China’s exports rose more than forecast in April even as shipments to the US slumped sharply in the first month after President Donald Trump targeted its goods with tariffs above 100%.
The first official hard data after the trade war escalated captures only the initial damage from the prohibitive tariffs, with their effects likely to become more pronounced starting this month. The expectation of many analysts is that unless the levies come down, trade between the world’s two largest economies would eventually crumble after reaching almost US$690 billion ($895.73 billion) last year, decimating industries and raising prices for companies and consumers.
Shipments to the US fell 21% from a year earlier after the imposition of duties earlier in April, according to data from the customs administration Friday. China’s tariffing of American goods meant that imports from the US fell almost 14% last month.
Chinese firms were able to increase their sales in other markets to compensate for the drop to the US, with total exports expanding 8.1% last month, far more than forecast by economists but down from a gain of more than 12% in March.
Shipments to India and the 10 Southeast Asian nations in the Asean group soared by more than 20%, while exports to the European Union were up 8%. Imports fell 0.2% for the second straight monthly decline, leaving a trade surplus of US$96 billion.
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But such diversions in trade away from the US will likely worsen existing concerns from countries in Europe and elsewhere that they risk becoming dumping grounds for Chinese goods. For Beijing, the reduction or loss of access to its single largest overseas market will probably act as a further drag on export prices that are already under pressure from deflation and hyper-competition at home.
An equally big worry is what China’s trading partners might do in response. Vietnam and South Korea are among countries to impose anti-dumping tariffs on steel from China, adding to a variety of other restrictions erected around the world in recent years to defend industries.
US and Chinese negotiators will meet this weekend for their first trade talks since Trump took office this year. Companies are hopeful both sides can eventually agree to a reduction in the levies each has imposed on the other.
See also: China economic rescue plan stalled by wariness over tariffs
US Treasury Secretary Scott Bessent will lead the talks, and has called the current tariffs “unsustainable.” He and his team will start meetings on Saturday with a Chinese delegation led by Vice Premier He Lifeng.
What Bloomberg Economics says...
While the two sides have staked out strong positions, the Trump administration is weighing a dramatic tariff reduction during the negotiations to de-escalate tensions and temper the economic pain both are already starting to feel, according to people familiar with preparations.
The US side has set a target of reducing tariffs below 60% as a first step that it believes China may be prepared to match, and progress in two days of scheduled discussions could see those cuts being implemented as soon as next week, they said.
Trade chaos
The sudden changes to US trade policy in the past few months have brought chaos to global trade. While countries are scrambling to negotiate a permanent reprieve from the tariffs announced in April, companies are trying to get goods into the US before they can be taxed.
The US trade deficit soared in March to a record, and likely continued to swell in April before starting to drop off this month, according to Bloomberg Economics.
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The tariffs have “already taken a bite” out of the container market in April and volumes in China-US trade have dropped “30% to 40% in both directions as the trade war heats up,” the head of Danish container giant A.P. Moller-Maersk A/S said Thursday.
So far, however, the trade war “is mostly a US-China issue, the rest of the world continues unabated,” Chief Executive Officer Vincent Clerc said in an interview on Bloomberg TV after the company cut its outlook for the global transport market this year.
Exports from Vietnam and Taiwan to the US both reached historical highs last month, while shipments from Thailand and Malaysia also hit records in March. Some of those goods are likely coming indirectly from China or being assembled with Chinese-made parts.
Vietnam’s imports from China have been growing for years as foreign and Chinese companies shifted operations there to avoid Trump’s tariffs from his first term. They soared in March and April, totalling almost US$30 billion for the two months.
But the volume of direct trade across the Pacific Ocean is falling, with the number of ships going from China to the US tumbling.
If the US and China keep tariffs on each other at the same punitive levels, it’s likely to lead to further declines in direct trade and more rerouting via Southeast Asia and other countries. A shortage of goods in the US is another possible outcome.
One risk for countries that handle diverted shipments is that their own domestic industries might suffer as a result. It may also swell trade surpluses with the US, which could prompt Trump to reimpose tariffs.
The US goods trade deficit with Vietnam was nearly US$124 billion last year, prompting Trump to levy 46% duties on the country — although there were later suspended to allow time for talks.
