China’s exports accelerated in May 2024 and this momentum is expected to continue over the next 1-2 months before the US raises its import tariffs, effective August 2024 (Business Brief No.4065 Full Ed.)

• The low base effect helped support China’s exports in May 2024.  China’s outward trade grew 7.6 percent YoY in May 2024, bettering market expectations, and the 1.5 percent growth reported for April 2024. The increase was driven by the 11.7 percent YoY surge in exports of high-tech products, while shipments to ASEAN grew 25.4 percent YoY and exports to the US resumed growth of 4.8 percent YoY, against the contraction of 1.0 percent YoY reported during the first four months of 2024. Its exports to Europe, however, contracted 0.7 percent YoY.
• Over the next 2-3 months, it is expected that China’s exports to the US will continue to grow before the US starts imposing import tariffs on Chinese goods, effective in August 2024. After the US announced the imposition of import tariffs on Chinese goods, the Shanghai Containerized Freight Index (SCFI), which is the weighted average freight rate index from the Port of Shanghai to 13 different ports around the world, increased by 26.34 percent as of June 7, 2024, to  3,184.87, from 2,305.79 reported for May 10, 2024. This is believed to be due to China’s accelerated imports from the US and issues in the Red Sea. However, the acceleration in export value was limited as the value of imported goods that was subject to US tariffs amounted to only USD18 billion, or 5.6 percent of the total value of goods that the US imports from China.
• For 2H24, it is expected that China’s exports to the US will slow down because of the following factors:  

1. The global trade exhibits slowing signs. The global export volume fell in March 2024, while the global manufacturing PMI in April 2024 began to show signs of deceleration. Additionally, the International Monetary Fund (IMF) has lowered its growth forecast for global trade in 2024 to 3.0 percent, from previous 3.3 percent.
2. China’s exports to the US, particularly products that are subject to tariffs, such as lithium-ion batteries and solar cells, are expected to decline after the surge in imports prior to August 2024.
3. The implementation of electric vehicle (EV) tax by the European Union (EU) is expected to slow down China’s EV exports to Europe. Europe is a key export market for China's EVs,  accounting for approximately 40 percent of China's total EV shipments in 2024. The EU is expected to begin imposing temporary tariffs on Chinese-made EVs in July 2024 (pending a final decision in November 2024 following an investigation into whether the Chinese EV industry received government subsidies). Close attention must be paid to the EU’s announcement on the temporary tax rate after June 9, 2024.
4. The risk of additional import tariffs imposed by the US as part of the campaign strategy leading up to the US presidential election in November 2024.

• Nevertheless, China has made adjustments to brace for trade barriers. These include altering its export structure (Figure 2) by shipping products through third countries to mitigate the impacts of trade barriers from tariffs. This is reflected in the decline in the proportion of direct exports from China to the US, while the proportion of exports from China to Mexico has increased. This trend aligns with the data reported in 2023, when the value of US imports from Mexico was significantly higher than imports from China.
• KResearch expects that China's 2024 exports may recover within a limited range due to the low base of 2023 while the impacts of the trade war is expected to be offset by accelerated imports before the new trade measures take effect in 2H24. According to Bloomberg Consensus, China’s exports are projected to grow by 3.5 percent in 2024.