China's Export Machine Powers Ahead But Trade With US Slumps

Yahoo

3 days ago

(Bloomberg) -- China's export growth unexpectedly accelerated last month in the fastest gain since April, as demand from around the world compensated for the continued slump in shipments to the US.
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Total exports rose 7.2% in July from a year earlier to $322 billion, a surprise to most economists who had expected a slowdown from June's upwardly revised increase of 5.9%. The statistical effect of a low base last year likely accounts for part of the upswing in year-on-year terms.
Data released Thursday by the customs authorities showed the pickup was driven by strong growth in shipments to the European Union, Southeast Asia, Australia, Hong Kong and other markets, which more than made up for the fourth month of double-digit declines in US purchases.
'What really supported China's stronger-than-expected overseas shipments in the past three months was exports to non-US markets,' said Jacqueline Rong, chief China economist at BNP Paribas SA.
The resilience in overseas shipments comes despite the high tariffs imposed by the US, showing that global demand for Chinese goods remains strong and still provides a significant driver for the domestic economy.
Beijing and Washington face an Aug. 12 deadline to prolong their 90-day tariff truce. While the Chinese side said the two nations agreed to extend it after talks in Sweden last month, US officials have signaled President Donald Trump will make the final call on maintaining the agreement.
What Bloomberg Economics Says...
'The July reading supports our view that exports may stay broadly resilient despite weaker trade with the US. The key risk hinges on whether and how other countries may tighten controls on transshipments under their trade deals with the US.'
— Eric Zhu. For full analysis, click here
An improvement in demand outside the US has meant the value of exports so far in 2025 is well above any previous year and would reach almost $3.8 trillion at the current pace. But some economists see a slowdown in the second half of the year.
'We expect exports to slow in the second half amid tariffs, payback of front-loading, and softer US demand,' Morgan Stanley analysts including Cai Zhipeng said in a report. 'The extent of the slowdown also hinges on alternative markets like Africa and certain categories.'
China has increasingly relied on third countries to circumvent tariff barriers and for the manufacturing of final products or components. But that trend that is facing the test of tightening US scrutiny over rerouting of Chinese shipments, which could weigh on exports in the coming months
The US has threatened to pile an additional tariff on any product that Washington determines to be 'transshipped' through another country. China's share of total value-added manufacturing of goods destined for the US through countries including Vietnam and Mexico surged to 22% in 2023 from 14% in 2017, according to Bloomberg Economics.
China's currency is also providing a boost to exports. The yuan rebounded a little from July but is still weaker than it's been for years against a basket of its peers.
'While some of the sales to the Asean countries was suspected to be linked to re-routing, exports to Latin America and Africa that were less likely to be associated with transshipments were even more robust,' Rong said. 'Chinese goods are very competitive, and in recent months the yuan actually depreciated against non-US currencies, which helped exports as well.'
Shipments to the US fell 22% from a year earlier after slumping just over 16% in June. Chinese firms were able to increase their sales in other markets to compensate for the drop to the US, with exports to the EU rising 9.3% and growing almost 17% to the 10 Southeast Asian nations in the Asean group.
Exports of ships fell for the first time in five months, while vehicle sales abroad continue their strong growth, rising almost 19% by value in July. Shipments of machines and high-tech products also grew, with sales of rare earths overseas down for a sixth month.
Imports climbed 4.1%, with the volume of purchases of integrated circuits rising to a four-year high. China's exports of chips were also strong, showing the effects of a strong global semiconductor sector and the boom in the development of artificial intelligence, according to Rong.
Chinese imports of key commodities held up in July, with copper, iron ore, soybeans and crude oil all posting year-on-year gains.
BNP's Rong cautioned, however, that China's stronger-than-expected import growth may not last, noting that the yearslong property market slump deepened last month.
High-frequency data indicates that trade activity is slowing more recently, with Chinese ports processing fewer containers in the seven days through Aug. 3 than the previous period, the second straight week of declines.
Overall, China's trade surplus was $98.2 billion, lower than in June but still well above the historical average. Should this trend hold up, it will be well above $1 trillion in 2025, providing much needed support to an economy still facing weak domestic demand.
But the lack of clarity about tariffs risks putting the brakes on growth in the months ahead, according to Pantheon Macroeconomics, with Trump yet to sign off on approving the 90-day extension for China.
The latest 'data points to fading stockpiling and transshipment demand as the end of the temporary tariff reprieve nears — with a few exceptions,' said Kelvin Lam, senior China economist at Pantheon. 'Even if the reprieve is extended by another three months, the lingering uncertainty and already elevated tariff rates are likely to weigh on China's growth in the second half.'
--With assistance from Wenjin Lv.
(Updates with economist comments starting in eighth paragraph.)
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