Zürcher Nachrichten - China's exports slow as trade war takes toll

Imports fell more dramatically than expected, the figures showed, with weak domestic consumption in the world's number two economy highlighted by data earlier in the day revealing another month of falling prices.

The 4.8 percent year-on-year increase in overseas shipments last month was slower than the 8.1 percent growth recorded in April, also falling short of the six percent jump that was forecast in a survey of economists by Bloomberg.

The reading included a 12.7 percent plunge in exports to the United States compared with April, when Trump unveiled his eye-watering tariffs on China.

Imports from the United States tanked 17.9 percent after Beijing imposed tit-for-tat measures.

Exports tumbled by a third year-on-year in May.

In contrast, the data showed shipments to Vietnam increased from the previous month.

Those to other Southeast Asian countries including Malaysia, Thailand, Singapore and Indonesia all declined slightly after soaring in April, the figures indicated.

"The trade war between China and the US led to sharply lower exports to the US, but the damage was offset by stronger exports to other countries," Zhiwei Zhang, resident and Chief Economist at Pinpoint Asset Management, said in a note.

"The trade outlook remains highly uncertain at this stage," he said, pointing to the impact of "frontloading" when overseas buyers increase shipments ahead of potentially higher tariffs.

"We think export growth will slow further by year-end," wrote Zichun Huang, China Economist at Capital Economics, citing tariffs that are "likely to remain elevated".

- Spending slump -

Monday's data added to concerns about the Chinese economy, with a report from the National Bureau of Statistics (NBS) showing the consumer price index -- a key measure of inflation -- dropped 0.1 percent year-on-year in May.

The reading, which was slightly better than expected but marks the fourth straight month of falling prices, comes as Beijing struggles to boost domestic consumption that has been sluggish since the end of the pandemic.

The failure of leaders to kickstart demand threatens their official growth targets and complicates their ability to shield the economy from Trump's tariff blitz.

While deflation suggests the cost of goods is falling, it poses a threat to the broader economy as consumers tend to postpone purchases under such conditions in the hope of further reductions.

A lack of demand can then force companies to cut production, freeze hiring or lay off workers, while potentially also having to discount existing stock -- dampening profitability even as costs remain the same.

Factory gate prices also dropped in May, the NBS said on Monday, deepening a slump that has now lasted more than two years.

The producer price index decline of 3.3 percent -- accelerating from a 2.7 percent drop in April -- was faster than the 3.2 percent estimated in the Bloomberg survey.

The "data doesn't reflect much from the (central bank's) monetary easing package last month", wrote Lynn Song, Chief Economist for Greater China at ING, referring to a series of key rate cuts introduced recently in an attempt to get consumers spending.

"It's hard to envision a significant uptick, though, as domestic consumer sentiment remains soft and tariffs could cause further deflationary pressure," Song wrote.

- Fresh talks -

Representatives from China and the United States are expected to meet in London on Monday for another round of high-stakes trade talks that markets hope will ease tensions between the economic superpowers.

A key issue in the negotiations will be Beijing's shipments of rare earths -- crucial to a range of goods including electric vehicle batteries and which have been a bone of contention for some time.

Customs figures on Monday showed Chinese exports of rare earth minerals rose last month to 5,865 tonnes from 4,785 tonnes in April.

However, last month's figure still represented a decline from May last year, when China exported 6,217 tonnes of rare earths.

The London talks will be the second set of formal negotiations between the two since Trump launched his global trade blitz on April 2.

They were announced after a phone call last week between Trump and Chinese President Xi Jinping.

China and the United States paused sky-high tariffs after the first round in Geneva in mid-May but failed to reach a sweeping trade deal.

E.Leuenberger--NZN