Monetary Matters with Jack Farley What China is Really Doing With Its “Giant Surpluses” | Brad Setser on China’s Export Dominance, Trade Strategy, and Capital Flows
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Oct 13, 2025 
In a lively discussion, Brad Setser, a veteran balance-of-payments expert at the Council on Foreign Relations, examines China’s export surge and its global repercussions. He reveals how China's shifting trade dynamics are pressuring the U.S. and Europe while altering corporate investment strategies. Setser explores the recycling of trade surpluses, the underscored risks of tariffs, and how China’s undervalued yuan connects to its export boom. He also critiques the administration's foreign investment approach, making it a compelling listen for those interested in international economics.
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China's Export Reboot Reshapes Global Trade
- China has re‑pivoted to exports, driving its goods surplus from ~$500bn to ~$1.2tn and reshaping global manufacturing.
- This surge displaces industries in Europe and emerging markets and increases embedded Chinese content worldwide.
State Banks Are Recycling China's Surplus
- China now recycles part of its surplus via state commercial banks rather than solely via SAFE/PBOC Treasury buys.
- These banks use more diverse instruments, making Chinese capital flows harder to track and globally influential.
‘Outsourcing’ Assembly Often Keeps China In The Chain
- Shifting final assembly to Vietnam or Malaysia often keeps Chinese components inside supply chains, so import substitution is mostly optical.
- Embedded Chinese inputs limit the tariffs' effectiveness unless component sourcing changes materially.