China's trade surplus exceeded the trillion dollar mark during the first ten months of the year, driven by a boom in technology exports linked to the global race to develop artificial intelligence infrastructure, at a time when strong external demand compensates for weak domestic consumption and a decline in the real estate market, which portends more trade tensions with international partners.
Chinese customs data released Tuesday show that exports rose by 35.2 percent during October compared to the same month last year, according to dollar terms, slowing slightly from their growth of 36.3 percent during September, but exceeding economists’ expectations for an increase of 33.5 percent.
This increase pushed China's trade surplus to $1.04 trillion during the period from January to October, exceeding the $1 trillion mark for the second year in a row, and one month ahead of the date it reached in 2025.
This performance reflects Beijing's growing dependence on foreign markets to support an economy facing weak domestic consumption and the continuing real estate crisis. While the global investment boom in artificial intelligence is expected to maintain strong demand for Chinese technology products until 2027, the widening trade surplus may increase internal economic imbalances and fuel trade disputes with major partners, especially the European Union.
Rising trade tensions
The growing surplus would increase trade pressures with the European Union, as European leaders called for imposing more trade restrictions on China, after reaching an agreement with Beijing to limit Chinese hybrid car exports to the Union’s markets in the coming years. Chinese factories are expected to rush to deliver their shipments before the measures take effect, which may boost exports in the near term.
On the other hand, China announced, on Monday, the extension of the trade truce with the United States for two months, after it was scheduled to expire on November 10. However, it linked the expansion of its purchases of American agricultural products to the implementation of the understanding related to reducing mutual customs duties.
Joe Bissell, chief economist at Trivium China, said that the risks of imposing additional tariffs and other trade barriers will remain high during 2027, especially as Chinese industrial companies continue to expand in foreign markets.
In terms of imports, Chinese purchases rose by 41.6 percent in October on an annual basis, exceeding economists’ average expectations of 32 percent, and accelerating from growth of 31 percent in September.
China's trade surplus with the United States fell slightly to $32.71 billion in October, compared to $34.01 billion in the previous month, but it still represents a major point of contention between the world's two largest economies.
In the energy sector, China's oil imports decreased by 13.3 percent year-on-year, despite shipments reaching their highest levels since March, as buyers sought to secure supplies after the US-Israeli war with Iran disrupted oil flows from the Middle East.
These data come before the Asia-Pacific Economic Cooperation (APEC) summit scheduled for next week in Shenzhen, which is expected to bring together Chinese President Xi Jinping and his American counterpart Donald Trump for the third time this year, amid anticipation to discuss trade disputes and customs tariff policies.
Weak consumption raises concerns
Despite the strength of exports, Beijing still faces internal challenges, foremost of which is consumers’ reluctance to spend, due to the decline in the real estate market, which has harmed household wealth and weakened their confidence in economic prospects.
Weak domestic demand has prompted Chinese automakers to intensify their orientation towards foreign markets. Car exports maintained a strong growth pace during October, while car sales within China recorded a decline for the twelfth month in a row, according to separate data from an industrial association.
But the increasing reliance on exports makes the Chinese economy more vulnerable to any slowdown in global demand, especially since a large part of export growth during the current year was driven by the global race to expand artificial intelligence infrastructure.
In this context, Macquarie analysts indicated that the prospects for Chinese exports will depend on how long the artificial intelligence boom will continue, expecting export growth to accelerate during the last quarter of the year, before the slowdown begins in the first quarter of 2027.
The dollar stabilized during Asian trading, Tuesday, after volatile movements in recent days, with investors reluctant to take new positions ahead of the release of US inflation data, which may enhance expectations of raising interest rates and give the US currency additional support.
The dollar was under pressure on Monday, with the decline in oil prices and the rise of global stocks, which prompted investors to shift towards riskier assets. This decline erased the gains achieved by the US currency on Friday, following the release of strong US labor market data.
The Australian dollar, which is sensitive to trade and risk appetite, rose by about 1 percent during Monday's session to $0.6921, while the New Zealand dollar rose to $0.5624, and both stabilized during morning trading in Asia.
The euro also rose 0.7 percent overnight to $1.1220, compensating for its losses recorded on Friday, when strong US jobs data strengthened the dollar and interest rate expectations. The euro and dollar pair settled in the middle of a trading range that lasted about a month.
