China’s April exports surge despite trade war
China’s April trade data smashed expectations.
Per data released by the customs bureau (GAC) on Friday:
- Exports rose 8.1% y/y in April, down from 12.1% the previous month – but far surpassing the consensus forecast of 1.9% growth
- Imports fell 0.2% y/y, an improvement from March’s 4.3% drop
- April’s trade surplus hit USD 96.2 billion, up a whopping 33.6% y/y
And here’s the kicker: Chinese exports to the US fell 21.0% y/y in April – a significantly smaller decline than we expected given the astronomical 145% tariff rate.
There are a couple of reasons US importers are exhibiting such low price sensitivity for Chinese goods.
First, China is deeply embedded in US supply chains, making US businesses reliant on Chinese intermediate goods and capital goods, regardless of price.
Second, it takes time to shift dependence away from Chinese imports – a phenomenon known as “import stickiness.”
- Establishing new supply chains often entails upfront investment to install new capital equipment, or adjust manufacturing processes to accommodate new industrial inputs.
- Businesses are therefore reluctant to diversify away from Chinese supply chains, and instead are swallowing the tariff increases in many cases.
Chinese exporters mitigated the drop in US shipments by rerouting goods to third countries, especially Southeast Asia. In April, Chinese exports to the following regions all increased:
- ASEAN, up 20.8% y/y
- Africa, up 25.3%
- Latin America, up 17.3%
- The EU, up 8.3%
Get smart: During month-one of the trade war, China’s economy has shown itself to be remarkably resilient to sky-high US tariffs.
- That strengthens Beijing’s hand in trade talks with Washington, and could stall any push for a quick reconciliation.
What to watch: Data for retail sales and industrial activity drops on May 19 – we’ll be looking for signs of the trade war’s broader impact on consumer and business sentiment, beyond exports.
