Top Stories
Top Stories
China Economy

China's exports unexpectedly rise in July — but more US tariffs may weigh on trade

Key Points
  • China says U.S. dollar-denominated exports in July rose 3.3% from a year ago while imports fell 5.6% during the same period.
  • Economists polled by Reuters had expected July's exports to fall by 2% from a year ago, and imports to decline by 8.3% over the same period.
  • The better-than-expected trade numbers may not last, says Julian Evans-Pritchard, senior China economist at consultancy Capital Economics.
Tonghai Port Area in Nantong, China's Jiangsu province.
Xu Congjun | Visual China Group | Getty Images

China on Thursday reported trade data that was better than expected despite mounting economic pressure from elevated U.S. tariffs.

The Asian economic giant said its U.S. dollar-denominated exports in July rose 3.3% from a year ago while imports fell 5.6% during the same period. The country's overall trade surplus last month was $45.06 billion, according to customs data.

China's trade surplus with the U.S. was $27.97 billion in July, lower than the previous month's $29.92 billion, the data showed. From January to July, China's trade surplus with the U.S. has totaled $168.5 billion.

Lu Yu, a portfolio manager at Allianz Global Investors, said a weaker Chinese yuan versus the U.S. dollar and other currencies has helped Chinese manufacturers to sell their goods overseas. That's despite the U.S. imposing 25% tariff on $200 billion of Chinese goods in May after trade negotiations stalled.

The depreciating yuan "is helping the exporters in China to export not just to the U.S. because it dampens the impact of the tariff hike, but also help them to export to other countries," she told CNBC's "Street Signs" on Thursday.

VIDEO2:4402:44
No one knows where the US-China trade war is going: McLarty Associates

Economists polled by Reuters had expected Chinese exports lasts month to fall by 2% from a year ago, and imports to decline by 8.3% compared to the same period last year. The country's overall trade surplus in July was forecast to be $40 billion, according to the Reuters poll.

In June, exports from China fell 1.3% year-on-year while imports fell 7.3% over the same period, customs data showed. Trade surplus that month was $50.98 billion, according to the data.

Outlook for China

The trade momentum seen in July may not last, said Julian Evans-Pritchard, senior China economist at consultancy Capital Economics.

"Looking ahead, exports still look set to remain subdued in the coming quarters as any prop from a weaker renminbi should be overshadowed by further US tariffs and broader external weakness," he wrote in a note after China's trade data release.

"Though August exports may benefit from some front-loading before the new tariffs go into effect on September 1st, this bump will probably be smaller than it was ahead of earlier rounds of tariffs as US port storage facilities have little spare capacity," he added. "Meanwhile, a renewed slowdown in domestic demand looks set to weigh on import volumes."

VIDEO2:5802:58
Pulling capital from China is 'easier said than done': Strategist

The Chinese economy — the second largest in the world — is growing at a slower pace amid an escalating trade battle between Beijing and Washington that started as a tariff war but recently spilled into technology and currency. Last month, China said its economy grew 6.2% in the second quarter from a year ago — the weakest rate in at least 27 years.

Beijing has eased monetary policy and introduced fiscal measures such as tax cuts to boost economic activity. But growth in the Asian economic giant could slow down even more if the administration of U.S. President Donald Trump goes ahead with new elevated tariffs next month.

Trump last week threatened to slap 10% tariffs on $300 billion of Chinese goods starting Sept. 1, which Citi analysts have said would slash China's exports by 2.7% and drag down growth by 50 basis points. That's in addition to the economic harm China has already experienced after the U.S. slapped 25% tariffs on $250 billion of Chinese goods.

Following Trump's latest tariff threat, China allowed its currency — the yuan — to weaken below an important threshold of 7 per U.S. dollar. That led the U.S. to label China a currency manipulator, which analysts have said marked another escalation in tensions between the two countries.