China Unleashes a Wave of Inexpensive Exports Despite Trump’s Tariffs
President Xi Jinping’s export engine has demonstrated remarkable resilience over five months of elevated US tariffs, propelling China toward an unprecedented $1.2 trillion trade surplus. As access to the US diminishes, Chinese manufacturers have demonstrated their resilience: In August, Indian purchases reached an unprecedented level, with shipments to Africa poised to achieve an annual record, while sales to Southeast Asia have surpassed their peak from the pandemic era. The widespread increase is raising concerns internationally, as governments consider the possible harm to their local industries in relation to the risk of provoking Beijing — the leading trading partner for more than half of the world.
Thus far, only Mexico has responded publicly this year — proposing tariffs reaching as high as 50 percent on Chinese goods such as cars, auto parts, and steel — while other nations face mounting pressure to take action. Indian authorities have received 50 applications in recent weeks for investigations into goods dumping from nations including China and Vietnam, according to a source familiar with the matter who requested anonymity as the information is not public. Indonesia’s trade minister has committed to overseeing an influx of goods, following viral videos of Chinese vendors promoting plans to export jeans and shirts for as little as 80 US cents to major cities, which sparked significant public concern. Despite the suffering, the opportunities for more significant action remain constrained. Countries currently engaged in tariff negotiations with the Trump administration seem hesitant to initiate a separate trade conflict with the world’s second-largest economy. This provides Beijing with some leeway from US tariffs at levels that economists had previously forecast would reduce the nation’s annual growth rate by half. “The subdued response is probably informed by ongoing US trade negotiations,” stated Christopher Beddor. “Some countries may not want to be seen as contributing to a breakdown in the global trading system.” Some may also be refraining from imposing tariffs against China to use them as concessions to the US in the course of their own trade negotiations.
Officials protecting their economies from Beijing are proceeding with caution. South Africa’s trade minister has cautioned against imposing punitive tariffs on Chinese car exports, which have nearly doubled this year, and is advocating for increased investment instead. Chile and Ecuador are discreetly implementing specific fees on low-cost imports, following a remarkable 143 per cent increase in monthly active users of Chinese e-commerce giant Temu in Latin America since January. Brazil has indicated a willingness to pursue more aggressive retaliation; however, this summer, it provided China’s largest electric car manufacturer, BYD Co Ltd, with a tariff-free opportunity to increase local production. Beijing is employing a blend of diplomatic allure and economic intimidation to deter nations from pursuing direct retaliation. Earlier this month, China’s president rallied BRICS nations to forge a united voice against protectionism during a leaders’ call of the bloc. Meanwhile, Commerce Ministry officials have cautioned Mexico to “think twice” before taking action, emphasizing that such steps will have consequences. In a move that heightens tensions, Trump is urging NATO countries to implement tariffs as high as 100 percent on China due to its backing of Russia.
According to Chang Shu and David Qu, if the US leader gathers other countries to unite against China, it will complicate the management of internal challenges like a prolonged property crash and an aging population. “Beijing will likely hit back with reciprocal tariffs immediately, but that risks alienating partners at a time when it critically needs allies,” they stated. “Over time, it may also encourage firms to localize production in partner countries.” Despite the resilience of Chinese exporters, the increase in trade is not translating into greater wealth for them, nor is it alleviating the country’s internal challenges. Profits at industrial firms decreased by 1.7 percent in the first seven months, as manufacturers, aiming to address overcapacity domestically under Xi’s “anti-involution” initiative, reduced prices to enhance overseas sales. That is only exacerbating China’s persistent deflation, which is on course for its longest duration since the nation began its opening up in the late 1970s. The surge in exports may also hinder Beijing’s attempts to recalibrate its economy towards fostering consumption — contradicting foreign officials like US Treasury Secretary Scott Bessent, who has called on Beijing to prioritize enhancing the Chinese consumer as a cornerstone of its strategy for the upcoming five years. The upcoming weeks will see a spotlight on China’s policy document detailing those plans, particularly during a significant Communist Party meeting.
