Renewed US trade war threatens China’s ‘lifeline’

Exports have been central to China's growth in the past. Photo / 123RF

China might not be able to rely on trade to steer it out of trouble as blistering tariffs being considered by US President-elect Donald Trump threaten an already struggling economy.

Exports have historically represented a key engine in the world’s number-two economy, where authorities will release 2024 growth data on Friday that is expected to be among the lowest in decades.

Worse still, Trump’s return to the White House three days later could mean Beijing won’t be able to rely on trade to drive activity in 2025.

Exports “are likely to stay resilient in the near-term”, wrote Zichun Huang of Capital Economics, noting a recent surge was due in part to US importers stockpiling Chinese goods ahead of expected tariff hikes.

“But outbound shipments will weaken later this year if Trump follows through on his threat to impose 60% tariffs on all Chinese goods,” she said.

China’s economy likely grew 4.9% last year, according to an AFP survey of experts, fractionally short of the government’s 5% target and down from 5.2% in 2023.

The increase – already the lowest in decades, apart from the Covid-19 pandemic – was helped by a record-setting year for Chinese exports.

Overseas shipments reached a historic high of nearly US$3.5 trillion in 2024, up 7.1% year-on-year, according to official statistics published on Monday.

Adjusted for inflation, China’s trade surplus last year “outstripped any global surplus seen in the past century, overshadowing even the historical export powerhouses like Germany, Japan or the United States post-World War II”, Stephen Innes of SPI Asset Management wrote in a note.

The increase in China’s trade surplus has contributed five to six points to the growth of the country’s gross domestic product over the past three years, Francois Chimits of the Mercator Institute for China Studies told AFP.

“The vitality of foreign trade has been one of the lifelines of the Chinese economy,” he said.

Policy support

That pillar of growth could come under attack in 2025, as the United States and European countries retaliate against what they call unfair competition resulting from China’s generous subsidies to its manufacturers.

The European Union imposed additional customs duties in October on electric vehicles imported from China, citing distortionary trade practices by Beijing.

And Trump promised during his recent US presidential campaign to slap even heftier tariffs on Chinese goods than those implemented in his first term.

The specific trade imposts Trump intends to levy against China are not yet clear but the country’s export surge last year “will ignite further fury among US trade hawks”, Innes said.

A potential 20% increase in US levies on Chinese goods would result in a 0.7-percentage-point hit to real GDP this year, according to a Goldman Sachs report.

Beijing could allow the yuan to weaken in return, “pre-position” exports in third countries so that they can then be sent to the United States, or simply find new markets, Agatha Kratz of Rhodium Group told AFP.

Some shifts are already palpable. China’s exports to Vietnam increased by nearly 18% last year, according to Chinese customs data, overtaking Japan to become its third-largest export destination.

Domestically, Beijing is hoping to boost demand this year through a combination of fiscal and monetary policy easing and a scheme to spur consumption.

The external pressure this year might necessitate even greater domestic policy support from Beijing, said Larry Hu, an economist at Macquarie Group.

AFP’s survey of analysts warned China’s growth rate could ease to just 4.4% this year and even drop below 4% in 2026.

– Agence France-Presse