China’s $1T Trade Surplus Is a Wake-Up Call for Western COOs

China’s global trade surplus passed $1 trillion this week, despite a ten-year US-led trade war targeting Chinese leadership in manufacturing. The takeaways include the likelihood that China will be exporting deflation for years to come and a warning to COOs that scaling competitive non-China-based manufacturing isn’t moving fast enough. 

Industrial Policy Can’t Keep Up with Technology

US tariffs during the first Trump administration launched a challenge to China’s manufacturing dominance. 2025 saw sharp escalation in both rhetoric and rules, accelerating the global pivot toward regionalized supply chains. And yet, China’s annual exports have widened their lead on imports again this year.  

The data shows a temporary drop in China’s trade imbalance coincident with US tariffs from 2016-2018, but then a surge which appears to be blowing through Washington’s latest efforts to turn the tide. US imports from China may be down this year by $38 billion, according to the New York Times, but they are up by $15 billion to Europe, by $11 billion to Vietnam, and by $12 billion to Hong Kong.  

CNN Business quoted Morgan Stanley’s Chief Asia Economist Chetan Ahya on the topic: “Despite persistent trade tensions, continued protectionism, and G20 economies taking up active industrial policies, we believe China will gain more share in the global goods export market,” from 15% now to 16.5% by 2030. 

The reason is simple – and scary. China is miles ahead on automation, robotics, and digital manufacturing systems, while building on an unparalleled multi-tier supply foundation ranging from basic chemicals to advanced materials. China remains factory to the world. 

China Exports Deflation

One of the big worries about Trump’s tariffs earlier this year was that US inflation would surge. Prices have risen, but nowhere near as badly as many had feared. Elsewhere in the world, inflation is largely a non-issue (EU: 2.2%, Canada: 2.2%, India: near zero), except for China, which struggles with deflation as six of the last nine months saw prices decline.  

Little wonder, then, that stock markets are at or near all-time highs with corporate earnings in good shape, and little pressure on central banks to raise interest rates. Stagflation was a topic when Liberation Day ramped up the trade war, but the fundamental depth of global supply plus a weak Chinese currency have kept prices under control. 

China has simply redirected its factory output from LA/Long Beach to Southeast Asia, Europe, and Latin America. Its capacity and productivity are such that the whole world operates with a drumbeat of downward price pressure, challenging Western business on cost. Consumers benefit, but how sustainable is the sugar rush of low prices if, as French President Emmanuel Macron says, “[China is] killing their own customers?”

Automate Manufacturing to Compete

Macron, and Trump for that matter, are trying to persuade China to ease up on manufacturing dominance, but with little effect. Announcements of intent to build manufacturing in the US are everywhere, just as EU plans to improve competitiveness in technology proliferate. Yet there is little real progress.  

As the chart above shows, China’s share of worldwide industrial robot installations has risen steadily since 2014 and now comprises over 50% globally. This measure of leadership is only the tip of the iceberg.  

Zero100 data on digital skills in manufacturing shows that China has a massive lead over the West, which means they are experimenting and learning faster. Couple these facts with the strong position China holds in developing AI, and it becomes clear that without mastering automation and technology, the West negotiates from a position of weakness. 

Digitizing the West Is a Burning Platform for COOs

For COOs of physical product businesses, the short term is not the problem. Supply availability hasn’t faltered much, and China+1 tactics in Vietnam or Mexico are working.  

But what about the long run? Crises like war, disease, or financial collapse could be fatal to operations dependent on China for production. Medium term and industry-specific challenges, like those posed by BYD in automotive or SHEIN in fast fashion, are less dramatic but more likely. Ford CEO Jim Farley calls the progress of the former “humbling.” 

Operational resilience going forward must include the ability to succeed without Chinese manufacturing. Automation may not be sufficient, but it is necessary. Progress needs to be much faster. 

Three no-regrets moves will help immediately: 

1. Invest in training all your manufacturing people on AI. It is easier and less expensive than most traditional training, and as likely to land well with front-line operators as with managers. Zero100’s Citizen/Translator/Wizard talent model is a good framework to start with.
2. Visit technology-heavy plants. Go see and inspect the most tech-heavy operations in your network of plants, preferably in China. If you’ve done this already, ask your key suppliers to give you a tour of their best plants. Again, go to China.
3. Arrange top-to-top meetings with the COOs of your most important suppliers. Talk long-term plans for essential materials production. You need to understand where your inputs are at risk in a trade war. They need your demand commitment to justify capacity investments in geographies at risk.

Start now, or be sorry later.