China’s imports unexpectedly contracted during the January-February period, while exports slowed down, as increasing tariff pressures from the United States impacted the recovery in the world’s second-largest economy.
The first two months of the year saw the opening salvo of a renewed U.S.-China trade war, with U.S. President Donald Trump imposing an extra 10% levy on Chinese goods, arguing Beijing had not done enough to stem the flow of the deadly opioid fentanyl.
That called time on exporters’ efforts to front-load shipments ahead of the curbs while production also slowed as Chinese workers downed tools for the Lunar New Year festival.
Analysts say the slump in imports signals Beijing has begun scaling back purchases of key commodities, as it prepares for four more years of grueling trade tensions with the second Trump administration.
“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,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
“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.
Imports fell 8.4% year-over-year, customs data showed on Friday, missing the 1% growth forecast in a Reuters poll of economists and a 1% uptick in December.
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.
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 Jan. 28 and Feb. 4 this year.
“(Slowing exports) may be partly due to the slowdown of export front loading, which was strong late last year to avoid the trade war,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
“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 U.S. tariffs on China’s goods will likely show up next month.”
Imports by state-owned enterprises shrank 20.6% compared with a 2.7% rise among private firms, the customs data showed, suggesting the world’s largest commodities importer is relying more on stockpiles, given the dominant role of state-backed buyers.
China’s crude oil imports fell an annual 5% in the first two months of the year, as tougher U.S. sanctions on ships carrying Russian and Iranian oil took effect. Meanwhile, China saw rare earths imports plunge 24.1% and its copper imports fall 7.2% over the same period.
Iron ore imports fell 8.4% over the same period, curbed by weather-related disruptions in major producer Australia.
Bigger problems
The January-February period ended with Chinese producers anticipating a second wave of U.S. tariffs and Chinese countermeasures, which materialized on March 4, when Trump doubled tariffs on China to 20%.
That prompted Beijing to slap 10%-15% retaliatory levies on U.S. agriculture exports and restrictions on 25 U.S. firms just minutes after Trump’s tariffs went into effect.
Chinese policymakers have vowed to prioritize boosting consumption and domestic demand over 2025, which Chinese Premier Li Qiang on Wednesday described as “insufficient” and “weak” as he announced an economic growth target of “around 5%” for 2025.
“It’s likely that imports will remain soft this year unless we see a stronger than anticipated rebound of consumption and private investment this year,” said Lynn Song, chief economist for Greater China at ING.
“It’s likely that after driving growth in 2024, the external environment will be less supportive this year, which puts more pressure on policymakers to improve domestic demand to achieve this year’s 5% growth target,” he added.
Chinese officials on Thursday left the door open to further interest rate cuts and another injection of liquidity into the financial system through further reductions in the amount banks are required to hold in reserve.
With sluggish household demand and property sector woes weighing on growth, Chinese officials must find alternative export markets for its sprawling industrial sector to ward off deflation.
China’s implied gross domestic product (GDP) deflator is expected at -0.1% in 2025, negative for a third year in a row, which would be the country’s longest deflationary streak since Mao Zedong’s Great Leap Forward in the early 1960s.
