China’s exports unexpectedly contract in October as shipments to U.S. drop 25%

China’s exports in October fell for the first time in nearly two years due to the high base effect and the waning front-loading momentum of businesses ahead of the meeting between US and Chinese leaders.

Outbound shipments fell 1.1% in October compared to the previous year in US dollars; It is the first contraction since March 2024, when exports contracted by a staggering 7.5%.

The drop in exports was unexpected, as economists had forecast growth of 3%, compared with a six-month high of 8.3% in September, according to a Reuters poll.

Imports rose 1% last month, missing growth forecasts of 3.2%, as a prolonged downturn in the housing market and weak labor market conditions continued to weigh on consumer demand. They increased by 7.4% in September.

“The bootstrapping finally eased in October,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, who expects China’s exports to normalize as trade restrictions are suspended for a year.

Chinese exporters and American buyers breathed a sigh of relief last week after US President Donald Trump and his Chinese counterpart Xi Jinping reached an agreement during their meeting in South Korea that eased a situation that threatened to drag bilateral relations into a full-blown trade war.

China’s exports to the United States fell 25% in October compared to the same month a year earlier, marking the seventh consecutive month of double-digit decline, customs data showed. Imports decreased by nearly 23% last month.

The two countries agreed to roll back a series of punitive measures, including higher tariffs, export controls for critical minerals and advanced technology, while Beijing pledged to buy more U.S. soybeans and work with Washington to stem the flow of fentanyl.

Following the trade truce, the US tariff rate on Chinese exports dropped to 31%, according to estimates by Macquarie Group.

The sharp slowdown last month was partly due to a high base in October 2024, when exports grew at the fastest pace in more than two years.

In the first 10 months of this year, Chinese Shipments to the USA decreased by 17.8%While incoming goods decreased by 12.6%, the trade surplus narrowed by 20% compared to the previous year, falling to 233 billion dollars.

Despite the decline in goods going to the US, China’s total exports increased by 5.3% Since October this year, Chinese exporters have sought alternative markets or indirectly redirected their goods to the world’s largest economy.

Exports to the Association of Southeast Asian Nations, the European Union and Africa increased by 14.3 percent, 7.5 percent and 26.1 percent, respectively, in the first 10 months.

China accelerated trade Surplus of over $964.8 billion 23% above this figure in the first 10 months of this year In the same period of 2024.

Oxford Economics raised its forecast for Chinese exports to grow 3.5% to 5% annually in real terms, according to a report on Thursday, boosted by Beijing’s push to deepen industrialization in its next five-year development plan and efforts by Chinese exporters to diversify into regional and emerging markets.

The research firm raised its forecast for China’s real GDP growth to 4.5% for 2026 and 4.4% for 2027.

Zhang predicted that policymakers will take more supportive fiscal measures in the first quarter of next year and said, “Now that export momentum has weakened, China needs to rely more on domestic demand.” he added.

Macquarie Group’s chief China economist Larry Hu echoed that sentiment, saying Beijing will look to boost domestic demand as the main growth driver to hit its annual GDP target “at some point between 2026 and 2030.”

Beijing will likely maintain its growth target of “around 5 percent” in 2026 and adjust incentives to neither miss nor exceed that target.

Falling prices and fierce price competition have led Beijing to step up efforts to rein in industrial overcapacity in recent months. Profits of large industrial companies increased by 3.2% in the first nine months.

Economic data for October showed manufacturing activity contracted for seven consecutive months as trade tensions with Washington reignited.