates efforts to transition to a consumption-driven economy. With tax revenues at only about 14% of GDP—significantly below the average of OECD countries—China’s reliance on business taxes and value-added taxes on manufacturing hampers its ability to boost household income. A shift toward consumption would reduce these revenues, undercutting Beijing’s fiscal capacity. Despite recognizing these constraints in policy discussions, Chinese leaders have avoided the tax reforms that would enable household spending to play a larger role in the economy.
Further compounding the issue, local governments in China face mandates to maintain employment and financial stability, pushing them to continue supporting industries that produce export goods rather than shifting focus toward services or consumption-based industries. Even if central leaders sought to reduce support for heavy industries or cut back on manufacturing subsidies, local leaders would likely resist these changes due to the economic and political risks associated with a potential rise in unemployment. As a result, China’s trade surplus and export dependence are likely to persist, leading to more frictions with trading partners who will continue to suffer the fallout from China’s cheap exports.
Facing global backlash
If China remains committed to its export-centric policies, it risks sparking an international trade backlash that could threaten both the Chinese economy and the global trade system. Already, the United States and Europe have shown willingness to impose tariffs on Chinese imports, and the Biden administration’s recent outreach to European and Asian allies reflects an interest in building a coalition to confront China’s economic practices. The 2024 National People’s Congress provided little assurance to Western leaders, who continue to view China’s economic policies as undermining fair competition.
Furthermore, China’s unwillingness to address international concerns about trade imbalances may lead G-7 nations to coordinate stricter trade policies against Chinese imports. This approach would parallel the trade countermeasures applied to Japan in the 1980s, but with the likelihood of even more aggressive restrictions given China’s central role in global manufacturing. Some analysts argue that without structural reform, China’s economy is vulnerable to the types of retaliatory measures already being discussed in international forums. This trade backlash, if realized, would not only disrupt China’s export-driven industries but could also destabilize the global trade system if Beijing and its trading partners cannot reach a consensus.
Conclusion
China’s refusal to reform its economic model is setting it on a collision course with the global trade community. While Beijing’s policies have been successful in maintaining short-term economic growth, its reliance on exports is increasingly unsustainable. The global backlash is already evident, with both advanced and developing economies taking steps to protect their industries. Unless China makes meaningful reforms—shifting toward a consumption-based economy and addressing its trade surplus—its relationships with major trading partners are likely to deteriorate further.
China’s leaders may hope to weather the current backlash without making concessions, but the economic costs of isolation could be severe. With rising global protectionism and potential for coordinated international action, Beijing faces a choice: reform or risk escalating trade tensions that could disrupt not only China’s economy but also the broader global trade order.
