China’s May exports slow, deflation deepens as tariffs bite

In May, China’s export growth decelerated to a three-month low due to U.S. tariffs impacting shipments, while factory-gate deflation worsened to its lowest point in two years, increasing pressure on the world’s second-largest economy both domestically and externally.

U.S. President Donald Trump’s worldwide trade conflict and the fluctuations in U.S.-China trade relations have, in the last two months, put Chinese exporters and their business counterparts across the ocean on an unpredictable journey and hindered global economic growth.

Highlighting the effect of U.S. tariffs on deliveries, customs records indicated that China’s exports to the U.S. fell 34.5% year-on-year in May in value, marking the steepest decline since February 2020, when the COVID-19 pandemic disrupted global trade.

Last month, total exports from the Asian economic powerhouse grew 4.8% year-on-year in value, a slowdown from April’s 8.1% increase and below the 5.0% growth anticipated in a survey, according to customs data released on Monday, despite the reduction of U.S. tariffs on Chinese products that began in early April.

“It’s likely that the May data continued to be weighed down by the peak tariff period,” said Lynn Song, chief economist for Greater China at ING. Song mentioned that shipments were still being front-loaded because of tariff risks, while an increase in sales to areas outside the United States supported China’s exports.

Imports fell by 3.4% compared to last year, worsening from the 0.2% dip in April and exceeding the anticipated 0.9% decrease in the survey. Exports increased by 12.4% compared to last year and by 8.1% in March and April, as manufacturers hurried shipments to the U.S. and other global producers to evade Trump’s significant tariffs on China and beyond.

In May, exporters in China experienced temporary relief as Beijing and Washington reached an agreement to pause most of their tariffs for 90 days; however, tensions between the two largest economies continue to be elevated, and discussions are in progress concerning matters including China’s rare earths regulations and Taiwan.

Trade officials from the U.S. and China are convening in London on Monday to continue discussions following a telephone conversation between their leading officials on Thursday. China’s imports from the U.S. decreased further, falling 18.1% after a 13.8% decline in April.

Zichun Huang, an economist at Capital Economics, anticipates that the decline in export growth will “partially recover this month, as it represents the decrease in U.S. orders prior to the trade truce,” but warns that shipments will be impacted again by the end of the year because of high tariff rates. In May, China’s rare earth exports surged significantly even as export limitations on specific rare earth items led to factory shutdowns throughout the worldwide auto supply chain.

The most recent data does not differentiate among the 17 rare earth elements and associated products, many of which are exempt from restrictions. A more accurate understanding of how the restrictions affect exports will emerge when additional detailed data is provided on June 20.