CHINA´S EXPORTERS SHRUG OFF THE TRADE WAR -- FOR NOW / THE ECONOMIST

Trading places

China’s exporters shrug off the trade war—for now

How long can they continue to do so?

Aerial photo shows the Qingdao Port in Qingdao City, east China's Shandong Province, China. / Photograph: Alamy

TRADE TENSIONS are hardly apparent in Qingdao, a bustling port city in eastern China. 

The roads leading to the port’s terminals are crammed with lorries. 

A string of cargo vessels can be seen in the blue haze over the bay. 

China’s other ports seem to be just as busy: on July 14th officials announced that the country’s total exports grew by a healthy 5.8% year on year in June. 

In the first half of the year, exports grew at the same pace as they did in 2024, helping to keep China’s GDP growth on track to meet its annual target. 

For now, China’s exporters appear to have shrugged off trade tensions with America. 

But that might not last much longer.

After a string of tit-for-tat tariff hikes earlier in the year, China and America struck a truce on May 12th, agreeing to delay the implementation of their highest levies for 90 days to allow further negotiations. 

Even so, thanks to previous rounds of tariffs, many Chinese goods face levies of over 50% if they are shipped to America. 

Howard Lutnick, America’s commerce secretary, recently told CNBC that the two sides may meet for talks in early August.

How, then, to explain the resilience of China’s exports in the turmoil of the global trade war? 

Some companies have been “front-loading”, or shipping extra goods to America, on fears that the truce will not hold and levies will increase further later. 

Others are said to be trying dodgy workarounds like reclassifying finished goods as “raw materials” to try to underreport export values.

Many firms, though, have just been shipping more goods to other countries. 

America accounted for about 15% of China’s exports last year, but just 12% in the first half of 2025. 

Over that period China’s exports to South-East Asia, in particular, have risen rapidly. 

Shipments to Vietnam, Thailand and Indonesia increased by 20%, 22% and 15% year on year respectively. 

“We have very little to do with American companies these days,” says Zhang Tao, a production manager for a company in Qingdao that makes parts for industrial robots. 

Healthy sales to Singapore, among other countries, have helped make up the difference, he claims.

But reality will probably catch up with China’s exports in the second half of the year. 

One reason is the approaching deadline of August 12th to conclude this round of trade negotiations with America. 

Tariffs will not be cut further without a breakthrough in talks. 

If they go up, exports to America will naturally fall further. 

And if they are kept at their current levels, then front-loading may well peter out, as there is little reason to do it if the status quo holds. 

That will further drag on trade later in the year; there will be less demand for goods which have already been shipped.

Another drag on Chinese exports will come from America cracking down on “transshipments”. 

Some Chinese goods are shipped to South-East Asia, undergo a degree of processing, and are then sent on to America, thus avoiding the higher tariffs placed on goods exported directly. 

Trade data suggest this practice may have become more common in recent months.

On July 2nd President Donald Trump announced a new trade deal with Vietnam which said goods that are transshipped through the country will face 40% tariffs—twice the new standard rate. 

Mr Trump has also warned several other countries against transshipping. 

Much will depend on how America decides to define transshipments and to implement the new rules (officials might even target products which contain only a modest proportion of Chinese parts). 

Still, other countries will probably try to comply in order to avoid the wrath of Mr Trump and his officials.

All this will probably still not be enough to push China’s exports into contraction. 

But export growth might slow to 2-3% year on year in the third quarter of this year, and perhaps just 1% in the last quarter, reckons Alicia Garcia-Herrero, an economist at Natixis, a French bank. 

She expects shipments of low-value goods which can easily be manufactured elsewhere—such as furniture, clothes, shoes and toys—to be most affected. 

Bicycles originally intended for export to America are already on sale at low prices on Chinese e-commerce sites.

Tariffs are also having knock-on effects that are set to worsen. 

Mr Lu is an engineer at a Qingdao-based company that makes components for vacuum pumps, which are then exported to America to be used in industrial machinery. 

Orders have remained steady in recent months. 

But clients have demanded a lower price to help offset the cost of the tariffs. 

That has forced Mr Lu’s company to cut salaries. 

He now takes home about 6,000 yuan ($830) a month, down from 7,000 yuan last year. 

“We need to eat, we need to pay mortgages,” he says. 

“But we’ve no other option.” 

In recent years exports have been a rare bright spot in China’s economy. 

Tales like Mr Lu’s suggest that it is dimming.