China’s exports could go from economic asset to liability as trade tensions multiply,

On Jun 20, 2024

China’s reliance on exports presents a potential pitfall for economic growth this year as uncertainties multiply over trade conflicts with the US and Europe, analysts said at a forum held at Renmin University of China in Beijing on Wednesday.

Gross domestic product growth of 5.3 per cent was reported in the first quarter – beating expectations – but data from May revealed some lingering jitters. Exports and new energy investment were bright spots for the world’s second-largest economy last month, with consumption and the property market remaining weak links.

China’s exports rose by 7.6 per cent from a year earlier to US$302.4 billion in May, the highest monthly export value since September.

“Dependence on external demand poses a risk to economic growth in the second half of the year,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank and a speaker at the forum.

Shan Hui, chief China economist at Goldman Sachs, estimated that 2.4 percentage points of the country’s first-quarter GDP growth came from exports. “In other words,” she said, “if there hadn’t been outstanding performance on the export side, the contribution of domestic demand was just three percentage points.”

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US proposes new round of tariffs on China in latest trade war escalation

Analysts at the forum said that China needs to be prepared for unpredictability in its growth outlook, thanks to trade tensions with the US and Europe that may intensify in the coming months.

“The trade friction between China and Europe may spread beyond new energy vehicles,” Ding said.

China announced an anti-dumping investigation into certain pork products from the European Union, a move which followed an EU decision to raise tariffs on electric vehicles from China by up to 38 per cent for a four-month period starting July 4.

As to what will happen at the end of that interval, Ding said it would depend “on further negotiations”, adding any question over a potential increase in tariffs is one of “magnitude”.

In May, Washington announced steep tariff rises on an array of Chinese imports worth US$18 billion. Some of the new tariffs will come into effect this year, while others would be phased in gradually in 2025 and 2026.

Shan said those tariffs’ impact on China’s economy this year would be limited, as the covered goods make up a relatively small proportion of the country’s overall exports.

“But if [former US president Donald] Trump is elected and imposes a 60 per cent tariff on all Chinese products as he said, the situation will be completely different,” Shan said. The Goldman Sachs economist estimated such a duty could shave off around 2 percentage points of China’s GDP. “This is a significant impact.”

Zu Baoliang, chief economist and researcher at the National Information Center – a think tank affiliated with the National Development and Reform Commission, China’s top economic planner – said lessons can be taken from Japan’s experience handling trade conflicts with the West.

The US and Japan had a series of trade disputes from the 1950s to the 1990s. During that time, both countries agreed to set a limit on the export volume of certain Japanese goods – a measure Zu said China can also examine.