Shock absorption

Institutional opening-up will further strengthen China’s trade resilience

President Xi Jinping talked with United States President Donald Trump by telephone on Feb 4, saying that he hopes to work with his US counterpart to “steer the giant ship of China-US relations steadily forward through winds and storms, and accomplish more big things and good things”. Current China-US trade relations have entered a new phase, marked by intertwined disputes and dialogue, as both sides pursue coexistence amid ongoing strategic competition.

From the onset of China-US trade frictions in 2018 to the economic and trade meeting in Geneva in 2025, bilateral trade relations have evolved from disputes over trade imbalances into an era of systemic competition and dynamic management. Over this period, profound shifts have taken place in China-US trade dynamics, reshaping the global economic and trade order.

First, direct trade ties between the two countries have undergone a structural transformation. The US market’s weight in China’s export structure has continued to decline. The US share of China’s total merchandise exports fell from 18.98 percent in 2017 to 8.8 percent in 2025, the latest data from the General Administration of Customs showed. China’s goods trade surplus with the US, which peaked at $404.1 billion in 2022, declined to about $280 billion in 2025.

Second, trade frictions have rerouted global trade patterns. The US trade deficit in goods and services surged from $566 billion in 2017 to $918 billion by 2024, making it clear that such measures did little to narrow the gap. Since 2025, while its imports from China have dropped sharply, purchases from other trading partners have stayed broadly in line with 2024 levels. A growing share of Chinese products now reaches the US via third markets. Electronics imports from Vietnam, for example, effectively reflect an indirect dependence on Chinese supply chains.

In response, China has introduced a series of systematic, multi-dimensional trade adjustment strategies, actively tapping into emerging markets including those of the Association of Southeast Asian Nations and Belt and Road countries. The share of its goods exports to ASEAN economies rose from 12.3 percent in 2017 to 16.4 percent in 2024. This shift has not only reduced excessive reliance on the US market, but also facilitated the reconfiguration of global trade patterns.

Leveraging its strong economic resilience, solid innovation foundation and unique institutional strengths, China is increasingly well-positioned to navigate the trade frictions and technological competition initiated by the US. It boasts the world’s most complete industrial system and a vast domestic market, which together provide a solid industrial foundation for countering trade disruptions, safeguarding industry and supply chains, and steadily elevating its global competitiveness.

China has led the world in manufacturing value-added for 15 consecutive years, contributing over 30 percent of global manufacturing growth in the past five years. Total retail sales of consumer goods rose from 39.1 trillion yuan ($5.47 trillion) in 2020 to 48.3 trillion yuan in 2024. Such enormous domestic demand not only cushions volatility in external demand but also serves as a strong magnet for global resources. China attracted a total of $708.73 billion in actual utilized foreign investment across these five years.

The country is stepping up efforts to build an indigenous innovation system underpinned by high-intensity R&D investment and high-quality innovation outputs, as a proactive measure to address technological hegemony and monopolies.

Across the just concluded 14th Five-Year Plan (2021-25) cycle, China’s R&D expenditure ranked second worldwide, with R&D intensity approaching 2.7 percent of GDP, which is above the European Union average. Innovation outputs have improved markedly in both quantity and quality, driving the deeper integration of technological innovation and industrial development.

China entered the top 10 of the Global Innovation Index for the first time in 2025. In 2024, national technology contract turnover exceeded 6.8 trillion yuan, and the commercialization rate of corporate invention patents rose to 53.3 percent.

By better aligning with high-standard international economic and trade rules, China is fostering a stable, fair, transparent and predictable business environment that is market-oriented, law-based and internationalized. In this way, the country is translating the advantages of its complete industry chains and vast market into rule-making advantages, supporting deeper participation and even greater influence in global economic and trade governance.

Going forward, China-US trade relations are likely to grow more complicated. The 15th Five-Year Plan (2026-30) underlines the importance of steadily expanding institutional opening-up, driving reform and development through openness, sharing opportunities with other countries and pursuing common development. These principles provide a fundamental guide for the effective management of China-US trade ties in the new era.

First, new comparative advantages should be cultivated through institutional opening-up to better cushion the impact of external trade policies. Priority should be given to expanding market access and openness in the services sector, widening open sectors and regions, and enabling industries and enterprises to proactively adapt to international competition, while sharpening their competitive edge. Major open cooperation platforms for technological innovation and industrial collaboration should be developed in a coordinated manner, the global supply chain layout optimized, the upgrading of traditional industries facilitated, new quality productive forces fostered and the overall capacity to withstand external trade policy shocks strengthened.

Second, institutional opening-up should be leveraged to boost self-reliance and strength in science and technology and steer innovation cooperation. It is essential to solidify the foundational elements for technological innovation, put in place mechanisms to facilitate the circulation of innovation factors and dismantle institutional obstacles to the free flow and efficient allocation of key innovation factors — including talent, data, capital and technology — both domestically and internationally.

Third, institutional opening-up should serve to broaden the scope of international cooperation. China should fully leverage its unique role as a hub connecting both developed and developing economies. Building on existing international cooperation platforms such as the World Trade Organization and the G20, multilateral cooperation initiatives for deeper trade and investment facilitation can be initiated or promoted. Initiatives including the Belt and Road Initiative and agreements such as the Regional Comprehensive Economic Partnership can be used as frameworks to establish new high-standard international cooperation platforms in key sectors. Progress should be pursued in both major flagship projects and small-scale practical livelihood programs, turning the advantages of institutional opening-up into tangible cooperation networks and translating the principles of institutional opening-up into shared rules and consensus.

Hong Junjie is the president of Shandong University of Finance and Economics. Liu Luhao is the dean of the Beijing Research Institute at Shandong University of Finance and Economics.

The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.