How are China exporters coping with U.S. tariff hikes?

A UBS survey indicates Chinese exporters are significantly impacted by U.S. tariffs, with 81% reporting declining U.S.-bound orders and Q2 exports to the U.S. down 24% year-over-year. Firms face limited ability to pass on costs (35-40%), partly due to a stronger renminbi, prompting strategic shifts including diversification to non-U.S. markets and increased relocation of production outside mainland China, with 63% now planning such shifts. Despite government aid, most respondents anticipate prolonged trade tensions, signifying an ongoing structural realignment of global supply chains.

Analysis

A UBS survey of 200 Chinese manufacturing exporters reveals significant and ongoing disruption from U.S.-China trade tensions, signaling a structural realignment of global supply chains. The impact is quantifiable, with 81% of respondents reporting a decline in U.S.-bound orders and official data showing a 24% year-over-year fall in Chinese exports to the U.S. in the second quarter. Profitability is under severe pressure, as firms can only pass on 35-40% of the tariff burden to U.S. clients, a lower rate than during the 2018-2019 trade war, partly due to a 2% appreciation of the renminbi in H1 2025. In response, companies are accelerating strategic shifts away from China. A significant 63% of surveyed firms now plan to relocate some production, up from 47% in April, with the goal of increasing offshore output from 44% in 2024 to a projected 59% in 2025. This move is not solely tariff-driven, as 55% cite broader policy unpredictability, indicating a deeper de-risking strategy. While 78% of firms receive Chinese government aid, the consensus outlook remains cautious, with three-fourths of executives expecting negotiations to extend beyond the August 12 truce deadline, pointing to prolonged uncertainty and continued supply chain adjustments.

Key Decisions for Investors

• Investors should scrutinize the margin outlook for U.S. companies heavily reliant on Chinese manufacturing, as their suppliers' limited ability to absorb tariff costs, compounded by a stronger renminbi, suggests increased input cost pressure.
• The accelerated relocation of production out of mainland China presents a powerful secular trend; consider increasing exposure to industrial real estate, logistics, and manufacturing companies in alternative hubs like Southeast Asia and the Middle East.
• Monitor the USD/CNY exchange rate, as further renminbi strength could exacerbate margin compression for Chinese exporters and impact pricing for U.S. importers, creating a headwind for trade-sensitive sectors.
• Given that 75% of surveyed executives anticipate prolonged trade negotiations, it is prudent to factor in continued volatility and avoid speculative positions based on hopes for a swift U.S.-China trade resolution.