US economy

Chinese exporters look beyond Trump as trade war bites


More Chinese exporting companies now believe the US-China trade war will continue so long as President Donald Trump sits in the White House and are scrambling to counter a broadening US tariff regime. 

Our May survey of 200 Chinese export manufacturers, shippers and trading companies showed a clear and sharp erosion in their confidence in Washington and Beijing to conclude a trade deal following the collapse of negotiations at the start of the month. 

Although nearly half of respondents still expect a trade deal to be concluded within 12 months, more than a quarter now see the trade war lasting as long as Mr Trump’s presidency, up from just 10 per cent in April. Furthermore, 17 per cent of respondents now believe trade tensions are a permanent feature of the US-China relationship, compared with just 7 per cent two months ago.

The increasingly negative views of exporting companies — 43 per cent of whom said US buyers were their biggest customers — are also reflected in global markets, which have been reeling as the scope of bilateral tensions broadens, with hawkish voices close to the White House openly talking about cutting all Chinese linkages with the US economy and official rhetoric in Beijing turning more martial. 

The rapid and sharp escalation of tensions has shaken some of the prior complacency among Chinese exporting companies, though nearly two-thirds still say the trade war is having no impact on their business. The number reporting a negative or very negative impact rose to 32 per cent in May, up from 20 per cent in April.

Only 14 per cent said they were doing nothing to counter the impact of the trade war, while 34 per cent of respondents said their companies were either moving production to regions unaffected by tariffs, or channelling goods through such areas. This is more than the 22 per cent who said they were doing so in both March and April — selling into new markets was previously the most popular option — suggesting that companies may be shifting strategy as expectations grow of a prolonged conflict. 

Despite the trade war, our survey suggested operating conditions overall remained relatively stable in May, with companies reporting a small amount of growth over April but a continued, if slow, deterioration compared with the same month last year. 

Official data show that Chinese exports have suffered as global growth has slowed, and will suffer more if Mr Trump follows through on his threat to apply tariffs to nearly all of China’s US-bound shipments.

The growth of Chinese exports to the US is already falling at a faster rate than to Europe or Japan, Chinese customs data suggest.

Whether Mr Trump will make good on his threat to impose tariffs on all Chinese goods imports is unknowable. Gloomier forecasts see the trade war morphing into a much broader, more protracted and more dangerous resurgence of great power politics. This would suggest China’s export sector — and the global economy — is in for a good deal more pain.

But the president’s tough turn on China could also be a re-election ploy, designed to demonstrate to voters his willingness to get tough, even as Democratic favourite Joe Biden faces accusations from Trump supporters of being “soft on China”.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.



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