For years, the world has complained about China’s excess production capacity. Now, according to Michael Froman, President of the Council on Foreign Relations and former U.S. Trade Representative, the problem is entering a qualitatively new and far more dangerous phase.
The Absorption Limit Has Been Reached
The ability of global markets to absorb the surplus of Chinese goods is approaching a critical threshold. If that threshold is crossed, the result could be a full-scale global economic crisis, precisely at a time when governments are least prepared to deal with it.
For years, Beijing has relied on aggressive exports and the expansion of its trade surplus “by any means,” undermining the industrial ambitions of developed economies, including the United States and Europe, as well as developing countries in Africa, Asia and Latin America.
An unprecedented global consensus has emerged regarding the nature of the problem. However, it has had little impact on Beijing’s policy.
Why Now?
China’s growth model is under pressure from internal weaknesses. A cooling property market, weaker domestic demand and structural economic imbalances are forcing the authorities to seek new drivers of growth.
Instead of reducing industrial capacity, Beijing is increasingly relying on manufacturing, technological development and exports in sectors such as electric vehicles, batteries, solar energy, steel, chemicals and other high-tech products.
Such a strategy may work for an individual company. But at the scale of the world’s second-largest economy, its consequences become global.
The author draws a parallel with the “war for survival” currently taking place in China’s automobile market. According to his forecast, a similar scenario could acquire global dimensions: first a deflationary spiral, eventually followed by the collapse of China’s economic model itself.
Who Will Be Hit the Hardest?
The most severe impact would fall not on developed countries, but on the Global South, precisely the region Beijing describes as its principal partner.
African and Latin American countries serve as suppliers of raw materials to China. If Chinese demand were to decline sharply, the consequences for these suppliers would emerge almost immediately.
The effect would be amplified by the fact that China has become the largest bilateral creditor for many developing countries. Defaults by borrowers could trigger a cascade of sovereign debt crises.
The Political Background
Pressure is mounting ahead of the G20 summit scheduled for December.
The European Union is increasingly focused on concrete countermeasures against Chinese imports, while China’s Ministry of Commerce has downplayed concerns and categorically denied the existence of an overcapacity problem.
Froman, according to commentators, is effectively advancing an idea previously raised by German Chancellor Friedrich Merz: a new “Plaza 2.0,” drawing a parallel with the 1985 agreement that helped adjust global exchange rates.
According to China’s General Administration of Customs (GACC), the country’s exports reached approximately $3.8 trillion last year, while its trade surplus increased by around 20 percent.
If such a scenario materializes, China itself would suffer the greatest damage. A crisis would seriously undermine Beijing’s ambitions to stand alongside Washington, let alone replace it, as a responsible guarantor of global economic stability.
It would also damage relations with low- and middle-income countries that Beijing has spent decades cultivating.
But the consequences would not be limited to China. They could cascade throughout the global economy on a scale not seen since the 2008–2009 financial crisis.
This, according to Froman, is the real “next China shock,” and it should become a central issue in U.S.-China relations.
The United States has both the opportunity and a clear interest in making this a priority.
Based on the article by Michael B. G. Froman, “The Next Global Economic Crisis Could Be Made in China: How Overcapacity Ends,” Foreign Affairs, September/October 2026.