China Exports Impacted by Tariffs

Overnight, China released key economic data that underscores the mounting toll of the ongoing U.S.-China trade war on its economy. Exports rose 4.8% year-over-year in May, falling short of market expectations for 5.0% growth. The shortfall was largely due to a sharp 34.5% decline in exports to the United States—the steepest drop since the COVID-related disruptions of February 2020.

Imports were also weak, falling 3.4% year-over-year, pointing to softer domestic demand. This follows the release of inflation data yesterday, which showed consumer prices contracted by 0.1% month-over-month, reinforcing concerns that China continues to struggle with deflation and sluggish economic momentum.

However, not all signs point to weakness. There are emerging bright spots suggesting a strategic redirection of Chinese trade flows increasing in Southeast Asia markets. Exports to the European Union rose 12% year-over-year, while exports to Africa jumped 33%, and shipments to Southeast Asia climbed 15%. These figures hint at possible efforts to reroute goods to regions not directly subject to aggressive U.S. tariffs.

Today in London, U.S. and Chinese trade representatives are meeting in an attempt to revive stalled negotiations. Talks are expected to focus on long-standing friction points, including China’s export of rare earth minerals—crucial for U.S. electronics and defense manufacturing—and Washington’s restrictions on advanced semiconductor technology that China sees as vital for its AI development ambitions.

While China's export engine is clearly feeling the strain of tariffs and weakening U.S. demand, its pivot toward alternative markets may cushion the blow. The ongoing negotiations in London could mark a critical step toward reestablishing a working trade framework, but deep structural disagreements—particularly over technology and critical materials—suggest any resolution may be slow and hard-fought.