China’s trade surplus hit almost a trillion dollars in 2024, driven by record exports of $3.6 trillion, according to official data. 

The surplus, which is equivalent to 992.2 billion in US dollars, has sparked concerns about a new wave of global trade tensions, especially as Donald Trump prepares to re-enter the White House with promises of steep tariffs on Chinese goods. 

However, this surplus exposes deep vulnerabilities in China’s economic model and its heavy reliance on exports to compensate for weak domestic demand.

Why is China’s surplus so high?

China’s exports grew 6.7% in value terms and 11.6% in volume year-to-date through November, reflecting a surge in shipments to key markets like the U.S. and Southeast Asia. 

Exports to the US alone reached $525 billion in 2024, a 4.9% increase from the previous year, with a sharp 15.6% jump in December.

This growth was partly fueled by “front-loading,” as companies rushed to complete shipments before Trump’s anticipated tariffs.

However, imports told a different story. China’s imports grew by just 1.1% in 2024, constrained by sluggish domestic consumption and falling commodity prices.

The weak import growth highlights an unbalanced economy, where export gains mask structural issues at home.

What’s driving the trade imbalance in China?

The surplus specifically highlights China’s heavy reliance on exports to power its economy.

Domestic demand remains weak despite government incentives like trade-in subsidies for cars, home appliances, and electronics. 

While these measures have spurred some activity, they have failed to offset the larger issues of low consumer spending and stagnant income growth.

China’s focus on advanced technologies such as electric vehicles, solar panels, and semiconductors has also contributed to the imbalance.

These sectors are still grappling with overcapacity since they are burdened by heavy subsidies.

Excess production has driven down factory prices for more than two years and led to accusations of dumping cheap goods in global markets.

China’s weak domestic demand

Low domestic consumption is one of China’s biggest economic vulnerabilities.

The Consumer Price Index (CPI) rose by just 0.1% in December 2024, while the GDP deflator, which adjusts for inflation, flatlined at zero. 

Economists fear China could slip into a deflationary trap similar to Japan’s “lost decade.”

The middle class, battered by the collapse of the real estate sector and pandemic-related uncertainties, is saving more and spending less. 

Efforts to stimulate consumption, such as expanding the social security system and offering subsidies, are yet to show meaningful results.

For an economy of China’s size, this lack of robust domestic demand creates ripple effects that extend far beyond its borders.

Global trade tensions heat up

China’s export surge has not gone unnoticed. The US trade surplus with China grew by 6.9% in 2024 to $361 billion, reigniting calls for tougher trade measures. 

Trump has pledged to impose tariffs of up to 60% on Chinese goods, a move that could slice between 0.5 and 2.5 percentage points off China’s GDP, according to various economists.

But the US isn’t the only country taking action. The European Union has already imposed tariffs on Chinese electric vehicle imports, citing market dumping concerns. 

Brazil and Mexico have introduced measures to protect their domestic industries, with Mexico targeting Chinese textiles and electronics.

These responses suggest a growing global backlash against China’s export-driven strategy.

How is Beijing responding?

China’s policymakers are aware of the risks and have started shifting their focus from investment to consumption. 

In December, Pan Gongsheng, the governor of China’s central bank, emphasized the need to raise incomes, improve social security, and expand consumer subsidies to reduce the economy’s dependence on exports.

At the same time, Beijing is trying to stabilize its financial system. Measures such as refinancing local government debt and supporting property markets have been rolled out, though with mixed success.

The People’s Bank of China has also taken unusual steps, including halting bond purchases, to prevent a potential bond bubble.

However, private investment remains subdued due to credit constraints and low confidence, while fiscal deficits are rising.

The National People’s Congress in March is expected to announce further measures aimed at boosting domestic demand, but analysts caution that such initiatives may take time to deliver results.

Could a new trade war hurt China more?

China is better prepared for a trade war today than it was during Trump’s first term. 

It has diversified its export markets, with exports to ASEAN countries growing by 12% in 2024, nearly double the overall export growth rate.

However, this strategy has limits. Diversion of goods to third countries, such as Vietnam, to circumvent US tariffs has drawn scrutiny and could face crackdowns.

