Xi Can’t Deliver

With a sagging internal market, the Chinese economy simply can’t buy what Trump wants to sell

As the world enters 2026, the economic relationship between the United States and China remains defined by expectations on the part of President Donald Trump that China can be a key growth market for U.S. exports.

Yet there is a massive gap between Trump’s demands for increases in purchases of U.S. products and China’s structural capacity to fulfill them. China’s current domestic economic crises — centered on a collapsing property market, stifled domestic demand, overwhelming local debt and industrial overcapacity — create an environment where meeting aggressive U.S. trade targets is increasingly improbable.

At the core of China’s inability to surge purchases of U.S. goods is the permanent contraction of its property sector. Historically accounting for nearly a quarter of China’s economy, the sector has been in decline for five years, with no signs of bottoming out as of early 2026. Real estate investment tumbled by 17% in 2025, while home prices have fallen more than 15% from their 2021 peaks. Because roughly 70% of Chinese household wealth is tied to property, this collapse has effectively vaporized trillions in paper wealth, shattering consumer confidence. A nation where the middle class feels significantly poorer is a nation that cannot sustain the high-volume consumption of imported American consumer goods Trump needs. China’s consumers are already stretched, and by all signs are actually pulling back rather than expanding purchasing.

Compounding the wealth effect of the housing crisis is persistent deflation and anemic domestic demand. While China’s export machine remains robust, reaching a record $6.4 trillion in total trade in 2025, domestic activity has continued to disappoint. Retail sales growth has lost momentum, and while the government has attempted to boost spending through “trade-in” programs for consumer goods, these measures have been incremental rather than transformative. Entrenched deflation leads households to delay spending in anticipation of even lower prices, creating a “liquidity trap” that prevents the very consumption surge needed to absorb more U.S. imports.

Furthermore, the Chinese state’s ability to act as a “buyer of last resort” for American industrial or agricultural products is severely limited by a mounting local government debt crisis. For decades, local governments relied on land sales to property developers to fund infrastructure and stimulus. With the property market in ruins, this revenue stream has evaporated. Much of China’s current fiscal efforts are now dedicated to refinancing existing debt rather than productive new investment.

The long-term binding constraint of demographics further complicates this picture. China’s workforce is shrinking, and the aging population is placing immense pressure on social safety nets. This demographic shift naturally directs more capital toward healthcare and pensions rather than the massive infrastructure projects or consumer booms of the past.

Simultaneously, China’s response to weak domestic demand has been to lean into trying to maximize industrial capacity. Lacking a strong internal market, China has flooded global markets with cheap goods — such as autos, steel and green technology — leading to a record $1.2 trillion export surplus in 2025. This overcapacity is the polar opposite of what the Trump administration demands; instead of China becoming a net absorber of American goods, it has reinforced its role as a global exporter of last resort.

Under the November 2025 deal, China committed to significant agricultural purchases, including at least 25 million tons of soybeans annually through 2028. While China may fulfill specific, state-directed quotas for commodities like soybeans or crude oil to maintain the current truce, its broader economic structure is now misaligned with the massive, multi-sector purchase levels sought by the U.S. With an economy characterized by a “two-speed” reality — a high-performing export sector and a hollowed-out domestic consumer base — China lacks the internal engine to meet the expansive trade demands of the second Trump administration.

President Trump is expecting an explosion of U.S. exports to China after he visits the country in April. He will be lucky if Xi Jinping (習近平) can muster up a fizzle.