A shady surge is unfolding at the gleaming container terminals of Shanghai’s Yangshan Port, the world’s busiest automated facility. China’s exports climbed 5.8% in June, surpassing economists’ projections and propelling the nation to a record $586bn trade surplus for the first half of 2025. Yet beneath this apparent triumph lies a more troubling reality: what appears to be economic strength is actually strategic stockpiling masquerading as genuine demand.

The timing reveals the trap. China’s export acceleration coincides precisely with the 90-day tariff reprieve negotiated with Washington in May, creating a narrow window before punitive duties resume on August 1. This is not the organic growth that Beijing’s cheerleaders proclaim, but rather a calculated inventory-building operation that masks fundamental weaknesses in both Chinese production capacity and global demand patterns. At stake is China’s economic trajectory and the stability of global supply chains that have become dangerously dependent on this artificial surge. When the stockpiling ends and tariffs resume, China faces an inventory glut that could trigger the deflationary spiral its policymakers have spent three years trying to avoid. This is revealed in the data’s contradictions. While exports surged, China’s imports grew a meager 1.1 per cent in June, which is the first increase this year but hardly indicative of strong domestic demand. Producer prices fell 3.6 per cent year-on-year, the steepest decline since July 2023, signaling that factories are already cutting prices to move inventory. Most tellingly, the $114.7 billion June trade surplus represents an 11 per cent increase from May, suggesting that export growth is outpacing any corresponding rise in global consumption.

“Some of this recovery probably reflects efforts by US importers to stockpile Chinese goods due to fears of renewed tariff escalation,” acknowledged analysts at the Wall Street Journal, reflecting the strategic nature of the surge. American businesses are racing to front-load purchases before August 1, when Trump’s threatened 30 per cent minimum tariffs take effect. This creates artificial demand that Chinese manufacturers are rushing to fulfill, even as their domestic market continues to contract.

This pattern extends beyond bilateral US-China trade as rare earth exports jumped 32 per cent in June alone, as Beijing leverages its mineral dominance to lock in market share before potential supply chain diversification accelerates. Chinese companies are essentially trading future market access for immediate revenue, a strategy that works only as long as global buyers continue stockpiling. But the stockpiling cannot continue indefinitely. Corporate inventories have already more than doubled across key sectors since 2019, reaching 370 billion yuan ($51.55 billion) in automotive alone. When companies exhaust their storage capacity and tariffs resume, Chinese exporters will face a demand cliff precisely as their production capacity remains geared for the artificial surge. This holds deflationary implications as China’s producer price index has now fallen for 33 consecutive months, with factory-gate deflation accelerating even as export volumes surge. This suggests that manufacturers are already cutting prices to maintain market share. This practice becomes unsustainable once the stockpiling demand evaporates.

President Xi Jinping’s recent campaign against “excessive competition” and price wars acknowledges the severity of the overcapacity problem. From coffee to cars to consumer electronics, Chinese companies have flooded into sectors only to resort to destructive price competition when demand fails to materialise. The export surge temporarily masks this dynamic by providing an outlet for excess production. Still, it does not resolve the underlying imbalance.

From a global perspective, this suggests that supply chains operating “close to full capacity” during the stockpiling phase will face dramatic adjustment when standard demand patterns resume. Companies that have grown dependent on artificially low Chinese prices will confront sudden cost increases. In contrast, Chinese manufacturers will struggle with idle capacity and inventory overhangs. The timing of the reckoning appears increasingly clear as August 1 marks not only the resumption of US tariffs but also the beginning of China’s traditional manufacturing slowdown ahead of the autumn holiday period. Companies that have built inventory in anticipation of tariff increases will find themselves holding excess stock precisely when seasonal demand typically weakens.

Beijing’s policymakers understand the trap they have constructed. Recent monetary easing measures and calls for increased domestic stimulus reflect awareness that export-led growth built on stockpiling is unsustainable. Yet their options remain limited by the same overcapacity that makes the current surge possible.

Therefore, the export surge represents not Chinese economic resilience but rather the final phase of a strategic miscalculation. By encouraging manufacturers to maximize short-term export revenues through inventory building, Beijing has created the conditions for a sharper adjustment when artificial demand disappears.

When the stockpiling ends, as it inevitably must, China will confront the deflationary spiral its export surge was designed to postpone. The record trade surplus of 2025’s first half may well be remembered as the peak before a prolonged valley, as artificial demand gives way to the harsh realities of overcapacity and weakening global consumption.

Once sprung, the trap will reshape China’s economic trajectory and the global trade patterns that have enabled this dangerous game of inventory musical chairs. Those still celebrating China’s export surge would do well to remember that what goes up on artificial demand must eventually come down, and the landing will be far from soft.