China's export overcapacity nears breaking point, former USTR Froman warns

September 7, 2026 at 04:04 AM2 min

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Former U.S. Trade Representative Michael Froman warns that the world's ability to absorb Chinese overcapacity is approaching a breaking point. China posted a $1.2 trillion trade surplus in 2025, the largest in recorded history, and its surplus expanded more than 20% in early 2026. The U.S. and EU are raising trade barriers even as Beijing resists abandoning its export-led growth model.

Key Facts

China posted a $1.2 trillion trade surplus in 2025, the largest in recorded history, growing three times faster than global goods trade.
The IMF estimates global GDP growth at around 3.1% this year, while China's trade surplus expanded more than 20% in early 2026.
Chinese companies charge as much as 30% less than rivals, aided by an undervalued currency and state subsidies.
Nearly a third of Chinese industrial firms operate at a loss due to excess production and price wars.
The European Union, once a defender of open markets, is now racing to put up trade barriers against China.

China's Export Surge

China's trade surplus expanded more than 20% in early 2026, following a record $1.2 trillion surplus in 2025. The surplus grew three times faster than global goods trade, according to IMF data cited by Froman. Chinese manufacturers charge up to 30% less than foreign rivals, supported by an undervalued currency and state subsidies. Nearly a third of Chinese industrial firms operate at a loss, forced into cutthroat price wars by excess production.

Global Pushback

President Trump hiked tariffs on China last year, making it the centerpiece of his 'Liberation Day' trade war. The European Union, once a stalwart defender of open markets, is now racing to erect trade barriers against Chinese imports. Froman wrote in Foreign Affairs that 'the political appetite for accepting the deindustrialization and critical dependencies that come with the flood of Chinese imports is finite and shrinking.' He predicted that protectionism is likely to rise, cutting off Chinese manufacturers' market access.

Beijing's Dilemma

Beijing has acknowledged the need to rebalance its economy away from exports and industry, taking steps to support consumer spending. The government is also trying to crack down on over-competition, known as involution. Froman argued that China cannot fully abandon its export-led growth model because it is both an economic grand strategy and a political project. He warned that if other countries suddenly close off China's access to foreign markets, it could accelerate the failure of the export-led model and raise the prospect of a global economic crisis.