China's Li criticises tariffs as record trade surplus irks export markets

Beijing is now facing broadening tensions with major trading partners beyond the U.S., which are calling on China to do more to reform its $19 trillion economy and reduce its dependence on exports to support growth.

China's second-ranking official urged the heads of the IMF, World Bank, World Trade Organization and others to strengthen global governance in response to the growing number of economies imposing levies on imported goods, China included.

"Since the beginning of the year, the threat of tariffs has loomed over the global economy, with various trade restrictions proliferating and severely impacting global economic activity," Li told the "1+10 Dialogue" in Beijing, which also includes officials from the OECD and International Labour Organization.

"The mutually destructive consequences of tariffs are becoming increasingly apparent, and calls from all sides to uphold free trade are growing ever stronger," Li added.

FIGHTING TARIFFS WITH TARIFFS

Analysts largely agree that China's massive trade surplus and its unwillingness to shift away from an export-driven economy are directly fueling the rise of global tariffs.

However, they see little incentive for Beijing to change course, despite growing international pressure, leading to a worldwide surge in competitive tensions and calls for protectionist measures.

French President Emmanuel Macron said on Sunday that he had threatened Beijing with tariffs during his state visit last week, which coincided with the European Commission unveiling plans to boost Europe's resilience to threats such as rare earth shortages and dumped imports.

Economists argue that while U.S. President Donald Trump's decision to hike tariffs on Chinese goods was hugely disruptive for global trade, Beijing's reluctance to reform leaves the West with few alternatives.

"China is not taking any action, and I think has no intention to do so," said Alicia Garcia-Herrero, senior fellow at the think tank Bruegel. "I don't see China caring about all of these (visiting) officials whatsoever."

"Its export-driven model is going to contribute around 40% of global growth in 2025. I don't think it has ever been higher, and China is supposedly growing, so there is no reason for such a big contribution to external demand," she added.

Monday's trade data indicated that China's push to diversify its exports since Trump's November 2024 U.S. election victory is bearing fruit, with a surge in shipments to Europe, Australia, and Southeast Asia.

"U.S. import tariffs have diverted Chinese exports to other destinations, exacerbating competitive pressures in many parts of the world," said Fred Neumann, chief economist for the Asia-Pacific at HSBC. "This is a reminder that tariffs can distort trade flows, but in themselves don't address fundamental macro-imbalances."

'THE PRESSURE IS MOUNTING'

China insists it is committed to reducing reliance on a credit-driven manufacturing sector and exports, with top leaders on Monday pledging more measures to stimulate domestic demand.

But analysts say signals from important meetings of the ruling Communist Party indicate policymakers are reluctant to let go of their 'all about production' economic playbook.

"So far there are no real signs that I can see that Trump's go-it-alone tariffs have tamed China's export juggernaut," Brad Setser, a former U.S. trade official now with the Council on Foreign Relations wrote on X following the trade data release.

HSBC's Neumann said an uptick in domestic demand would go a long way to reducing pressure on global trade but that this was unlikely in the near-term unless officials adopted substantial policy easing.

He warned that economies squeezed by the U.S.-China tariff war might simply give in to protectionist pressures and impose additional trade barriers to shield their exporters if Beijing does not take action to boost domestic demand.

But with growth on track to hit about 5% in 2025, policymakers are expected to avoid new stimulus, preferring instead to boost infrastructure spending.

"I think countries are starting to think 'what instruments do we have to stop this?'" said Garcia-Herrero.

"It's quite clear this is why everyone is knocking at China's door," she added, referring to recent visits by Macron, Spain's King Felipe and Germany's finance and foreign ministers, among others.

"The pressure is mounting, and China is not ready to respond."