US trade tensions hit China's export growth

China's export growth slowed to a three-month low in May, rising 4.8% year-on-year, but down from 8.1% in April, with shipments to the US falling almost 12% month-on-month to $28.8 billion as US tariffs took effect; imports from the US also fell 7.4% to $10.8 billion. These figures precede renewed trade talks between US and Chinese officials and follow President Trump's claim of a "very good phone call" with President Xi Jinping amid a 90-day tariff truce and new stimulus measures from Beijing to cushion the economic impact.

Analysis

China's export growth decelerated to a three-month low in May, increasing 4.8% year-on-year, a notable slowdown from April's 8.1% growth, primarily attributed to the impact of US tariffs. Shipments to the United States experienced a significant month-on-month decline of nearly 12%, falling from $33 billion in April to $28.8 billion in May. This contraction in bilateral trade is further evidenced by a 7.4% decrease in China's imports from the US, which amounted to $10.8 billion. The reported slowdown, which analysts suggest follows a period of front-loading by exporters in March and April to preempt anticipated tariff hikes, precedes upcoming trade negotiations between US and Chinese officials. A recent phone call between President Trump and President Xi Jinping, described by Trump as yielding a "very positive conclusion," and an existing 90-day tariff truce—during which US tariffs on Chinese goods were reduced from 145% to 30% and Chinese taxes on US goods fell from 125% to 10%—introduce a degree of optimism. However, underlying tensions persist, with US policymakers expressing concerns over China's delays in export license approvals for critical materials like rare earths. Concurrently, China's domestic economic indicators show a fall in the producer price index and a dip in consumer prices, prompting Beijing to implement stimulus measures, including interest rate cuts, to mitigate the economic impact.

Key Decisions for Investors

• Investors should closely monitor the upcoming US-China trade talks in London, as their outcome will be a critical determinant of market sentiment and trade-sensitive asset performance.
• Given the confirmed slowdown in China's export growth and the specific drop in US-bound shipments, caution is warranted for investments with high exposure to bilateral trade flows until a more stable trade environment materializes.
• The effectiveness of Beijing's stimulus measures, such as interest rate cuts, should be assessed for their potential to support Chinese domestic demand and cushion the broader economic impact, which could influence emerging market allocations.
• The ongoing 90-day tariff truce and recent positive diplomatic signals offer a window for potential de-escalation, but the underlying risk of renewed trade friction remains a key factor for portfolio risk management.