China's export growth, at a record in October, has given a fillip to an economy that has struggled to regain momentum. However, with the probability of Donald Trump returning to the White House, Chinese trade could become very unpredictable, given that his announced policies promised high tariffs on Chinese products. While the performance of China's exports has been impressive, there is a looming threat of new tariffs that might challenge the country's trade engine over the next few months.
Key Takeaways
Chinese export growth accelerated to 12.7% in October, its highest in more than two years, and was significantly higher than expected.
Analysts said exporters might have been front-loading shipments ahead of tariffs by the U.S. under Trump.
A new round of tariffs could upend China's export-oriented growth model, forcing the government to consider extra stimulus measures.
Record Jump in Chinese Export Growth
Solid demand from the country's major trade partners
The country's exports were up 12.7% compared to the same month a year ago, while the growth in September was 2.4%. It even topped a 5.5% growth forecast by economists, showing that Chinese trade is still resilient with weakening global economic growth. Export shipments to major trading partners, such as the US and the European Union, surged. Shipments to the ASEAN region jumped 15.8%, while exports to the U.S. and the EU rose 8.1% and 12.7%, respectively.
This strong performance could partly be a function of exporters' front-loading orders to avoid the effects of tariffs in case Trump decides to reimpose trade restrictions. Zhiwei Zhang, chief economist at Pinpoint Asset Management said: "Exporters may be shipping goods faster to reduce the impact of a possible trade conflict with the U.S." This could be a reason for some unexpected strength seen in the Chinese export data.
High Orders Unusually Faced with Trade Tensions
This also partly explains the recent rise in Chinese export numbers, as firms scramble to get goods shipped before tariffs may kick in. It is feared that if Trump returned to office, he will raise tariffs on Chinese goods or extend such tariffs to other goods manufactured in China but assembled in countries like Vietnam and Mexico. As a result, there's a lot of uncertainty, and Chinese companies are accelerating their shipments to avoid the added costs that may come with the renewal of this trade war.
Trump's Tariff Plans and How Chinese Trade Might Be Affected
Threats of Looming Tariffs and How Markets Are Made to Feel So Uncertain
Record-high Chinese export growth continues, but analysts are still skeptical of how long that upward trajectory could last, given that Trump's possible trade policies may interfere with this one way or another. The Trump victory has already raised concerns in the export sector of China because his earlier administration imposed a wide range of tariffs against goods from China, which had devastating effects on manufacturing and trade volumes in the country. Additional protectionist trade policies could be expected during the second term of the presidency of Trump, where additional tariffs as high as 60% would go against Chinese exports.
Gary Ng, an economist at Natixis, said such across-the-board tariffs may damage China's export-oriented economy all the more if such measures are extended to products made in third-party countries with Chinese components. "Trump's broad-ranging tariffs could hurt China's export engine more than before," he said. "Chinese exporters might have to shave off their prices further to stay competitive in a hostile global trade environment.".
Economic Risks from a Trade War 2.0 If Trump goes ahead and actually issues his new tariffs, a sharp plunge in exports from China is what could happen, economists say. According to Larry Hu, chief China economist at Macquarie Capital, a tariff hike of 60% could slice 8% off China's total exports over the coming 12 months. A drop of this type would affect total economic growth and shave as many as 2 percentage points off GDP, probably. Hu says that, in this event, Beijing could have little choice but to unleash aggressive stimulus-especially into housing and infrastructure-to blunt the impact on growth.
This looming risk underlines the vulnerability of China's trade-dependent growth model. Prolonged trade conflict with the U.S. may compel the Chinese government to make its economy less dependent on exports and to pay greater attention to domestic demand. But this process may take some years, which could leave China quite vulnerable to external shocks in the period ahead.
Broader Economic Impact of China's Trade Performance
Trade Surplus and Decline in Imports
China's trade surplus widened sharply in October to $95.72 billion from $81.7 billion in September. The jump not only shows an increase in Chinese export volumes but also points to a reduction in imports, which contracted by 2.3% year-on-year. Poor domestic demand for foreign goods might suggest a slower economic recovery within the country, pointing to challenges beyond international trade.
Zichun Huang, economist at Capital Economics, thinks the trade surplus could further widen if Trump slaps on tariffs. "Additional US restrictions could weaken import demand even more, which would increase the trade imbalance further and make it more difficult to stabilize China's economy," he said.
Possible Government Stimulus Measures
As trade uncertainties mount, the government could soon announce a fiscal stimulus package to shore up key industries such as property and infrastructure. Such is what analysts expect, which might help dull any downturn that weakened export demand would have caused. The package may include investments in industrial commodities, strengthening domestic manufacturing and reducing its reliance on exports.
As Huang mentions, China's legislature is most likely to pass these plans in the next few years; they may partially ease sectors facing a contraction of foreign demand. These projects could relieve in the short run, while in the long term China may alter her trade policy to move toward self-sufficiency.
Conclusion
China's export growth surged to a 27-month high in October, but uncertainty now rises as Trump prepares possible tariff policies that may affect Chinese trade. While front-loading of orders has driven the recent higher export figures, a new round of U.S. tariffs might mess with that trend, placing China at risk. As Beijing is considering stimulus measures to prop up growth, the outlook for Chinese trade hinges critically on how events unfold in the coming months.
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