China's export boom threatens global trade balance

China's exports are booming, surging 7.6 per cent in May despite rising trade tensions with the EU and US.

Flood of appliances, cars, and electronics are fuelling this trend. However, delving deeper into this reveals a concerning trend. Weak domestic demand is pushing the country to export excess production. This 'overcapacity' is a big cause of concern with EU recently taxing Chinese EVs up to 38 per cent.

China's trade surplus is also fuelling concerns over potential global imbalance. Major emerging economies are experiencing inflation and demand slowdown. Such influx of cheap Chinese goods can disrupt domestic markets and accelerate deflation fears across the globe.

The US Tariffs aimed at curbing Chinese exports appear to be having minimal impact, at least for now. This is because major Chinese companies are eyeing emerging markets to dump excess goods and avoid future tariffs.This is evident in the significant rise in exports to Vietnam and Mexico. Infact, China's export to ASEAN countries surged ahead of its US exports in 2023.

Meanwhile, the US Trade deficit is widening, reaching $74.6 billion in April.This could shave off nearly a percentage point from US Economic growth.

This trade war is prompting a global reshuffle. