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BEIJING (August 8, 2024) – China‘s July exports experienced a smaller-than-expected decline, contracting by 4.4% year-over-year, according to data released today by the General Administration of Customs. This follows a 5.8% increase in June and signals continued headwinds for the world’s second-largest economy amid ongoing trade tensions with the United States and shifting global demand.
The modest contraction contrasts with economists’ predictions of a decline exceeding 6%, a figure consistent with June’s growth rate.While the U.S.-China trade truce, initiated in June 2024 following meetings between U.S. Trade Representative Katherine Tai and Chinese Commerce Minister Wang Wentao,provided a temporary boost,its impact is waning.The truce, which paused some tariffs, is slated to expire on August 12th, and the outcome of recent negotiations held last week in Stockholm, Sweden, led by U.S.Special Envoy for Climate John Kerry and Chinese vice Premier Ding Xuexiang, remains uncertain.
The Trump administration’s broader tariff strategy, extending beyond China, is also impacting trade flows. Countries suspected of “transshipment” – routing goods through third nations to avoid U.S. tariffs – are facing increased duties. Vietnam, as a notable example, now faces a 20% tariff on exports to the U.S., rising to 40% for goods deemed to be transshipped. This has prompted a reassessment of supply chains by numerous companies, including Apple, which has been diversifying its manufacturing base to India and Vietnam.
“The initial surge in demand linked to the U.S.-china trade truce is diminishing,and escalating tariffs on goods rerouted through alternative countries are creating sustained downward pressure on exports,” noted Zichun Huang,an economist at Capital Economics,in a recent report. Capital Economics projects continued export weakness in the coming months.
Despite the challenges, China’s imports rose 4.1% in July compared to the same period last year, marking the highest increase since July 2023.This growth was driven by increased demand for raw materials like crude oil (primarily sourced from Saudi Arabia and Russia), copper (from Chile and Peru), and soybeans (largely from Brazil and the United States). The value of these imports totaled $27.8 billion, a significant increase from the $24.1 billion recorded in July 2023.
A key area of contention in U.S.-China trade talks remains China’s control over rare earth minerals, essential components in numerous high-tech products, including smartphones, electric vehicles, and defense systems. The U.S. Geological Survey estimates that China controls approximately 70% of the world’s rare earth element processing capacity.Under pressure from the U.S., Beijing has indicated a willingness to ease some export restrictions on these critical minerals, though details remain unclear.
In July, China’s rare earth exports declined by 17.6% compared to the previous month, following a nearly 50% drop in June. However, total rare earth exports from January to july fell by 24.2% in dollar terms, while increasing by 13.3% in volume, suggesting a shift towards exporting lower-value rare earth products. The primary destinations for China’s rare earth exports remain Japan, the United States, and South Korea.