China's Trade Drops in First Two Months Even Before Tariffs Hit

China’s imports fell unexpectedly by over 8% during the January-February period, and exports slowed, as fears of a new trade war with the United States rose.

Talk of US tariffs cast a shadow over China’s trade momentum in the first two months of the year, when workers had their Lunar New Year break then saw President Trump impose an extra 10% levy on Chinese goods after claims Beijing had not done enough to stem the flow of the deadly opioid fentanyl.

Analysts say exporters had been front-loading shipments ahead of the curbs and that the collapse in imports signals Beijing has begun scaling back purchases of key commodities, as it prepares for four more years of gruelling trade tensions with the second Trump administration.

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“The drop in imports is seen across grains, iron ore and crude oil, and could be related to China’s own consideration of building strategic reserves,” Xu Tianchen, senior economist at the Economist Intelligence Unit, said.

“China may have imported too many of them in 2024, and needs to scale back the purchase volume,” he added. “This is certainly true for iron ore, as steel production clearly exceeds what is needed by the economy.”

Export momentum had up until now been a bright spot for an economy otherwise struggling with weak household and business confidence caused by a prolonged property market debt crisis.

Customs data showed China’s imports fell 8.4% year-on-year, while exports from the largest manufacturing nation rose just 2.3% over the same period, missing expectations for a 5% increase and slowing from December’s 10.7% gain.

“(Slowing exports) may be partly due to the slowdown of export front loading, which was strong late last year to avoid the trade war,” Zhang Zhiwei, chief economist at Pinpoint Asset Management, said.

“The sharp decline of imports may reflect both weak domestic demand, as well as a decline in imports for processing trade,” he added. “The damage of higher US tariffs on China’s goods will likely show up next month.”

‘Over-reliance on exports’

The January-February period ended with Chinese producers anticipating a second wave of US tariffs and Chinese counter-measures, which materialised on March 4, when Trump doubled tariffs on China to 20%.

That prompted Beijing to slap 10%-15% retaliatory levies on US agriculture exports and restrictions on 25 US firms just minutes after Trump’s tariffs went into effect.

Chinese policymakers have vowed to prioritise boosting consumption and domestic demand over 2025, which Chinese Premier Li Qiang on Wednesday described as “insufficient” and “weak”.

“An increasingly complex external environment and rising unilateralism and protectionism may have a greater impact on China’s trade,” Li said, underlining the urgency for China to restructure a growth model that is currently mostly dependent on manufacturing and trade.

In a similar vein, US Treasury Secretary Scott Bessent, in a call with Chinese Vice Premier He Lifeng in late February, urged China to rebalance its economy. Bessent has repeatedly faulted China’s economy for its over-reliance on exports.

China’s manufacturing activity contracted in January, in part due to the Lunar New Year holiday, but expanded in February at its fastest pace in recent months.

South Korea, a key indicator of China’s imports, reported a 1.4% contraction in shipments to China in February as trade war fears took hold.

China’s customs agency publishes combined January and February trade data to smooth out distortions caused by the shifting timing of the Lunar New Year, which fell between January 28 and February 4 this year.