China’s export model nears breaking point, Froman warns

Michael Froman, the former U.S. Trade Representative and current president of the Council on Foreign Relations, has issued a stark warning that China's export-driven growth model is approaching a structural limit that could trigger a new global economic crisis. Writing in Foreign Affairs last month, Froman argued that "the world's ability to absorb Chinese overcapacity is approaching a breaking point."fortune+1

The warning rests on numbers that are difficult to dispute. China posted a goods trade surplus of nearly $1.2 trillion in 2025 — the largest in recorded history — with exports rising 5.5% to $3.77 trillion while imports remained flat at $2.58 trillion, according to Reuters. In early 2026, that surplus was expanding by more than 20% year-over-year, a pace roughly three times faster than global goods trade overall.reuters+3

An Industrial Machine That Cannot Stop

Froman, who served as Trade Representative under President Obama from 2013 to 2017, described a system caught in its own momentum. Chinese companies, aided by an undervalued currency and state subsidies, charge as much as 30% less than competitors elsewhere. Mandates from Beijing have encouraged excess production and fierce domestic price wars, pushing firms to flood export markets. Nearly a third of Chinese industrial firms now operate at a loss.fortune

"The result is an industrial machine that cannot stop and cannot slow down — but that, owing to the limits of demand, cannot keep going," Froman wrote.fortune

Two sectors illustrate the scale: Chinese vehicle exports, led by electric vehicles, climbed 21% in 2025 to reach $142 billion, while lithium-ion battery shipments hit $77 billion the same year.cryptobriefing

Rising Trade Barriers and a Looming Crisis

The political response is already underway. President Trump made tariffs on China the centerpiece of his "Liberation Day" trade offensive last year, and the European Union — once a stalwart defender of open markets — is racing to erect its own barriers. With the International Monetary Fund projecting global GDP growth at just 3.1% for 2026, there is little cushion to absorb the widening gap between Chinese output and global demand.cryptobriefing+2

Froman warned that if countries move to suddenly close off markets, the fallout in China could be severe: fragile businesses failing en masse, cascading defaults in local government financing, and collapsing demand for raw materials that would ripple through commodity-exporting and developing economies.fortune

Others have echoed these concerns. Former Treasury official Brad Setser has noted that China now has the capacity to produce two-thirds of the world's demand for cars and more than half the global supply of steel, aluminum, and ships. Federal Reserve economists said in May that the products driving China's export boom have shifted from labor-intensive goods to capital- and tech-intensive industries, making this "not simply a continuation of earlier trends, but a new phase of global trade integration."fortune

Even if the next crisis originates in China, Froman cautioned, "the cleanup is likely to fall, as it often does, on the United States and the institutions it anchors."fortune