In October 2024, China’s export growth defied expectations, accelerating at the fastest rate since July 2022. This spike is largely attributed to a rush by Chinese factories to ship goods to key markets in advance of anticipated tariffs from the United States and the European Union.
The potential for a two-front trade war has intensified since Donald Trump secured his return to the White House, with his campaign promise to impose tariffs exceeding 60% on Chinese imports now a significant concern for Chinese manufacturers.
According to customs data released on Thursday, China’s exports rose by 12.7% year-on-year in October, surpassing economists’ forecasts of 5.2% growth and marking a notable increase from the 2.4% rise recorded in September. However, imports declined by 2.3% last month, underscoring weak domestic demand. With the fall in imports and the surge in exports, China’s trade surplus expanded to $95.27 billion, up from $81.71 billion in September.
Concerns Over Trump’s Tariff Policies
The looming tariffs have placed substantial pressure on Chinese factory owners and policymakers alike, particularly as China exports goods worth approximately $500 billion annually to the United States. The European Union, China’s second-largest trading partner, imported goods valued at $466 billion from China last year, also posing a significant economic stake in potential trade conflicts.
Trump’s re-election has amplified concerns that his administration could impose hefty tariffs, prompting many U.S. importers to increase orders from Chinese suppliers. “We can anticipate a lot of front-loading going into the fourth quarter, before the pressure kicks in come 2025,” commented Xu Tianchen, senior economist at the Economist Intelligence Unit. Similarly, Capital Economics’ Zichun Huang noted, “Trump’s return could create a short-term boost to Chinese exports as U.S. importers increase their purchases to get ahead of the tariffs.”
Among the top products China exports to the United States are electronics such as smartphones, tablets, and video game consoles, which could become targets in a repeat of Trump’s initial term. With global demand softening, as indicated by recent trade data from South Korea and Taiwan, Chinese producers are likely to face additional headwinds, possibly resorting to price cuts to remain competitive.
Shift in Inventory and Dampened Demand
While China’s exports have seen significant growth, there are signs that much of this increase may be due to inventory shifts rather than organic demand. Dan Wang, an economist based in Shanghai, observed that the rise in exports, despite lower orders, suggests an inventory-driven boost. Additionally, the reduction of weather-related disruptions in September enabled Chinese factories to fulfil delayed orders, adding to October’s outbound shipments.
China’s currency, the yuan, which recently recovered from a three-month low against the dollar, likely played a role in bolstering exports by making Chinese goods more competitive. Yet, a weaker yuan also makes imports more costly, exacerbating challenges for an already subdued domestic market. Imports from the European Union and Southeast Asian economies decreased by 6.1% and 7.3%, respectively, and China’s crude oil purchases fell by 9%, marking the sixth consecutive monthly year-on-year decline.
Zhou Maohua, a macroeconomic researcher at China Everbright Bank, attributed the sluggish import figures to “weak recovery of domestic effective demand” and low import prices. On the other hand, soybean imports surged, as grain traders sought to capitalise on the record U.S. harvest before the election concluded, adding another layer to the fluctuating import figures.
Trade Reliance and Potential Policy Measures
China’s trade growth, although robust, highlights the country’s vulnerability to external economic conditions, with economists cautioning Beijing against over-reliance on exports for economic stability. Policymakers are expected to introduce measures to counteract the impact of any forthcoming tariffs. ANZ analysts anticipate a mix of monetary and fiscal policies designed to sustain growth, while additional commercial strategies could include increased subsidies and access to funding for exporters.
Raymond Yeung, ANZ’s chief economist for greater China, suggested that authorities may also employ strategies aimed at boosting domestic consumption and developing alternative markets along the Belt and Road Initiative. This approach could reduce China’s dependency on traditional trading partners, providing a buffer against U.S. and EU trade tensions.
In the meantime, China’s stock markets have reacted positively, with both the Shanghai and Hong Kong indices seeing slight increases on Thursday, fuelled by investor hopes for further stimulus. This optimism reflects the resilience of China’s export-driven economic engine, though the pressures of weak domestic demand and the prospects of new tariffs may shape the country’s economic policy in the months ahead.