For Xi, the potential rewards may indeed justify the risks. Demonstrating to the world that China can thrive without reliance on the US consumer bolsters his position ahead of a crucial meeting with Trump at a summit in South Korea. The world’s largest economies are currently negotiating a potential trade agreement, with a 90-day suspension on tariffs that can reach as high as 145 percent maintaining a fragile peace. Prior to Trump’s unexpected announcement of America’s highest tariffs since World War II in April, emerging markets, facing the potential loss of millions of manufacturing jobs, expressed concerns over an oversupply of Chinese goods. Indonesia’s former president issued a warning of a 200 per cent tariff aimed at safeguarding local industry, while Brazil has increased duties on Chinese steel. Even Vietnam implemented temporary measures against Chinese online retail giants that undermined local sellers. Ultimately, foreign leaders have faced significant challenges in safeguarding their economies from the extensive network of factories in China. “Protectionism from the US and other countries has turned into a paper tiger because Chinese exporters are extremely competitive,” stated Arthur Kroeber, head of research at Gavekal Dragonomics. They “can absorb some of the tariff hit and also have plenty of workarounds through transshipment and relocating late-stage production to lower-tariff countries.”
Cambodia’s central bank governor Chea Serey openly addressed the delicate balancing act that smaller economies dependent on Beijing are compelled to navigate. “We do import a lot from China,” she stated during an interview with Bloomberg Television earlier this month, when questioned about Chinese dumping. “We also rely significantly on foreign direct investment from China.” Although an increase in shipments to Vietnam indicates that certain goods intended for the US and other destinations are being redirected to avoid Trump’s tariffs, this represents only a portion of the overall situation. The demand for China’s world-leading, high-tech innovations has significantly contributed to the recent surge in traffic. Increasing sales to affluent markets in Europe and Australia suggest that Beijing has successfully identified new buyers for numerous products. India illustrates how Trump’s redrawing of the global trade map is providing new advantages to Beijing. Exports to China’s neighbor reached an unprecedented $12.5 billion last month, primarily fueled by Apple Inc.’s suppliers swiftly relocating iPhone production from its Asian counterpart to India. Nevertheless, those companies continue to rely on components and tools primarily manufactured in China.
In July, Chinese firms exported nearly $1 billion in computer chips to India, along with billions of dollars more in phones and components, as reported by data from Beijing. Exports are poised to surpass last year’s record, with the value of shipments this year nearly matching the total for all of 2021. “China has performed better than expected in the first half,” stated JPMorgan Chase & Sajjid Chinoy during an interview. “Some of this is the fact that China has very cleverly found other export markets, including Europe, which has been a key hedge to slowing exports to the US.” A depreciated currency provided China with an additional advantage. The yuan has weakened in tandem with the dollar against currencies like the euro. Macquarie Bank previously estimated that the yuan’s real effective exchange rate — which accounts for inflation differentials between a nation and its main trading partners — was at its weakest level since December 2011. The Federal Reserve’s rate cut this month may lead to a decline in both the dollar and potentially the yuan, which could enhance global demand and increase the competitiveness of Chinese exports.
Despite the widespread concern globally, halting the overwhelming flow of goods from China will prove to be a challenging task. Chinese electric car exports have maintained their momentum, undeterred by measures from the US and Canada aimed at restricting them through punitive tariffs and bans. In the initial seven months of this year, manufacturers like Nio, BYD, and Xpeng Inc. exported over $19 billion in electric-powered vehicles, roughly equivalent to the same timeframe last year, with Europe remaining the largest market despite the EU’s tariffs imposed last October.
According to Adam Wolfe, China is in a more advantageous position than numerous other countries to seek out alternative markets to the US. The analysis reveals that there is nearly a 50 percent overlap between China’s exports to the US and its shipments to Brics nations, indicating that a significant portion of what America has ceased to purchase can be redirected to alternative markets. “China’s shown this ability to move into other markets and get market share abroad and that probably continues,” said Wolfe. “I don’t know that China is going to see a contraction in exports over the rest of the year.”
