China's Export Surge: Navigating Tariffs and Domestic Challenges

In August, China's exports saw their fastest growth in nearly 1.5 years, as manufacturers sped up shipments ahead of anticipated tariffs. Despite high export figures, weak domestic demand hindered imports, revealing Beijing's struggle to boost the economy. Policymakers are pressed to balance export reliance with stimulating local demand.

In August, China's exports grew at their fastest rate in almost 1.5 years, suggesting that manufacturers are ramping up shipments ahead of expected tariffs from increasing trade partners. Meanwhile, imports fell short of forecasts due to weak domestic demand.

This mixed trade data underscores the difficulties Beijing faces as it tries to revive domestic demand without over-relying on exports for growth. China's economy has remained sluggish amid a prolonged property sector downturn, with recent surveys indicating poor export performance and the lowest factory gate prices in 14 months, forcing producers to cut prices to attract buyers.

Customs data released on Tuesday showed outbound shipments from the world's second-largest economy rose by 8.7% year-on-year in August, the fastest since March 2023, surpassing a Reuters poll forecast of a 6.5% increase and a 7% rise in July. However, imports grew by only 0.5%, missing the expected 2% rise and down from the 7.2% increase in the previous month.

"The strong export performance and trade surplus is favorable for economic growth in the third quarter and the whole year," said Zhou Maohua, a macroeconomic researcher at China Everbright Bank. "However, the global economic and geopolitical environment is complicated, and China's exports face significant challenges," he added.

Economists warn that China's heavy reliance on exports, amid recent weak economic data, places additional pressure on policymakers to introduce more stimulus measures. Increasing trade barriers, such as tariffs on Chinese electric vehicles, steel, and aluminum from Canada, and anticipated tariffs from the EU and Southeast Asia, pose further threats to China's export momentum.

Beijing's negotiations with the European Union to lower tariffs on Chinese electric vehicles have seen limited progress, and new tariffs from Canada on Chinese electric vehicles, steel, and aluminum add to the hurdles. In Southeast Asia, India is considering raising tariffs on Chinese steel, Indonesia is looking at hefty duties on textile imports, and Malaysia has opened anti-dumping investigations into plastic imports from China and Indonesia.

Nevertheless, some analysts believe that China's exporters may weather these challenges due to the cheaper yuan and their ability to re-route exports to avoid tariffs. "Outbound shipments are expected to remain strong in the coming months despite more trade barriers," said Zichun Huang, China Economist at Capital Economics. "We don't believe the current tariffs will prevent the fall in the real effective exchange rate from sustaining China's global export market share," Huang added.

(With inputs from agencies.)