• China's unprecedented goods surplus in 2025 despite global tensions and decoupling efforts.
• The strategic redirection of China's trade flows towards emerging markets in the Global South.
• How China's aggressive pricing acts as a global disinflationary force, impacting advanced economies like the UK.
• The challenges and opportunities this presents for UK businesses, including increased competition and the need for new market strategies.
• A dual strategy for UK businesses to adapt to competition and explore new corridors in the Global South.

Geopolitical tensions and efforts to reshape supply chains are creating an unstable trade environment. Yet, in the midst of this, China's trade performance presents a fascinating puzzle. 

Despite pressures for economic decoupling and strained relations with the United States, China achieved a staggering $1.2trn goods surplus in 2025. This "China Paradox" is not just an economic anomaly; it signals big shifts in global commerce, with significant consequences for businesses around the world, particularly in the UK.

China’s trade surplus in goods has skyrocketed in recent years

For years, the narrative focused on China's direct trade with Western economies. However, NatWest economists highlight how China has strategically adapted. Facing trade restrictions and high tariffs in traditional markets like the US, where direct exports have sharply declined, China has successfully pivoted. This pivot involves a deliberate redirection of trade flows towards the Global South.

China’s realignment with trading partners

Emerging markets in ASEAN, Latin America, India, and Africa are now critical partners. These regions act as new conduits for Chinese goods, transforming established trade routes. For example, trade between Africa and China has grown by 25.9% year on year, making Africa a key market for Chinese green technology and infrastructure. ASEAN's trade with China has surpassed $1trn, solidifying its position as China's largest trading partner. 

This strategic re-orientation has allowed China to not only maintain but increase its share of global exports to approximately 16%, up from 12% in 2020. This shift demonstrates China's remarkable adaptability and enduring competitiveness in the global marketplace.

Beyond geographical shifts, China's aggressive repricing of exports and reconfigured logistics play a crucial role. This combination of competitive pricing and efficient supply chains keeps Chinese goods accessible and appealing globally. For advanced economies like the UK, this translates into a powerful disinflationary force.

Global export good prices: China vs. the rest of the world

Years of significant industrial over-investment in China, coupled with weaker domestic demand, have led to factories producing more than their long-term capacity. This results in stabilised but consistently low export and producer prices. 

Our "three-triangle framework" helps explain how these price signals transmit globally.

First, China's "pricing pulse" shows how low factory gate prices flow into the global economy. Second, "market penetration" illustrates the growing gap between Chinese export prices and those of its international competitors. This widening gap gives China a distinct competitive advantage, allowing its producers to undercut rivals even amidst trade tensions. Third, the "pass-through effect" demonstrates how this competitive pricing directly influences inflation in advanced economies. Core goods inflation in the US, the Euro Area, and notably, non-energy industrial goods inflation in the UK, are all trending downwards. This decline is directly linked to earlier drops in Chinese export prices, with some suggesting this inflation could potentially approach zero percent in some advanced economies.

While this disinflationary pressure might offer some relief to consumers grappling with the cost of living, it presents significant challenges for domestic industries in the UK. 

British manufacturers, already navigating the complexities of post-Brexit trade and rising input costs, find themselves competing with a steady flow of aggressively priced Chinese goods. This intensifies pressure on profit margins and could hinder local industrial growth and innovation. UK businesses must therefore carefully consider the competitive implications of China's sustained pricing power and its strategic market penetration.

Looking ahead, the global trade environment remains dynamic. Despite an uptick in global trade volumes in November 2025 after a dip in October, indicating an underlying positive trend, the fragility of US-China relations persists. A potential meeting in April 2026 offers a possibility for stabilisation, but the broader erosion of multilateral trade systems and the uneven progress of new trade agreements continue to create an uncertain backdrop.

For UK businesses, understanding this evolving landscape is paramount for long term success. 

A dual strategy is essential. Businesses need to adapt to the disinflationary pressures and heightened competition from Chinese exports. Simultaneously, they should explore new opportunities within the Global South, where China is actively developing new trade corridors. Diversifying supply chains, forging strategic partnerships in emerging markets, and maintaining a close watch on shifting geopolitical dynamics will be vital. 

The "China Paradox" is more than an economic curiosity; it represents a fundamental shift demanding careful consideration and strategic foresight from every business leader with international ambitions.

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