Beginning October 14, cargo vessels from China will be hit with new charges as they look to dock in the United States. This amendment, if fully implemented, would have a profound geopolitical impact on trade between the two countries. These charges can jump to the millions of dollars. They will go so far as to apply even to ships which are not owned by Chinese companies. This regulatory change comes amidst ongoing trade negotiations as well as major economic tumult within China itself. Its still-evolving implementation has led to robust debates among policymakers and industries.
President Donald Trump talks with Chinese President Xi Jinping on Friday. Secondly, they will be figuring out all the particulars of tariffs and other trade-related issues. The conversations come at a crucial time, as China’s retail sales increased by only 3.4% in August, falling short of economic forecasts and raising concerns about the country’s growth trajectory.
China’s retail performance has been particularly weak. In addition, the relatively high growth of fixed asset investment over the first eight months of this year was entirely driven by the slowing of the worsening real estate crisis. These economic challenges have been exacerbated by a drastic drop in exports to the U.S. It gets worse—our own exports were down a whopping 12% through July, while China’s exports to Africa were up 24% over that same period.
Representatives from each country have met several times since then, with the last round of trade talks taking place in Madrid just last month. U.S. House lawmakers are set to visit Beijing later this month – their first official trip since 2019. The future meetings are a sign of increased bilateral efforts to address trade imbalances and improve communications between the two countries.
Cliff Zhang, CEO of Templewater, illustrated this increasing trend with an example. With a large domestic market, many are now looking to deepen their international presence and expand into Gulf Cooperation Council (GCC) countries to diversify their markets. Yiwu, one of the largest wholesale markets in China, has redirected its efforts. This move marks a significant turn in the market’s exports to the U.S., which have dropped from nearly 20% eight years ago to a little over 15% last year.
“Some of [the shift in Yiwu customers] is the hangover from the first [U.S.-China] trade war. People don’t want to be beholden to the States.” – Cameron Johnson, Shanghai-based senior partner at consulting firm Tidalwave Solutions
Chinese exporters are moving fast to respond to these new realities. They contend with ballooning costs due to tariffs imposed by the U.S. government, something David Li, CEO of China’s Hesai, describes as a “cost of doing business.” He noted that it’s a matter of continuing to negotiate these out, as regulations and market conditions change.
“The burden of additional costs due to U.S. tariffs is a ‘negotiation’ as information and regulations change.” – David Li
Meanwhile, Ashish Monga, founder and CEO of trading firm IMEX Sourcing Services, highlighted the challenges of sustaining profitability in a shifting market landscape.
“If you lose one big customer in the U.S., you need about five in emerging markets to make the same margin.” – Ashish Monga
Even with these complicating factors, the overall export picture for China is not as terrible as it seems. Exports to the ten largest Middle Eastern economies have increased by 13% over last year, all the way through July. This growth is a promising sign of opportunities outside of our typical markets.
Baidu’s equity shares have skyrocketed by as much as 14% in the booming technologies sector. Part of this increase is due to their renewed focus on building AI partnerships and initiatives. This increase is indicative of the increasing interest in innovation and technological advancement that has permeated through China’s economy.
As trade tensions persist and economic indicators show mixed results, both nations will need to carefully navigate their strategies moving forward. The result of Trump’s forthcoming call with China’s President Xi Jinping will likely have a key impact on how relations develop moving forward.