US-China trade talks: Can China reduce its export dependence?

KEN MORITSUGU

Sat, Jul 26, 2025, 1:03 AM 5 min read

BEIJING (AP) — China’s high dependence on exports will likely be a key focus of a new round of U.S.-China trade talks this coming week in Stockholm, but a trade deal would not necessarily help Beijing to rebalance its economy.

U.S. Treasury Secretary Scott Bessent has said he hopes the negotiations can take up this issue, along with China's purchases of oil from Russia and Iran, which undercut American sanctions on those two countries.

Hopes rose for a breakthrough in talks after U.S. President Donald Trump announced deals with Japan, Indonesia and the Philippines this week.

The U.S. wants China to do two things: Reduce what both the U.S. and the European Union see as excess production capacity in many industries, including steel and electric vehicles. And secondly, to take steps to increase spending by Chinese consumers so the economy relies more on domestic demand and less on exports.

“We could also discuss the elephant in the room, which is this great rebalancing that the Chinese need to do,” Bessent told financial news network CNBC. He said China's share of global manufacturing exports at nearly 30%, “can’t get any bigger, and it should probably shrink.”

China is tackling the same issues — for domestic reasons

The issues are not new, and China has been working to address them for years, more for domestic reasons than to reduce its trade surpluses with the U.S. and other countries.

Bessent's predecessor as treasury secretary, Janet Yellen, made industrial policy a focus of a trip to China last year. She blamed government subsidies for flooding the global market with “artificially cheap Chinese products.” The European Union, whose top leaders met their Chinese counterparts in Beijing on Thursday, has cited subsidies to justify EU tariffs on electric vehicles made in China.

In the 1980s, the U.S. pressured Japan to boost consumer spending when American manufacturing was overwhelmed by exports from the likes of Toyota and Sony. Economists have long argued that China likewise needs to transform into a more consumer-driven economy. Consumer spending accounts for less than 40% of China’s economy, versus close to 70% in the United States and about 54% in Japan.

Chinese leaders have spoken about both factory overcapacity and weak consumer spending as long-term problems and have sought over the past 20 years to find ways to rebalance the economy away from export manufacturing and massive investments in dams, roads, railways and other infrastructure.

Fierce price wars have prompted critical reports in official media saying that companies are “racing to the bottom,” skimping on quality and even safety to reduce costs.