NEW YORK \u2014 A week after US voters rebuked Donald Trump\u2019s Republican Party, China delivered a stinging reminder that his presidency is going awry from all directions.<\/p>\n
China\u2019s trade surplus swelled to just over US$1 trillion<\/a> for the year despite Trump World\u2019s best efforts to hobble President Xi Jinping\u2019s economy. This was even as imports jumped to their largest level since 2021.<\/p>\n Imports rose roughly 42% year on year in October. Exports jumped 35% from a year ago, as Beijing continues to navigate around Trump\u2019s tariffs on Asia\u2019s biggest economy.<\/p>\n In the first 10 months of 2026, a trade surplus that Trump was reelected to reverse is rightly 9% bigger than a year ago. And that $1.2 trillion surplus was already a record high. For Trump\u2019s Republican supporters, this week\u2019s data out of Beijing is as demoralizing as it comes.<\/p>\n \u201cWe expect Chinese exports to stay strong for the rest of this year, led by electronics and autos,\u201d said Dave Chia, an economist at Moody\u2019s Analytics.<\/p>\n Economist Hao Zhou at Guotai Junan International told Bloomberg that the trade surplus \u201cunderscores the resilience and competitiveness of its export sector despite a more challenging global trade environment.\u201d<\/p>\n Add in China\u2019s growing share of the artificial intelligence boom. Tianchen Xu, senior economist at Economist Intelligence Unit, said China\u2019s export surge is related to demand for tech-related products.<\/p>\n To be sure, critical minerals copper and energy supplies like liquefied natural gas, oil, and coal are part of China\u2019s 2026 growth story. But AI is the real driver<\/a>.<\/p>\n \u201cHigh-tech demand, supported by the global and domestic AI upcycle, remained the key driver, while China\u2019s pricing and supply-chain competitiveness in other major export categories also helped sustain the momentum,\u201d said HSBC economist Taylor Wang.<\/p>\n Yet this moment is fraught with risk as China\u2019s domestic economy slows despite huge export gains \u2014 and as the global AI trade gets wobbly.<\/p>\n A giant property slump, now in its sixth year, is catching up with Xi\u2019s economy. Real estate values, which account for roughly 70% of household assets, continue to ratchet lower, slamming consumer confidence and causing big drops in property development investment.<\/p>\n This, in turn, has led to sluggish growth in retail sales, which increased just 1.1% in the first nine months of 2026. At home, vehicle sales have posted 12 straight months of declines. <\/p>\n In August alone, auto sales fell 18.5% year-over-year, while gold and jewelry sales plunged 17.5%. It\u2019s also kept deflation a live risk for China\u2019s $21.5 trillion economy. The same goes for an 18% youth unemployment<\/a> rate.<\/p>\n This domestic weakness has become a global concern. As Chinese households scale back consumption, producers are flooding overseas markets with cheap goods. That\u2019s helping push China\u2019s trade surplus higher and higher as local manufacturing suffers from severe price wars.<\/p>\n Hence worries that if the AI boom goes bust, China\u2019s economy is vulnerable to a slowdown. \u201cWhile this AI tailwind should continue to support exports into 2027, we think it will flip to a major headwind later in the year with the biggest fallout in Asia,\u201d said Simon MacAdam, deputy chief global economist with Capital Economics.<\/p>\n The fallout from the recent US midterm elections poses other risks. Democrats who will soon control Congress might vote to limit overseas chip sales and ban data center<\/a> construction. Another wildcard: that Trump, reined in at home, might lash out overseas with new tariffs.<\/p>\n Joe Peissel, lead macroeconomist at Trivium China, notes that the risk of additional tariffs and other trade barriers will \u201cremain elevated\u201d in the year ahead. This makes it hard for mainland manufacturers to plan for 2027 and beyond.<\/p>\n For now, economist Duncan Wrigley at Pantheon Macroeconomics thinks Team Xi is content with efforts to date to stabilize growth as exports rise, hi-tech manufacturing output outperforms traditional sectors and China climbs the value-added ladder.<\/p>\n If AI hits a wall, though, China\u2019s economy could limp into 2027, analysts say.