China exports return to growth despite high US tariff; imports shrink

China's exports unexpectedly returned to growth in May despite higher US tariffs, but imports fell in a further sign of weak domestic demand that could prompt Beijing to step up stimulus measures.  Some analysts suspected Chinese exporters may have rushed out US-bound shipments to avoid new tariffs on $300 billion of goods that US President Donald Trump is threatening to impose in a rapidly escalating trade dispute. While better than expected, Monday`s export data is unlikely to ease fears that a longer and larger US-China trade war may no longer be avoidable, pushing the global economy towards recession.

China`s May exports rose 1.1% from a year earlier, blowing past analysts` expectations, customs data showed. Analysts polled by Reuters had expected May shipments from the world`s largest exporter to have fallen 3.8% from a year earlier, after a contraction of 2.7% percent in April. While China is not as dependent on exports as in the past, they still account for nearly a fifth of its gross domestic product. Trade tensions between Washington and Beijing escalated sharply last month after the Trump administration accused China of having "reneged" on promises to make structural changes to its economic practices.

Trump on May 10 slapped higher tariffs of up to 25% on $200 billion of Chinese goods and then took steps to levy duties on all remaining $300 billion Chinese imports. Beijing retaliated with tariff hikes on U.S. goods. Trump has said he expects to hold a meeting with Chinese President Xi Jinping at a G20 leaders` summit late this month, but analysts such as Capital Economics believe the chances of a lasting trade deal are receding after both sides toughened up their rhetoric. 

Damage from the trade war along with a broader softening in global demand will make 2019 the worst year for trade since the financial crisis a decade ago, with only 0.2% growth, according to economists at ING. 

IMPORTS WEAK

China`s imports dropped 8.5% in May, leaving the country with a trade surplus of $41.65 billion for the month. Analysts had forecast imports would fall 3.8% from a year earlier, reversing an expansion of 4% in April, which some had suspected was related to changes in company purchasing patterns ahead of a cut in the value-added tax (VAT). The faltering imports trend don`t augur well for the economy given it suggests that domestic consumption is not able to take up the slack left by weakness in external demand.