The Evolution of Global Trade in 2024

The U.S. trade data for 2024 makes clear that the U.S. trade deficit was expanding even before the threat of tariffs led to significant front-running. Strong import growth in the U.S. is the continuation of a trend that started in 2024, and with the dollar’s current strength, U.S. exports are not keeping pace.

The January data highlights a trend that is likely to dominate the trade data in the first quarter, namely that importers clearly rushed in consumer goods (and gold) to try to beat the Trump tariffs. 20 percent year-over-year growth in an economy growing at around 5 percent in nominal terms is not normal. This dynamic seems likely to extend auto manufacturing in February and March, as firms bring in parts and cars ahead of any tariffs.

But it is worth emphasizing that the broad increase in U.S. imports actually precedes the rush to front-run tariffs. In the fourth quarter, non-petrol imports were up 10 percent YoY—far more in than the 2 to 3 percent increase in exports (in dollar terms). The U.S. trade deficit is widening, as frankly should have been anticipated at current levels of the dollar. The IMF really blew this forecast last summer.

It is often noted that China’s direct exports to the U.S. are down, though more so in the U.S. import data than in the Chinese export data (de minimis is no longer “de minimis”). But rising Chinese exports to Southeast Asia and Taiwan aren’t just meeting local demand. On a global basis, China’s growing goods surplus (and rapid export volume growth) implies that another part of the global economy needs to run a bigger deficit (or see its surplus shrink). Southeast Asia, Taiwan and Korea all run goods surpluses—they aren’t offsetting China’s surplus. No, the main counterpart to China’s surplus in the global trade data is still the United States.

China’s exports, by volume, are on the rise.

Put differently, Chinese export volume growth of 12 percent or more in 2024 could not have happened without another large part of the world economy increasing its imports (the United States) or falls in the volume of exports from another major economic pole (Europe).

There was a clear contrast between the increase in U.S. import volumes and the absence of any real growth in China’s own imports. Imports volumes appear to be down at the start of 2025—a continuation of the deceleration in Chinese import growth that started early last year.

This pattern of unbalanced trade growth—China growing on the back of exports and the U.S. providing the world with demand for imports—is a continuation of the post-pandemic trend. 

China’s exports of manufactures have increased by around trillion dollars since the pandemic, while its imports of manufactures have hardly changed. U.S. imports of manufactures are up almost as much. There is some decoupling on the surface, with reduced bilateral trade flows. But this pattern of trade imbalances implies a deeper and more persistent interdependence: a global economy with this large a Chinese surplus can be sustained only with a large U.S. deficit.

This naturally has implications for the current trade war. 

Discount claims that countries will turn to China to make up for reduced trade with the United States. Trade diplomats often overrate the impact of trade diplomacy and discount economic reality a bit too heavily. China and the U.S. aren’t substitutes—the U.S. is a supplier of net demand for imports, and China draws on global demand to make up for its own demand shortfall. For now, China is a course of supply, not an alternative to the U.S. as a source of demand. Surplus countries need to pair with deficit countries to avoid adjustment, not link up with an even larger source of the world’s surplus. 

That’s a bit of a problem if the U.S. really is determined to reduce its trade deficit by reducing its imports even if that means throwing the U.S. economy into a recession. At a global level, though, there is just one really big surplus and one really big deficit.

As a result, there isn’t an obvious alternative to U.S. demand for most other countries. The real alternative isn’t turning to China for demand—it is strengthening internal sources of demand. Draghi was ahead of the curve here.

A Word on the U.S. Bilateral Data

It is worth noting that U.S. imports from China are about $300 billion (a pp of GDP) lower than they would be in the absence of the initial Trump tariffs. That at least is the fall in imports relative to a baseline where U.S. imports from China stayed constant as a share of U.S. GDP. It would thus appear that the initial levies were effective in reducing the U.S. deficit with China.

But those “missing” imports are, in fact, pretty easy to find. U.S. imports from the rest of Asia—Southeast Asia, but also India, Taiwan, and Korea—are all way up. And a lot of those imports have significant amounts of embedded Chinese content. The U.S. bilateral balance with China, Southeast Asia and Taiwan is probably a better base for estimates of true U.S. imports of Chinese content these days than direct imports from China (the U.S. also doesn’t count the staggering 1.36 billion de minimis shipments that now enter the U.S., shipments that could be worth $100 billion; de minimis imports from China now almost certainly exceed $50 billion).

The U.S. non-petrol deficit still drives the Asian surplus which, in fact, largely remains a Chinese surplus.

That was made quite clear in the last year. The rise in the U.S. deficit as U.S. consumer import demand recovered after the post-pandemic inventory correction drove an increase in Asia’s total surplus.

Despite all the talk about how China has diversified its trade, the most salient feature about China is that its surplus now exceeds $1 trillion a year. Since the broader Asian surplus (apart from Japan, which generates its current account surplus through the returns on its overseas investment) remains, Asia collectively must run a massive surplus with the rest of the world.