China’s exports top forecast but fresh US trade spat raises risks to outlook

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By Joe Cash and Ellen Zhang

BEIJING (Reuters) -China’s export growth bounced back in September, but renewed trade threats from Beijing and Washington have rekindled worries about jobs and further deflation in an economy heavily reliant on selling its manufactured goods overseas.

The world’s second-largest economy has greatly diversified its export markets this year to insulate itself from U.S. President Donald Trump’s 35-percentage-point tariff hikes, helping to keep GDP growth on track towards a roughly 5% target for the year.

However, this strategy could get a reality check should Trump carry out his threat of re-imposing triple-digit tariffs on China in retaliation for Beijing announcing sweeping rare earth export controls last week.

“While China’s economy has proven more resilient in the face of U.S. tariffs than many had feared, there is still significant potential downside from a deeper rift with the U.S.,” said Capital Economics analyst Julian Evans-Pritchard.

China’s exports rose an annual 8.3% last month, customs data showed on Monday, beating a 6% increase in a Reuters poll and registering the fastest growth since March. They compared with a 4.4% increase in August.

While the faster export growth is welcome news for a still-fragile economy, Trump’s latest threat to raise U.S. tariffs above 100% would deal a deflationary shock to China and put smaller exporters and jobs of factory workers at risk.

China’s choke on rare earths and magnets, where its near-monopoly position gives it great leverage in the trade war, could also paralyse global supply chains in industries from autos to green energy and aircraft.

These global risks have most analysts predicting that Beijing and Washington will work towards de-escalation in the coming weeks, and potentially preserve some chances that Trump and Chinese President Xi Jinping may still meet at an APEC summit in South Korea at the end of the month, as previously expected.

But the range of outcomes is now much larger than it was only a few days ago – a level of uncertainty investors may have to get used to as the U.S.-China rivalry intensifies.

“We believe both sides, after testing the other’s boundaries, will likely make concessions again, and we still see a decent chance of a Xi-Trump in-person meeting during the upcoming APEC summit in South Korea at end October,” Nomura analysts said.

“We view this cycle of tension, escalation and truce as the new normal for U.S.-China relations.”

Monday’s trade data was overshadowed by the fresh salvos in the U.S.-China trade war, denting Asian markets and sending Chinese stocks sinking sharply in volatile trade.

EXPORTS UP IN NON-U.S. MARKETS

Exports to the U.S. fell by 27% year-on-year, the data showed, while shipments bound for the European Union, Southeast Asia and Africa grew by 14%, 15.6% and 56.4%, respectively.

“Chinese firms are actively tapping into new markets with the relative cost advantage of their goods, that’s for sure,” said Xu Tianchen, senior economist at the Economist Intelligence Unit in Beijing.

“The United States now only accounts for less than 10% of China’s direct exports,” he added. “100% tariffs would no doubt add to the pressure China’s export sector is under, but I don’t think the impact will be as large as before.”

But Chinese exporters have described the scramble to grow market share elsewhere as a “mad rat race,” squeezing their profit margins and prompting cost-cutting measures at home, such as reducing staff and wages.

DEPRESSED DOMESTIC DEMAND

Factory owners face little choice but to slash prices in pursuit of overseas buyers as domestic consumers are keeping their wallets shut.

This puts pressure on Beijing to introduce more stimulus measures to boost household incomes and domestic demand.

Indeed, while China’s imports grew 7.4%, their fastest pace since April 2024, against a 1.3% gain a month prior, and a forecast rise of 1.5%, analysts attributed the uptick to stockpiling by the world’s biggest buyer of commodities.

China’s steel imports rose again last month, keeping the country on track for an all-time record this year, while coal purchases rose to a nine-month high, as rising prices spurred buying.

Soybean imports reached the second-highest level on record, driven by strong purchases from South America, with Chinese buyers still spurning U.S. soybean cargoes.

Earlier this month, Trump said he hoped to discuss soybeans with Xi during their planned meeting in South Korea.

China’s trade surplus fell to $90.45 billion in September, from $102.33 billion a month prior, and missed a forecast of $98.96 billion.

China hoped to get back to the negotiating table with its U.S. counterparts, Wang Jun, vice customs minister, told a press conference ahead of the data release.

The trade outlook greatly depends on how the high-stakes game of threats between Beijing and Washington unfolds in coming weeks.

Lynn Song, chief Greater China economist at ING, expects that neither would want to return to “mutually damaging tit-for-tat escalations and retaliations.”

“However, the past few weeks show that the possibility of miscalculation is always present,” Song said.

(Reporting by Joe Cash, Ellen Zhang in Beijing and Marius Zaharia in Hong KongEditing by Shri Navaratnam)