Board of Governors of the Federal Reserve System analyses how industrial policies align with China’s record USD 1.2 trillion trade surplus

The Board of Governors of the Federal Reserve System published a FEDS Note examining the drivers of China’s record goods trade surplus of USD 1.2 trillion in 2025, exceeding 6 percent of GDP. The note documents how China’s export and import patterns have shifted across sectors and presents evidence that industrial policy interventions are systematically associated with stronger export growth and larger sectoral trade surpluses, alongside more traditional macroeconomic drivers. The analysis highlights three features of China’s trade dominance: broad-based export market share gains across nearly all manufacturing sectors, widespread losses in export market share among advanced economies (notably Japan and euro area members, with Germany particularly exposed), and import growth that has lagged exports and become increasingly concentrated in commodities (44 percent of imports). To assess industrial policy links, the authors use the New Industrial Policy Observatory (NIPO) database to measure “policy intensity” as the count of sector-specific interventions in 2017–2024, spanning instruments such as import restrictions, subsidies, credit policies, local procurement requirements, and local labor requirements. Sectors with the highest intervention counts include computing machinery (1,038), pharmaceuticals (959), chemicals (950), and motor vehicles (950), and the note finds that policy-intensive sectors tended to see faster export growth and larger increases in trade balances over 2017–2024, with the top 15 policy-supported sectors accounting for 76 percent of the increase in the aggregate trade surplus. The authors stress the results are not causal and note that their sectoral measure does not cover currency management, while also pointing to weak domestic demand and high household savings as key aggregate contributors to China’s external imbalance.