trade deficit

How China’s $7.4T trade strategy impacts global supply chains—and steps CFOs must take now to regain control.

This article appears in the July/August issue of Global Finance Magazine.

Ram Charan is an adviser to CEOs and boards who built his reputation advising CEOs and boards inside some of the world’s largest companies. In his new book, China’s 90% Model: China Has America by the Throat: Here’s How to Fight Back and WIN, he turns that lens on the trade war reshaping global supply chains.

In this Global Salon conversation, he lays out how Beijing uses cheap exports to flood markets and squeeze out rivals — and what CFOs need to do, in the boardroom and beyond, to respond.

Global Finance: Your book lays out the scale of China’s trade surplus and cash reserves. Can you walk us through what you believe are the actual numbers?

Ram Charan: China has earned over time $7.4 trillion in hard cash [e.g., dollars, yen, euros] and 2,250 tons of gold. It is now earning hard cash at a rate of $1.5 trillion a year. My forecast is $1.8 trillion. If nothing is done, in five years China will have an additional $10 trillion in cash in dollars, yen, euros, South Korean won, and other currencies of countries that trade with them. 

Negotiations between President Trump and President Xi Jinping have taken place. They have now stopped because President Xi has clearly declared, “If you do this, I will supply the supply chain. If you don’t do this, I will stop supplying the supply chain.” He’s done the same thing with India.

GF: The Indian rupee is down about 10% against the U.S. dollar compared to a year ago. What does India’s currency situation tell us about the mechanics of the risk from China?  

Charan: Nobody knows the outcome of that crisis [the currency and trade deficit spiral] like the Indian currency going to hell, and trade deficits, which are increasing [India’s bilateral trade deficit with China grew from about $44 billion in 2020 to roughly $100 billion in 2025]. If you call 10 business people of reasonably sized companies in India, now they understand it. 

The reason? The currency. They’re taking action. Your business model has got to change. You better make cash flow [a priority]. If nothing is done, your currency will decline, as it has in India. Your balance of payments will decline, and that is a real cycle.

GF: If a CFO agrees with you on the China threat, what three things should they do in the next 12 months, and what should they avoid?

Charan: First, be defensive. Analyze your country. Which imports are coming from China? If nothing is stopped, what will it do to your country’s currency and balance of payments? A country’s currency is directly relevant to the CFO. 

Second, the CFO should look at which industries are totally dependent on China. If the industry stops, what happens to the country’s GDP? What happens to the value chain? Because almost all value chains, in some way, are interconnected. The CFO has to allocate cash for defensive purposes.

Third, the CFO should substitute China [products] if they can. But the cost of every single thing non-Chinese is very high. How would this change the market? How would they sell, and how would they price? I recommended they start a war room, every morning, see what’s changed, what’s the pattern, who’s driving it, and what are the signals.

GF: What about going on the offense?

Charan: On the offensive side, identify the gaps the Chinese are not filling, including which countries and segments, and where the opportunities lie. The best thing I’ve learned is to think 20 years out. Just think: What will humans need 20 years out? 

For example, there’s the Adani Group in India. The [founder] predicted that India would need ports 25 years ago. Now he’s the largest private port developer and operator in India. Look for those opportunities. You don’t spend your money on a 20-year basis, but you learn how to get there. Get three or four people on the payroll to investigate and look at the technologies.

A company is not competing with a company in China. A company is competing against President Xi Jinping of China, so it has to pull together as an industry. Go to the government. Stop fighting alone. India is doing this actively. Europe is struggling; they don’t have an answer yet.

GF: What is China’s impact on the European auto industry? 

Charan: Europe is at a major crossroads. Europe doesn’t have a strategy. Germany’s auto giants spent decades helping build China’s car industry; now, they are outcompeted and heavily dependent on China. Volkswagen is already moving into defense, so that single indicator shows they know the Chinese are coming. The destruction of the auto industry is a major blow to Germany, including parts suppliers and chemical and energy suppliers. They don’t yet know how to deal with it. I would say one option for them: get a hold of Trump and combine three or four countries just for the auto industry.

GF: Do you see boards and CFOs as locked into short-termism by their fiduciary duty to shareholders, even when the long-term strategic risk is larger?

Charan: There are exceptions, but it’s a fact. I sit in the boardrooms. The market drives short-termism. But the more important point is they are unaware that China is attacking their industry. There is no manufacturing industry in the world that is unaffected by China’s strategy, directly or indirectly.

GF: You’ve said there are tools to wage a financial war with China. How fast can these be implemented, and how confident are you?

Charan: Saudi Arabia probably could fight, because China depends on oil. The Saudis have control of the price of oil. Small countries can’t fight alone. America alone cannot fight. It has to be coordinated. There are tools for a financial war with China. If Brussels and Washington can work together, Chinese power will be reduced.

GF: How can finance leaders fund next-generation industries where China is ahead?

Charan: In a crisis, you have to have good execution and a dedicated team. We did that in World War II. This is an economic war, and people don’t realize it, so each company is doing its own thing. 

You select the industries, assign full-time people. We must have a department of manufacturing and technology, which I’ve recommended to President Trump, in the U.S., in Europe, in Japan, in South Korea, and in Israel. People have to understand that the cost and the price China charges for products is absolutely not real. It is based on [the fact] that you incur losses internally and earn a trillion dollars in hard cash. Therefore, your profit is on a national basis. It is not on an industry basis.

GF: Beyond solar panels, batteries, and rare earths, what should CFOs be watching in supply chains that they’re not?

Charan: First, most important, are the ingredients that go into the chemical industry, APIs [active pharmaceutical ingredients]. Then, in biology, they take the molecules, they have very fast testing, build it, and now begin to come in at a tenth of the price. 

I have gone to DuPont and other companies to see what China needs from us and what they’re buying. But they know our people are not doing the detailed work. The people who are advising Donald Trump are economists. You need chemical engineers and biological engineers. You need the R&D people in Washington to deal with this. Economists and consultants cannot do it.

GF: Isn’t China under great strain, due to the challenging job market for young workers, the housing collapse, and extremely thin profit margins?

Charan: President Xi has said many times: austerity, austerity, austerity. I believe he correctly realized the real estate booms and busts were created by the central bank. So he’s letting it cool for a long time, because his concern is the threat to the Chinese Communist Party from inside China. He’s very clear about it; that is, that going forward, it may take a loss, a lower GDP.

The rural areas are not in great shape. President Xi is taking that calculated risk. But selecting industries, giving them money, and creating hyperscale: That is the real model. Civil control is total; students are under full control. 

GF: Twenty years out, will AI and robotics change the manufacturing equation for finance and operations leaders?

Charan: If you don’t have industry, you are nobody, [even if] you use AI, robotics, and automation. Any country that says it will go without manufacturing, I guarantee, will not be a democratic country and probably won’t survive.

GF: What practical tools can finance leaders use to act on what you’ve described?

Charan: Figure out the whole supply chain’s vulnerabilities, put an industry coalition together, and then try to get to your government and say: Here is the gap. If we don’t fill this gap against China, this industry will go away.

Weld Royal is a contributing writer based in the U.S.