A prolonged trade war would likely exacerbate existing imbalances. Overcapacity in manufacturing could worsen as domestic consumption struggles to absorb excess production.

Additionally, retaliatory tariffs from other trading partners could limit China’s ability to find alternative markets.

Beijing’s big policy meeting in March will likely roll out more measures to get people spending. But the real challenge is for China to find a way to grow without relying so heavily on exports.

Until then, that massive trade surplus might look impressive on paper, but it’s really a warning sign of an economy that’s still struggling to find its balance.

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The Biden administration has taken another significant step in addressing the United States’ mounting student debt crisis, announcing $4.2 billion in relief for over 150,000 borrowers.

This latest relief brings the total number of borrowers benefiting from loan forgiveness under Biden to over 5 million.

This move is part of a broader initiative that has forgiven $183.6 billion across 28 actions since Biden assumed office.

Targeting systemic issues in the education sector, the relief primarily benefits students defrauded by educational institutions, public service workers, and individuals with permanent disabilities.

This approach aligns with Biden’s campaign commitment to ease the burden of educational loans, which has long been a contentious issue in American politics.

Who benefits from Biden’s latest relief?

The relief package focuses on specific groups, with 85,000 borrowers defrauded by institutions receiving aid, alongside 61,000 individuals with permanent disabilities and 6,100 public service workers.

These groups were chosen to address some of the most severe cases of financial distress linked to student loans.

Notably, the administration’s targeted forgiveness efforts aim to rectify inequities in the education financing system, which has disproportionately affected vulnerable demographics.

The administration’s broader goals extend beyond individual cases, seeking systemic reforms to prevent such debt accumulation in the future.

Legal challenges and political opposition

While the Biden administration has aggressively pursued loan forgiveness, these efforts have not been without hurdles.

Republicans and some courts have consistently challenged the legality of sweeping debt cancellation measures.

Critics argue that unilateral loan forgiveness undermines fiscal responsibility and bypasses legislative processes.

This opposition has slowed the administration’s broader plans, including a more expansive student debt relief programme struck down by the Supreme Court earlier.

Despite these obstacles, the administration continues to leverage existing legal frameworks, such as the Higher Education Act and Public Service Loan Forgiveness programme, to provide relief.

These strategies highlight the administration’s resilience in navigating the legal and political minefields surrounding student debt.

Economic impact of Biden’s debt relief

Student loan forgiveness is not just a political issue—it has significant economic ramifications.

By reducing the financial strain on millions of borrowers, the initiative seeks to boost consumer spending, which could have a ripple effect across the economy.

Critics argue that such relief may also contribute to inflationary pressures or moral hazard, where future borrowers might assume their debts will eventually be forgiven.

Economists remain divided on the long-term impact of student debt forgiveness.

While some view it as a necessary corrective measure, others see it as a short-term fix that fails to address systemic issues in higher education funding.

The debate underscores the complexity of balancing immediate financial relief with sustainable policy solutions.

The broader student debt issue

As the Biden administration progresses with targeted relief, the question remains whether broader legislative reforms will follow.

With over $1.6 trillion in outstanding student debt, the current measures address only a fraction of the problem.

Advocates for comprehensive reform are calling for changes in tuition structures, federal loan policies, and accountability measures for educational institutions.

While Biden’s efforts have garnered praise for their impact on millions of Americans, the administration faces a challenging road ahead.

Bridging the gap between targeted relief and systemic reform will require navigating political opposition, legal constraints, and economic concerns.

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Despite the US economy showing resilience with strong GDP growth, manufacturing stocks have lagged behind broader market indices, but analysts believe the sector is poised for a turnaround in 2025.

In 2024, the Industrial Select Sector SPDR ETF (XLI), which tracks the sector, delivered a return of 17%, falling short of the S&P 500’s impressive 25% gain.

Manufacturing activity has struggled, contracting in 11 out of 12 months last year, according to the Institute for Supply Management’s (ISM) Purchasing Managers Index (PMI).

