China’s $735B Trade Surplus + How Beijing Masks Its Holdings + The G7 Debates Global Imbalances

This episode unpacks why the trade and investment imbalances between the United States and China have grown to record levels despite years of pressure to correct them, and how the imbalanced system looks increasingly likely to collapse under its own weight.

Hosts:

Sebastian Mallaby, Paul A. Volcker Senior Fellow for International Economics, Council on Foreign Relations (CFR)

Rebecca Patterson, Senior Fellow, Council on Foreign Relations (CFR)

Guest:

Brad W. Setser, Whitney Shepardson Senior Fellow, Council on Foreign Relations (CFR)

We discuss:

• How China’s 2025 current account surplus shattered records at $735 billion, jumping nearly 60 percent in one year.
• Why China’s overall trade surplus looks modest as a share of its own GDP but is unprecedented in absolute dollar terms, and arguably as a share of the global economy.
• As CFR expert Brad Setser puts it: “Trade should be two way. We sell to you, you sell to us. Not just one way.”
• How cheap Chinese goods and bond-buying benefited U.S. consumers and borrowers, even as they hollowed out manufacturing and fueled financial froth.
• Why China’s real leverage has shifted from dumping U.S. Treasury holdings to controlling rare earths, critical minerals, and permanent magnets the Fed can’t print.
• How China masks its holdings by moving out of U.S. custodians, leaving official data badly understating what it actually owns.
• Why the Belt and Road Initiative backfired, turning roughly $1 trillion of influence-buying into resentment and unpaid loans.
• Why China could let its currency appreciate but won’t, since a weak renminbi keeps the export engine running.
• Why Chinese leader Xi Jinping refuses to shift toward a consumption-driven model, viewing direct cash transfers as “welfarism.”
• Why the upcoming G7 summit is unlikely to fix any of this, turning the fight into China versus Europe as the system risks collapsing under its own weight.

Mentioned on the Episode:

Anne-Sylvaine Chassany, “Germany to Punish Ministries for Failing to Spend Funds Quickly Enough,” Financial Times

“A Conversation With Ambassador Jamieson Greer,” CFR.org

Brad W. Setser, “Time to Stop Forecasting China’s Surplus Away,” CFR.org

Mark Sobel, “Global Imbalances: Grandeur and a ‘Nothingburger’,” OMFIF

“The U.S.-China Trade Relationship: What’s Behind the Competition?,” CFR.org

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The Spillover is a production of the Council on Foreign Relations. The opinions expressed on the show are solely those of the hosts and guests, not of the Council, which takes no institutional positions on matters of policy.