China’s exports to the US have slumped due to heavy tariffs under President Donald Trump’s administration. But the manufacturing giant may not be feeling the pinch as much as expected.
“Fortunately for Chinese exporters, external demand from other economies has helped offset much of the drag from the US,” wrote Lynn Song, ING’s chief economist for Greater China, in a Wednesday note.
In May, China’s shipments to the US plunged nearly 35% from a year ago following Trump’s “Liberation Day” tariff announcements. But China’s export machine still grew about 5% in the same month because its fast-growing trade started to flow elsewhere. Shipments fell 16% in June despite a trade truce between the two economic giants.
Over the first half of the year, China’s exports to the world grew 5.9% from a year earlier, defying expectations of a broad slowdown. Growth came from trade with Southeast Asia, the EU, Latin America, and India, according to a recent analysis from ING.
ING isn’t the only one seeing the trend. In a Monday note, analysts at Goldman Sachs wrote that China’s exports have been “resilient,” in part thanks to trade rerouting.
The Goldman Sachs analysts wrote that part of China’s export resilience stems from “the fluidity of goods trade and Chinese exporters’ ability to reroute trade flows.”
For the first half of the year, China’s exports to the US declined by $25.7 billion — but this was more than fully offset by increased exports to other countries, resulting in growth of 5.9% from a year ago, according to ING’s analysis.
High-tech goods are driving China’s exports
The shift is particularly striking in high-tech and capital-intensive sectors. Exports of semiconductors, lithium batteries, electric vehicles, and machine parts posted double-digit percentage point growth in the first half of the year and are increasingly going to non-US buyers.
“Amid China’s Great Transition, China’s move up the value added ladder has resulted in many Chinese champions producing very competitive products, and even in the case of US tariffs or restrictions, these products will continue to do well in other economies,” wrote Song.
China’s automobile exports grew by 8.1% year over year in the first half of the year. Last year, just 2.1% of China’s total auto exports went to the US, while 14.6% went to the European Union.
Due to high EU tariffs, auto exports to the trade bloc fell by just 5.2% in the first half of the year, with declines led by Belgium and Germany. However, auto exports to Italy and Spain accelerated.
This diversification is helping to offset steep declines in traditional, low-end categories like toys, furniture, and footwear, which have been hit hard by tariffs and are more easily replaced by alternative suppliers, Song added.
Analysts expect China’s growth to moderate in the second half of the year, particularly as the effects of front-loading to transshipment countries fade. However, exports will still be a key growth contributor, potentially helping the country reach its growth target of around 5% this year.
“So long as global growth is steady and end-demand is healthy, Chinese exports are likely to continue to rise given their extreme competitiveness and the difficulties for bilateral tariffs to reduce overall trade flows,” wrote Goldman Sachs’s analysts.
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