December’s PMI reading of 49.3, although higher than November’s 48.4, remained below the 50-point threshold that signifies expansion.

However, many factors point towards the manufacturing sector getting back on track in 2025.

Optimism over the health of the US economy: a key factor

One of the key factors fuelling optimism is the overall health of the US economy.

Wolfe Research analyst Chris Senyek notes that real GDP growth is projected to reach 2.5% in 2025, underpinned by strong consumer spending and a robust labor market which received a further boost on Friday with the latest jobs report.

While short-term interest rates are unlikely to decline sharply, financial conditions are expected to loosen compared to the previous two years.

Excess inventory, a lingering issue from COVID-era disruptions, is steadily being worked down.

This normalization in supply chains is expected to pave the way for more balanced manufacturing activity. In a recent report, Senyek said,

We expect more balanced goods inventory levels in the economy, solid 2.5% U.S. real GDP growth, and loose financial conditions to push the [PMI] index sustainably over 50 in 2025.

Supply chain shifts boost domestic manufacturing

The Covid-19 pandemic fundamentally altered how companies view global supply chains.

Many businesses, once committed to global sourcing, are now prioritizing local production to avoid disruptions and geopolitical risks.

This shift has spurred a wave of domestic investment, particularly in construction and manufacturing projects.

Source: Barron’s

David Wagner, a portfolio manager at Fidelity, highlighted this trend in his 2025 outlook,

The value of projects announced since 2020 is roughly $1.9 trillion, and only about one-quarter of these have entered the construction phase, which implies that the majority of this work may still lie ahead.

Short-cycle stocks take the spotlight

As manufacturing recovers, analysts expect short-cycle stocks—those that produce parts and components frequently reordered—to outperform.

These companies are better positioned to capitalize on an upswing in manufacturing activity compared to firms reliant on large-ticket durable goods.

Notable examples include:

3M (MMM): Known for both consumer and industrial products, 3M saw a 51% gain in 2024, thanks to improved margins and a management overhaul.

With a price-to-earnings (P/E) ratio of 17 for 2025, the stock remains attractively priced relative to the S&P 500.

Parker Hannifin (PH): Specializing in components for engines and aircraft, Parker Hannifin gained 39% last year.

Its 30-year track record of free cash flow growth and exposure to post-Covid air travel make it a reliable choice.

Stanley Black & Decker (SWK): Though down 15% in 2024, the stock is on analysts’ radar following a management focus on operational transformation.

Mizuho’s Brett Linzey recently upgraded it to Outperform, highlighting its turnaround potential.

Other stocks include Lennox International, Dover Corporation, Regal Rexnord, Illinois Tool Works as well as Rockwell Automation.

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Wall Street saw a modest uptick on Tuesday as investors turned their focus to upcoming US inflation data following a better-than-expected producer price index (PPI) report.

The Dow Jones Industrial Average climbed 225 points (0.5%), while the S&P 500 and Nasdaq Composite added 0.3% and 0.1%, respectively.

Despite the overall gains, big tech stocks showed mixed performance, with Nvidia and Meta Platforms falling over 1% each, while Palantir Technologies and Tesla posted gains of 2.9% and 1.8%, respectively.

The Bureau of Labor Statistics reported a 0.2% increase in December’s PPI, which measures wholesale inflation, significantly below the 0.4% forecast by economists polled by Dow Jones.

Core PPI, which excludes volatile food and energy prices, remained flat.

These figures provided a glimmer of hope for traders hoping the Federal Reserve is nearing its inflation-control targets.

Market participants are now keenly awaiting Wednesday’s consumer price index (CPI) report, a key inflation gauge.

Analysts expect headline CPI to rise 0.3% in December.

“If CPI comes in hotter than expected, it would certainly be bad news for equity markets because it would imply that the Fed will indeed remain slower to lower interest rates,” warned Sam Stovall, chief investment strategist at CFRA Research.

Fed futures trading indicates near-certainty that the Federal Reserve will keep rates steady at its upcoming meeting.

Current market pricing suggests a 77.9% probability that the central bank will maintain its target range of 4.25%-4.5% through March, according to the CME FedWatch tool.