These moves come at a time when investor positions are still leaning towards the dollar, which has achieved gains since the beginning of the year, after early expectations of a reduction in US interest rates turned into bets on increasing them, following the rise in energy prices and inflation as a result of the US-Israeli war with Iran.
Strong US employment data for October, which showed employment rising more than double expectations, has increased these bets, with markets pricing in an 85 percent chance that the Federal Reserve (the US central bank) will raise interest rates next month.
Inflation shapes the direction of the dollar
Markets are awaiting the US Consumer Price Index data for October, amid expectations of economists polled by Reuters that general inflation will rise to 3.9 percent, and core inflation to 2.8 percent on an annual basis.
Analysts believe that a reading higher than expectations will enhance interest rate hike bets, which may push the dollar higher. Emre Spizer, a strategist at Westpac in Auckland, said the margin for pricing an additional increase in December is limited, but expectations for subsequent meetings may see a further rise.
Markets are currently pricing in two increases in US interest rates by the middle of next year, but these expectations are facing some pressure with the turmoil in shares of artificial intelligence companies, amid fears that a Democratic victory in the midterm elections will lead to tightening regulations and slowing down the investment boom in the sector.
In the major currency markets, the pound sterling stabilized at $1.3441, maintaining its position within a trading range that lasted about a year and a half, benefiting from the support it received after the Bank of England raised interest rates last week for the first time in three years.
As for the Japanese yen, it traded at 157.97 against the dollar, while continuing to benefit from the possibilities of Japanese authorities intervening to support it. Monday's data showed that Japan sold about $97 billion of its reserves to defend its currency until late July and August, after it approached its lowest levels against the dollar in four decades.
The possibility of the authorities intervening again continues to limit the yen's decline, despite the decline in bets on raising Japanese interest rates in December.
Asian stocks rose on Tuesday, supported by a decline in oil prices and a decline in inflationary fears, after US President Donald Trump announced the suspension of new military strikes against Iran for the time being, while markets awaited US inflation data that may shape interest rate expectations during the coming period.
The recovery came in the wake of the decline in oil prices to their lowest levels since the beginning of September, with Brent crude falling below $100 a barrel, amid investors’ hopes for the possibility of resuming talks between Washington and Tehran. Crude oil recorded about $91.56, down by about 1 percent during Asian trading.
The South Korean Kospi index rose by more than 5 percent, while the Japanese Nikkei index rose by about 3 percent in early trading. The broader MSCI index of Asia-Pacific stocks also increased 1.5 percent, moving away from the lowest level in seven months recorded last week.
The wave of recovery extended to Wall Street on Monday, as the Standard & Poor's 500 index recorded its largest daily gains since April, rising 2.35 percent, while the Nasdaq index rose 2.7 percent, achieving its best daily performance in more than four months.
Nick Tweddell, chief market strategist at ATFX Global, said that recent developments raise hopes that the end of the conflict is approaching, but he warned that the gap is still large between the diplomatic track and reaching a sustainable peace agreement. He added that faltering negotiations could lead to a strong return in prices, with investors repricing geopolitical risks.
The decline in stocks last week was also linked to fears of the impact of the Democrats’ broad victory in the US midterm elections on technology companies, in light of the possibilities of tightening regulations that may affect the momentum of investment in artificial intelligence.
Technology stocks are still under the microscope, with the results of a number of companies awaited this week, including Core Wave, which is an indicator of investors’ appetite for the artificial intelligence sector and the costs of expanding its infrastructure. Attention is also focused on Nvidia, after it announced that its board of directors is investigating reports about the possibility of its CEO, Jensen Huang, being targeted by a foreign intelligence operation. The company's shares fell 4.2 percent.
Inflation and interest
In debt markets, attention is turning to the US Consumer Price Index data for October, scheduled to be released later Tuesday, amid economists’ expectations for a rise in general inflation by 0.3 percent on a monthly basis, and an increase in core inflation by 0.2 percent.
The data is of particular importance in light of the growing market bets on the Federal Reserve (the US central bank) raising interest rates in December. The CME Group's "Feed Watch" tool showed that the odds of an increase rose to 84 percent, compared to 74 percent a week ago, following the release of strong data on the US labor market for October.
The yield on two-year US Treasury bonds, the most sensitive to interest rate expectations, rose by 1.4 basis points to 4.56 percent, while the dollar stabilized during Asian trading.
