This week is expected to see Donald Trump and Xi Jinping hold their second face-to-face summit of the year. It arrives at a time when the U.S. trade deficit with China shows no sign of getting smaller, even though tensions between the two nations have risen further in recent years. Tariffs have not managed to reduce America’s hunger for Chinese goods, and the trade truce reached last fall remains the best hope for businesses that it will last.
Last April saw the deficit reach its lowest point since 2017, a milestone made possible by rising trade tensions. However, strong demand for components tied to AI has driven the shortfall back upward this year, per China Customs data obtained through Wind Information.
The Numbers Behind the Deficit
Asia still accounts for more than 60% of U.S. imports, the same share as before “Liberation Day.” Jens Eskelund, president of the European Chamber of Commerce in China, estimated that between half and three-quarters of container traffic from China to Southeast Asia heads on to other destinations.
Eskelund had earlier anticipated China would account for 40% of global container exports by 2030, a threshold that was surpassed this summer. He argued the China shock likely did not begin until 2022, since the pandemic skewed everything. Because China entered and exited the pandemic first, its exchange rate and export prices were able to climb.
The housing market in China started to decline in 2022, which weakened demand at home. Companies from the country increased their international expansion and exports in response. The fall in export prices was closely tied to the quickening pace of shipments measured by volume.
The AI Boom and Its Costs
Demand for Chinese goods has been supported by U.S. tech companies building out data centers for AI. The China Finance 40 Forum (CF40) estimated that AI-related exports fell significantly in August from a year earlier, marking the first such decline this year.
Macquarie’s chief China economist Larry Hu noted that the PHLX Semiconductor Index tends to predict China’s high-tech exports over the next six months, and its recent performance “does not bode well for China’s export outlook over the next year.”
Industrial robots for manufacturing grew by 34.6% on the year in August, even as smartphone production declined 22.3%.
Goldman Sachs chief China economist Hui Shan said in a Sept. 20 report that policymakers do not appear to feel urgency for additional easing measures, absent a sharp deterioration in the labor market. House prices have seen a 30% decline over a six-year timeline, typical of historical large-scale property downturns in other parts of the world.
Hui Shan said weak labor markets and still-falling rents will probably keep the downturn going in many Chinese regions. The share of industrial firms losing money now stands at 24%, according to figures for 2025.
The Competition With Chinese Companies
Of those surveyed among the American Chamber of Commerce in Shanghai membership, three-quarters viewed Chinese competitors as further along, while the perceived product-quality gap between China and other countries shrank by 6 percentage points from the previous year. For the first time since 2022, domestic competition ranked above geopolitical tensions as the primary concern for members.
Eskelund says the European Union runs the biggest trade deficit with China among all economies. EU Trade Commissioner Maroš Šefčovič wants “tangible results” from China on trade by October and plans to visit Beijing next month.
Beijing has pursued self-sufficiency in critical minerals, and Chinese firms now dominate the global supply chains that support it.
“There’s no sense in which China’s strategy seems to be at all dependent on actions that the rest of the world might take.”
The description of Beijing’s approach came from Chad Bown, who works as a senior fellow at the U.S.-based Peterson Institute for International Economics.
What the Truce Actually Delivers
So far, the trade truce struck last fall remains the best hope for business continuity. The agreement has held despite the deficit climbing back up.
The numbers themselves have not shifted, even with all the noise around them. The difference between the two sides has hardly moved at all, no matter how loudly the warnings were made or how big the headlines grew.
This year’s trade gap has widened further because of rising demand for components tied to artificial intelligence, according to China Customs data gathered through Wind Information. The AI boom adds a fresh layer to an issue that has long been part of the nation’s economic picture.
The Global Supply Chain Shift
This summer marked the moment Chinese firms took over global supply chains for critical minerals, becoming a bigger exporter than had been anticipated.
The container traffic numbers show a clear pattern. Eskelund estimated that between half and three-quarters of boxes shipped from China to Southeast Asia continue on to other destinations. This suggests China is not simply sending goods to its nearest neighbors — it is transporting products across the globe.
The real estate downturn started in 2022. Then the export price fell, and after that the volume rose sharply. The order of these events matches what happened.
The Road Ahead
The PHLX Semiconductor Index suggests China’s export outlook over the next year will be weak. The recent performance “does not bode well for China’s export outlook over the next year,” according to Larry Hu.
The real test is whether Beijing can ride out the current turmoil. The property market slump has struck the economy with great force, and the share of industrial firms running at a loss now stands at 24%, according to figures from 2025.
According to Eskelund, the European Union runs the biggest trade deficit with China among all economies. EU Trade Commissioner Maroš Šefčovič wants “tangible results” from China on trade by October and is set to visit Beijing next month.
This week’s gathering will draw close attention from observers. So far the agreement has held, yet the strain on both sides continues to rise.
The figures tell a plain story: the gap between spending and revenue grows wider by the day, and the rise of artificial intelligence is adding to the strain. Only the ceasefire keeps the calm from breaking apart.
| Date | Event |
|---|---|
| Last fall | Trade truce reached |
| April | Deficit hits lowest level since 2017 |
| August | AI-related exports fell significantly |
| Oct. | EU Commissioner urges tangible results |
| Next month | EU Commissioner visits Beijing |
Where the paper stands
The paper backs the trade truce and is against tariffs as a solution, arguing that keeping channels open for diplomacy and compromise remains the best hope for businesses caught between the two nations. The trade truce struck last fall remains the best hope for business continuity, and the agreement has held despite the deficit climbing back up. The numbers themselves have not shifted, and the difference between the two sides has hardly moved at all, no matter how loudly the warnings were made or how big the headlines grew.
The truce keeps the calm from breaking apart. The paper’s position calls for focus at home and keeping the channels open for trade, diplomacy and compromise. Tariffs have not reduced America’s hunger for Chinese goods, and the paper is sceptical of foreign entanglements and of trade wars alike. Keeping the channels open remains the best hope for businesses caught between the two nations.
The reader should watch for any signs that either side is moving away from the truce. The paper supports the deal over the standoff, and it will continue to track developments as the two nations move forward.
Source material: “Trump-Xi meeting: Why China's self-sufficiency changes the calculus,” CNBC.
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