The world’s two biggest economies are headed for a divorce that will likely play out for the rest of this year and beyond, after a month that saw a huge spurt in China’s exports and its overall trade surplus hit near $103 billion.
Such an increasingly unbalanced flow of commerce is one of the problems US President Donald Trump says he’s trying to fix with his tariffs on China, provoking tit-for-tat measures now spiraling into a trade war.
Although Trump exempted many popular consumer electronics from his 125% tariffs on goods produced in China — at least for now — Beijing described this a “small step” and urged the US to take a “big stride” to defuse the trade tensions. Their standoff is already reshaping global commerce, with near-record shipments flowing from China to Southeast Asia last month.
A frontloading of shipments ahead of the massive tariff hikes imposed by Trump against China this month also contributed to what was likely the last of the boom in trade with the US. China’s trade surplus with the US accounted for more than a quarter of its total in March.
Overall, last month’s exports in dollar terms far exceeded forecasts and soared 12.4% from a year earlier, China’s customs authority said Monday, reversing a decline of 3% in February.
China and the US have spent the past two weeks locked in an escalating trade war, with both sides piling on new tariffs and raising barriers to trade. Both are holding out for the other to make the first move: Trump has said he’s “waiting” for a call from Beijing, while Chinese officials have repeatedly said they’re open to negotiations but won’t be bullied into talking.
“The deadlock may take some private intermediary contacts to break,” said Song Hong, deputy director of the Institute of Economics at the Chinese Academy of Social Sciences, a top government think tank. “It’s impossible that China will submit to the US bully like some smaller trade partners. Irrational practices need to be removed or reduced, such as the additional tariffs slapped, to return to the track of rational dialogue.”
The fallout of America’s economic split from China will likely begin to materialize from this month, with little sign that the two sides are willing to back down and reduce their tariffs. China’s Commerce Ministry last week called the Trump administration’s use of steep tariffs — bringing them to economically meaningless levels — a “joke.”
While the prospect of a thaw seems far off, US Commerce Secretary Howard Lutnick said Sunday on ABC’s This Week that the two sides have already had “soft entrees” through intermediaries. “We all expect that the president of the United States and President Xi of China will work this out,” he said.
Lutnick’s comment was trending atop the X-like Weibo Monday afternoon, attracting more than 40 million reads. While some users said the US is looking for an off-ramp, others made fun of Trump’s flip-flops on China.
For businesses, however, time is too short to take any chances.
In March, many companies were likely bringing forward orders to get ahead of tariffs. What’s more, the latest figures suggest companies were diverting shipments to countries across Southeast Asia, with China’s exports to the region reaching the second-highest ever.
This week, President Xi Jinping is making his first overseas trip of the year by visiting Southeast Asian nations including Vietnam.
Exports to Vietnam and Thailand soared to records, while sales to the US exceeded $40 billion last month, up 9% on year and reversing a decline in February.
The Trump administration put tariffs of higher than 100% on many Chinese exports, provoking a retaliation by Beijing.
“From Beijing’s perspective, it now requires Trump to make some relatively big concessions as a gesture of him being willing to launch a meaningful dialogue with China,” said Feng Chucheng, founding partner of Hutong Research. Given a “rather busy schedule” for China’s leadership in the next several weeks, Feng said such a breakthrough is “not possible” in the near term.
Even so, the International Monetary Fund-World Bank spring meetings in Washington later this month will offer an opportunity for top US and Chinese officials at least to interact with each other. The annual discussions will mark the first global gathering since the most recent tariffs were announced.
While China’s export surge supported the economy in the first quarter, that boost may dissipate after the US threw global trade into chaos. China will report first-quarter economic growth on Wednesday, with gross domestic product forecast to expand 5.2%, according to a Bloomberg survey.
Chinese stocks climbed for a fifth session on Monday, partly as the US tariff exemption offered investors some respite. The Hang Seng China Enterprises Index closed 2.1% higher, while the CSI 300 Index for onshore shares rose 0.2%.
“The US has to find the proper way to deal with China,” said Wu Xinbo, director at Fudan University’s Center for American Studies in Shanghai. “And unilaterally exerting pressure on China, including tariffs, is not the right way.”
Newly-added US duties on Chinese goods this year hit 145% — well above the levels analysts have said would decimate bilateral trade — before the US decision to exempt certain consumer electronics from its so-called reciprocal tariffs.
Trump downplayed his exemptions on Sunday, pledging still to apply tariffs to phones, computers and popular consumer electronics.
What Bloomberg Economics Says...
“China’s trade data for March has yet to reflect the full impact of the trade war. US buyers may have rushed to ship in goods before higher tariffs started in April, pushing exports up sharply. Going the other way, domestic producers appear to have reduced purchases due to concerns about a potential drop in external demand and still-soft domestic consumption. Looking ahead, exports may face strong headwinds in April.”
— David Qu.
Last week, Beijing hiked tariffs on all US goods to 125%, mirroring a move by the White House that pushed duties on Chinese imports to the same level, on top of an existing fentanyl-related 20% tax.
China said it won’t match any further hikes, but reiterated its vow to “fight to the end” with other, unspecified countermeasures.
“The current levels of tariffs are obviously going to be damaging to both parties,” said Lynn Song, Greater China chief economist at ING Bank NV. “After the recent cycle of escalation cools off, we expect that working level officials may get into contact, though a top level dialogue may not occur until the framework for an agreement is largely agreed upon.”
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