China Trade Surplus Hits $1.2 Trillion as Yuan Undervalued 20%
China's goods surplus reached record highs in 2025. Economists attribute this to low inflation rather than direct devaluation.
Key points
- China's 2025 goods trade surplus reached a record $1.2 trillion.
- Economists estimate the yuan is 20 percent undervalued due to low inflation.
- The US Treasury did not label China a currency manipulator in July 2026.
China recorded a record goods trade surplus of $1.2 trillion in 2025. This figure exceeds previous annual benchmarks by a significant margin. The scale invites scrutiny of exchange rate mechanisms.
The International Monetary Fund linked this performance to real depreciation. Low domestic inflation lowered the effective yuan value. This mechanism differs from direct nominal currency cuts.
Inflation drives real currency weakness
Brad Setser estimated a 20 percent undervaluation in August 2026. This calculation uses the IMF external equilibrium framework. It does not prove deliberate government devaluation actions.
Domestic price growth lagged trading partners throughout the period. This divergence reduced the real exchange rate value. The nominal yuan actually strengthened against the dollar in 2026.
US Treasury avoids manipulation label
The US Treasury department did not label China a manipulator. Their July 2026 report criticized low transparency in practices. They warned that future intervention could change this assessment.
President Trump accused China and Japan of currency manipulation. This occurred during a G20 meeting in September 2026. The Chinese governor denied using the yuan for export boosts.
Industrial effects persist across decades
Research indicates exchange rate effects can persist for years. This impact extends beyond simple price adjustments for consumers. Manufacturing structures often adapt to sustained currency levels.
A study of 45 countries supports this persistence view. It focused on foreign exchange accumulation patterns. The data suggests structural changes follow exchange rate shifts.
