China Ready for Global Pivot as US Trade Tensions Deepen Economic Risks

US Tariffs Hit Demand for Chinese Goods

China’s export engine is losing steam as US tariffs bite harder, with shipments to the US plunging and broader demand faltering. The slowdown mid–third quarter has raised fresh alarms for China’s economy, exposing both trade vulnerabilities and the limits of earlier stopgap measures.

Export Trends and US Impact

Total exports increased 4.4% year-on-year in August, tumbling from July’s 7.2% increase. Notably, Chinese exports fell to the lowest level since January 2025, when trade tensions had escalated. Looking deeper, exports to the US plunged 33%, while imports from the US slid 16%. August’s figures underscored the effects of the existing tariffs under the 90-day trade war truce on trade terms.

The sharper fall in exports to the US sends ominous signals about China’s economy as the effects of tariff front-loading vanish.

Broader Trade Patterns

Trade data for January to August painted a rosier demand picture. Exports to ASEAN countries increased 9.7% year-on-year (January to August), while shipments to the EU rose 4.3%. Meanwhile, Chinese exports to South Korea and Japan were also higher, countering a 13.5% drop in shipments to the US over the period.

However, the pre-tariff front-loading skewed the January to August figures. US tariffs on China’s key trading partners likely weighed on shipments in August. ASEAN member states include Vietnam and Indonesia. Vietnam agreed to a 40% tariff on transshipments bound for the US, while Indonesian exports to the US face a 19% levy.

The year-on-year numbers for August suggested weakening transshipments through ASEAN countries. Total exports from January to August increased 5.9% year-on-year while total shipments rose 4.4% year-on-year in August.

Economist Insights

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero previously commented on challenges rerouting goods, stating:

“Rerouting will be much harder in the second half. So that’s going to hit Chinese exports indirectly. So, that’s why the second half is tougher and the government has been preparing.”

Trade Law and Policy Reforms

However, China looked beyond ASEAN countries in the third quarter, with exports to Africa and the EU cushioning the effect of US tariffs.

Nevertheless, reports of Beijing reviewing trade laws for the first time since 2004 highlight the continued dependence on trade. According to CN Wire:

“China plans to amend foreign trade law, elevating some reform measures to legal framework. China elevates reforms to legal framework: negative list for cross-border services, support for new trade models, digital trade, and green trade system.

Additionally, China’s Vice Commerce Minister reportedly announced plans to:

“Construct new land, sea trade corridors with ASEAN. China willing to work with ASEAN to maintain global supply chains.”

Risks to Growth Model

August’s trade data signal a potential loss of economic momentum that may undermine Beijing’s efforts to boost domestic consumption.

Weakening external demand may fuel competition and price wars, squeezing margins. Manufacturers may cut staffing to manage costs, weakening sentiment and consumer spending.

Mohamed A. El-Erian, President, Queen’s College, Cambridge, commented on August’s trade data, stating:

“These numbers, none of which bode well for a Chinese economy already facing significant challenges, highlight the urgent need for more concerted government efforts aimed at reforming the country’s growth model.”

Trade Truce and Geopolitical Shifts

The US and China extended the 90-day trade war truce in August, meaning China avoided 145% tariffs on Chinese exports to the US. A lack of progress toward a trade deal has forced Beijing to reestablish ties with India and forge stronger relations with Russia. Russian President Vladimir Putin and Indian Prime Minister Narendra Modi were attendees at last week’s China-Russia-backed Shanghai Cooperation Organization (SCO).

Labor Market Concerns

While finding alternative trade routes will lessen the impact of tumbling shipments to the US, addressing labor market weakness could be crucial. Youth unemployment soared from 14.5% in June to 17.8% in July, lifting the unemployment rate to 5.2% (June: 5%).

A weaker labor market may further impact demand and intensify margin squeezes, a vicious cycle. Measures to boost consumption would need to include incentivizing firms to increase staffing levels to break the cycle.

Mainland Stock Markets Retreat from 2025 Highs

Mainland China-listed stocks have come under selling pressure in September. The CSI 300 and the Shanghai Composite Index have fallen 0.68% and 0.74%, respectively, in September to date.

Despite the pullback, the CSI 300 and the Shanghai Composite Index have surged 13.49% and 14.26% year-to-date in 2025, outperforming the Nasdaq Composite Index (12.88%).

Intensifying margin squeezes and rising unemployment could impact sentiment further. However, fresh stimulus measures targeting the labor market and consumption, alongside efforts to boost external demand, could lift risk appetite. US-China trade developments will also require consideration, given the slump in US demand.

The Road Ahead: Inflation, Retail Sales, Trade Talks, and Stimulus

For investors, China’s fight to balance trade shocks with domestic growth will set the tone for markets into year-end. US-China trade developments and Beijing’s policy measures will continue to dictate investor sentiment in the coming weeks.

However, traders should assess Chinese economic data for further insights into the macroeconomic environment.

Inflation (September 9), retail sales (September 15), and industrial production (September 15) will face increased scrutiny. Weakening retail sales and industrial production, alongside intensifying deflationary pressures, may challenge Beijing’s 5% GDP growth target. On the other hand, a rebound in retail sales and industrial production could drive demand for Mainland-listed stocks.

Track our real-time updates on China trade policy and equity market trends, and consult our economic calendar.