<\/p>\n \u201cRobust export and import growth in October again underscores the importance of tech manufacturing to China\u2019s economy<\/a>,\u201d said David Qu, an economist at Bloomberg Intelligence.<\/p>\n \u201cIt also highlights a vulnerability for a recovery that lacks support from domestic demand. The tech sector depends heavily on sales of AI-related hardware in foreign markets and, to a large extent, also operates as a processing hub. A drop in external demand \u2014 for example, if US data-center investment slows \u2014 could hit exports, a key engine of growth,\u201d Qu said.<\/p>\n Worries about 2027 are evident in China\u2019s local and regional governments increasing borrowing to finance investment amid weak land revenue, which constrains their ability to fund capital expenditures<\/a>. <\/p>\n Fitch Ratings analyst Sherry Zhao expects capital revenue to fall by more than 20% in 2026, as tighter land and property policies limit land supply and demand. Land-related expenditure was also weak in the third quarter.<\/p>\n China\u2019s leaders have been slow to respond to a stark split in the economy. Exports are booming, while domestic weakness keeps deepening: a major property downturn, soft household demand, strained local government finances, and youth unemployment near record levels.<\/p>\n Foreign demand is doing a lot of work. China is riding the AI wave with electronics, rare earth minerals, and other inputs, and its electric-vehicle and auto-parts makers are thriving abroad. But exports are no longer enough to offset the growing list of headwinds at home, or to pull the country out of deflation<\/a>.<\/p>\n Economists say Beijing needs fresh support, including new spending, more room to issue bonds, and additional liquidity from the People\u2019s Bank of China. A rate cut or two might help as well.<\/p>\n The case for cuts is murky, though, because PBOC Governor Pan Gongsheng has been reluctant to ease. There are two main reasons. The central bank doesn\u2019t want to waste years of progress on deleveraging, and a weaker yuan could raise the risk of large property-developer defaults.<\/p>\n A third reason comes from the top. Xi has little appetite for provoking the Trump administration during high-stakes trade talks. He isn\u2019t rushing to sign a \u201cgrand bargain\u201d with Washington, but he sees no benefit in inviting new US tariffs over a weaker yuan<\/a>. He is probably also content to watch Japan absorb Washington\u2019s criticism over exchange rates.<\/p>\n Along with high oil prices, the weak yen is one of the few international economic issues Treasury Secretary Scott Bessent seems to care about strongly. The US recently joined a currency intervention, the first of its scale since 1998, and so far it has lifted the yen only slightly.<\/p>\n China\u2019s economy is also a weaker shield against Trump\u2019s trade policies than Beijing may believe. GDP is growing around 4.5%, which is solid but probably not fast enough to lift household confidence or break the \u201cdeflationary mindset\u201d among consumers.<\/p>\n The IMF and investment banks have urged Beijing for years to build stronger social safety nets. That is the key to getting 1.4 billion consumers to stop adding to household savings of about $22 trillion. A property market in near-constant distress, the trade war, and energy prices pushed up by the conflict in Iran all keep sentiment low.<\/p>\n China is still nursing self-inflicted damage. The harsh Covid lockdowns hit the property market and consumer spending hard, as did the 2020 crackdown on internet giants. That campaign began with Alibaba founder Jack Ma and spread widely, leaving Wall Street debating whether China was \u201cuninvestable.\u201d<\/p>\n This year brought little of the progress investors wanted. Their wish list includes: ending the property crisis fueling deflation<\/a>; reducing opacity; leveling the field so the private sector can thrive; tackling dangerously high youth unemployment; repairing the finances of local governments weighed down by trillions in debt; building safety nets that encourage households to save less and spend more.<\/p>\n Any one of these is hard, and doing several at once is harder. A sensible first step would be to stop announcing annual GDP targets. Chasing an arbitrary number each year distorts incentives, pushing officials across China\u2019s provinces toward short-term stimulus rather than the bigger reforms needed for a more dynamic economy.<\/p>\n