Poland’s Strong Consumption and Investment Point to Robust Growth with Mild Inflation Outlook
Ukraine Peace Deal Hopes Weigh on EUR Inflation Swaps as Real Rates Hit New Highs
Germany’s Economy: Three Years of Stagnation With Only Limited Signs of Recovery
Commodities Move on Geopolitics and Weather as Oil Rises, Gas Falls, and Nickel Faces Supply Risks
USD Overvaluation Persists as Geopolitics Dominate and JPY Faces Intervention Risks
China's exports held up well in the first half of 2025 as shipments to other regions offset the drag from the US, resulting in net exports contributing 1.7pp to 1H25 GDP growth. We could see more strains ahead if tariffs rise anew and re-exports are targeted. But China’s competitiveness in key sectors and in other markets should limit the downside
Tariffs have undoubtedly been the centre of market attention in global markets for much of this year. A huge range of opinions have been voiced on the topic of how tariffs will impact China, from those expecting a negligible impact to a seismic shock on growth.
Peak pessimism (so far!) was in April amid the Liberation Day tariffs, which led to a rapid escalation of tensions and then the test of endurance that followed. We saw sensationalist reports of shipping containers turning around mid-journey or dumping products into the ocean. A return to sanity was seen in May, after April’s trade data showed a significant, but far from lethal, blow to China’s exports to the US. The US-China trade war ceasefire restored a sense of optimism.
It remains too early to fully understand the longer-term implications, especially with another round of new tariff developments expected in August. But with a few months of post-tariff data now in the books, we can begin to assess how China has actually been impacted by tariffs so far.
Although the scope of Trump’s tariffs has expanded to a global level in his second term, China remains squarely in focus as the top target, with the earliest and also the steepest tariff hikes.
Despite tariff-driven headwinds through the first half of the year, China’s exports have held up well. They grew at 5.9% year-over-year, year to date, at the same pace we saw in 2024. China’s trade surplus reached $586 bn in 1H25, a new record high for any semi-annual period. Net exports contributed 1.7pp to GDP growth in the first half of the year, accelerating from the 1.5pp contribution seen in 2024.
As a result, we’ve seen that manufacturing activity continues to grow at a respectable pace. Industrial production grew by 6.4% YoY ytd, with manufacturing advancing 7.0% YoY in the first half of the year.
The main reason China’s growth beat forecasts in 1H25: surprisingly resilient external demand supporting industrial activity, which is also why China is on track to reach its “around 5%” growth target this year despite tariffs.
In the sections below, we take a look at why exports have remained resilient in 1H25, and give our thoughts on whether or not this will continue in 2H25.
The first place to look for tariff impacts is China’s trade flows with the US.
This story can be neatly split into two chapters in the first half of 2025. The first quarter saw a wave of trade frontloading, when China’s exports to the US rose 5% YoY. The second quarter, though, showed the impact of tariffs coming into play, down -23.9% YoY.
Given the tariff timeline, this isn’t altogether surprising. After initial hikes of 10% apiece in February and March, the flurry of escalations in April caused new tariffs to peak at 145%. During the 90-day ceasefire, this was dropped to 30%, on top of the existing 20% or so of tariffs previously in place.
In the first half of the year, exports to the US were down -10.7% YoY, or $25.9bn. However, China’s retaliation against the US resulted in a -9.2% YoY, or $7.5bn, slump in imports over the same period. As such, China’s net exports to the US of $141.7bn in 1H25 have fallen $18.4bn compared with 1H24, denting GDP by approximately 0.2%.
As a proportion of China’s total exports, the US has fallen from 14.6% in 2024 to 11.9% in 1H25. This is quite a sharp drop. Yet the trend itself has been in place since the first trade war in 2018, when the US’s share of China’s exports began falling after peaking at 19% in 2017
Fortunately for Chinese exporters, external demand from other economies has helped offset much of the drag from the US. In 1H25, China’s exports saw the fastest growth in the EU, Africa, Vietnam, Hong Kong, Thailand, and India. Although exports to the United States declined by $25.7 billion, this was fully offset by increased exports to other countries. This resulted in a net year-over-year increase of $101.5 bn, or growth of 5.9%.
Comparing China’s 1H25 export growth to 2024 export growth:
The importance of re-exports to China’s relative export resilience is worth exploring. Re-exports have played a role in helping businesses circumvent tariffs since 2018. Increasingly, these will be under more pressure as the Trump administration hikes tariffs on other regions and includes special clauses specifically targeting re-exports via transshipments.
There’s limited research on the scale of China’s re-exports. Other than notable port economies such as Hong Kong and Singapore, few countries publish such data. Generally speaking, higher margin categories may be more suitable for re-exports, as products with very thin margins may be unable to absorb the extra costs incurred.
However, looking at specific country data and drawing upon some assumptions, we can make some key inferences. We will primarily focus on Vietnam and Mexico as our case studies for this report.
Vietnam has been in focus as one of China’s main re-export channels and a notable destination for Chinese outward direct investment in manufacturing.
Between 2017 and 2024, China’s exports to Vietnam rose from $72.4bn to $162.3bn. In this timeframe, Vietnam’s share of China’s total exports rose from 3.2% to 4.5%.
Reports on Vietnam’s trade deal framework with the US drew attention in China, particularly the special clause adding a higher 40% tariff rate on transshipments. Given the grey area in identifying transshipments and no official data on this front, we can instead look at changes in China’s exports to Vietnam and Vietnam’s exports to the US between 2017 (prior to the first trade war) and 2024.
Digging through industry-level data, the most striking change was in machinery equipment and electrical products.
In essence, China’s machinery and electrical equipment exports to Vietnam rose around $50bn while Vietnam’s similar exports to the US rose just under $40bn. While certainly some of this change could be attributed to Vietnam’s own domestic production and demand, it’s likely that the rapid surge reflects significant transshipment activity.
Mexico is commonly discussed as another re-export channel for China, given its proximity to the US and the previous advantages of the NAFTA and USMCA.
Between 2017 and 2024, China’s exports to Mexico rose from $35.9bn to $90.2bn. In the same timeframe, Mexico’s share of China’s total exports rose from 1.6% to 2.5%.
Unlike Vietnam, which has continued to be a source of rapid export growth for China, shipments to Mexico have slowed to -2.1% YoY year to date. It’s possible that some re-exports may have slowed after Mexico was hit with high tariffs. Mexico’s overall import growth was up around 4% YoY through the first five months of 2025, though sector-level trade data doesn't let us draw any strong conclusions.