Big banks to kick off earnings season

Investors are also bracing for the fourth-quarter earnings season, which begins with major banks this week.

Industry heavyweights including JPMorgan Chase, Citigroup, Goldman Sachs, and Wells Fargo are set to report results on Wednesday, with Morgan Stanley and Bank of America following on Thursday.

Sector performance: utilities surge, healthcare stumbles

Utilities led the market gains on Tuesday, with the sector advancing 1.4%. Vistra was a standout performer, surging over 5%, while Constellation Energy climbed 4%.

Other notable gainers included NRG Energy (up 3%) and AES Corp (up 2%). Industrial, materials and financial sectors also recorded gains of at least 1.2%.

On the downside, healthcare stocks dragged the S&P 500 lower, with the sector falling 1.6%.

Eli Lilly posted the steepest decline, dropping over 7%, followed by Charles River Laboratories (down nearly 6%) and Biogen (down at least 3%).

The communications services sector also slumped, declining 1.2%, led by a 3% drop in Meta Platforms.

Nike hits three-year low

Nike shares slid 1.7% on Tuesday, marking their lowest level since March 2020.

The stock has fallen 14% since Elliott Hill took over as CEO in October.

As Wall Street braces for inflation data and a flurry of earnings reports, investors remain cautious but optimistic about market recovery, with tech and banking sectors in focus.

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In an unprecedented move, South Korea’s impeached president, Yoon Suk Yeol, was detained on Wednesday morning at his presidential residence in Seoul becoming the first sitting South Korean leader to be detained for questioning by criminal investigators.

The operation followed weeks of defiance from Yoon, who had resisted multiple summons for questioning over his controversial martial law declaration last month.

Authorities executed the arrest warrant after a dramatic confrontation at the compound.

The Corruption Investigation Office for High-Ranking Officials (CIO) confirmed Yoon’s detention after hundreds of law enforcement officers breached the premises.

In a pre-recorded video message, Yoon accused the government of political persecution, stating that “the rule of law has completely collapsed in this country.”

His lawyers had earlier attempted to negotiate a voluntary questioning process, but the anti-corruption agency rejected the proposal, citing the urgency of the investigation.

Yoon’s tense detention operation

The detention operation, conducted in the early hours, involved scaling barricades and removing makeshift blockades created by Yoon’s presidential security service.

Rows of buses parked at the compound’s entrance were cleared by police using ladders, while a gold-marked gate leading to Yoon’s residence was breached.

The tense standoff lasted hours, with Deputy Prime Minister Choi Sang-mok calling for calm and urging law enforcement to avoid clashes with the presidential security detail.

After securing the perimeter, investigators escorted Yoon into a convoy of black SUVs headed to the CIO’s headquarters in Gwacheon.

Martial law declaration sparks crisis

The crisis stems from Yoon’s declaration of martial law on December 3, during a standoff with the opposition-dominated National Assembly.

Yoon deployed military forces to block lawmakers from entering the Assembly, accusing them of thwarting his governance.

The martial law order was lifted within hours after lawmakers managed to convene and overturn the measure.

On December 14, the National Assembly impeached Yoon, suspending his presidential powers and accusing him of rebellion.

The Constitutional Court has since been deliberating whether to uphold the impeachment or reinstate Yoon.

South Korea divided over Yoon’s actions

Yoon’s detention has polarized the nation. Supporters gathered near his residence, decrying the investigation as unlawful and politically motivated.

Meanwhile, critics called for his imprisonment, arguing that his martial law declaration was an abuse of power.

The anti-corruption agency has accused Yoon of attempting to subvert the democratic process and has pledged to hold all individuals obstructing the investigation accountable.

The detention warrant, issued by the Seoul Western District Court, remains valid until January 21.

Constitutional Court holds the final say

As the nation watches, the Constitutional Court continues its proceedings.

While Yoon refused to attend the initial hearing on Tuesday, the trial will proceed, with the next session scheduled for Thursday.

South Korea’s political future hangs in the balance as the court deliberates a decision that could either restore Yoon to power or permanently remove him from office.

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