China’s exports in September turned in a robust rebound—rising by about 8.3 percent year-on-year—surpassing many forecasts and signaling that exporters are still finding demand abroad despite mounting friction with Washington. But behind that strength lies a fraught calculus: Beijing’s heavy reliance on global markets is vulnerable to renewed U.S. tariff aggression, and the latest salvos over rare earths and trade controls threaten to undercut the gains. A closer, analytical look reveals how China is managing to beat expectations for now—and how fragile that advantage might become.

Export Surge Led by Market Diversification and Front-Loading

China’s export growth in September was its fastest in six months, a resurgence from August’s tepid 4.4 percent gain. The stronger figure reflects both recovering global demand and strategic maneuvering ahead of looming tariff actions. In particular, exporters appear to have front-loaded orders in expectation of trade escalation, pulling forward shipments to lock in access before new duties take effect.

But more fundamentally, Beijing and corporate exporters have pushed hard to diversify away from U.S. dependence. Exports to the United States fell sharply—down roughly 27 percent year-on-year—while shipments to regions like the European Union, Southeast Asia, and Africa posted double-digit increases. This rebalancing has mitigated the damage from U.S. pressures, enabling total export volume to remain resilient.

Still, such market-shifting comes at a cost. Chinese firms say they are squeezing margins aggressively to compete in lower-cost or more competitive regions. Some are cutting wages, trimming staff, and reorganizing supply chains to sustain export volume even as profit per unit erodes.

On the heels of its stronger export data, China intervened sharply in the rare earth supply chain—tightening export controls on key elements used in magnets, electronics, batteries, and defense systems. Because China controls a dominant share of global production and refining capacity, these moves are a powerful trade weapon. But they also carry systemic risk.

By constricting rare earth flows, China pressures manufacturers abroad to seek alternatives or reengineer supply chains. The move may deter further U.S. tariff escalation, but it also destabilizes segments of China’s own export mix, especially in high-tech manufacturing. Industries reliant on global inputs now face uncertainty about how seamless their access to critical components will remain.

That sharp trade countermeasure also raises the stakes for retaliation. The risk is that Washington responds not just with more tariffs, but with high-technology export restrictions, investment bans, or secondary sanctions. Thus, China is betting that its rare earth dominance offers enough leverage to deter escalation—yet the potential blowback could widen.

How U.S. Tariff Threats Cast a Shadow Over Export Strength

China’s ambitious policy shift masks structural vulnerabilities. The threat from Washington is no longer theoretical. Trump has floated reimposing tariffs exceeding 100 percent as retaliation for Beijing’s export restrictions. Should that happen, the effective duty burden on Chinese goods could balloon far beyond nominal rates, suffocating many export categories.

If tariff rates jump above 100%, export costs would more than double for many Chinese goods—especially in tech, machinery, and consumer electronics. This would compress already slim margins, force order cancellations, and hobble smaller exporters with less pricing power. Much of the current export resilience relies on the assumption that global buyers will tolerate some additional cost; if tariffs cross a threshold, many will balk.

Furthermore, the current export rebound depends heavily on “China+1” supply chain strategies: the idea that buyers will source through alternative locations (e.g. Southeast Asia) while maintaining ties to Chinese components or assembly. But escalating duties threaten to unravel that balancing act, triggering re-shoring or deeper supply chain splits that diminish China’s role in global value chains.

Import Flows and Domestic Weakness: A Contradiction

Parallel to the export rebound, China’s import data also showed a strong pick-up—growing 7.4 percent in September. That marks a significant step up from August’s 1.3 percent rise, and suggests that industrial demand or input restocking is recovering. However, underlying this is a jagged picture: household demand remains weak, and consumer consumption has struggled to provide reliable support for growth.

Many factory owners say they must slash export prices to find markets abroad precisely because domestic buyers are constrained. In other words, while imports improve, the domestic side continues to underperform, pushing China to lean even harder on export markets. This tension increases the country’s vulnerability if global demand or trade policies shift abruptly.

China’s ability to post a strong export readout despite trade tension may bolster short-term confidence and help sustain GDP growth. Current estimates suggest China remains on track for growth of around 5 percent this year. But the margin of error is narrowing. A full-blown U.S. tariff surge—or retaliatory measures destabilizing supply chains—could tip the equation.

A key risk is that increased global uncertainty slows demand in major markets, making further export growth harder to sustain. Another is that the compressive effect of supply chain realignments drives input inflation in China, undermining price competitiveness. Finally, persistent pressure on profit margins could force consolidation, job cuts, or factory closures, especially among smaller exporters.

Analysts expect both capitals to seek some easing—but with more volatile cycles likely. The possibility of a meeting between Xi Jinping and Donald Trump at an upcoming APEC summit provides a narrow window for de-escalation, but the chances of miscalculation and renewed escalation remain high. Markets and manufacturers must now contend with the growing reality that trade volatility is the new baseline, not the exception.

(Adapted from Investing.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy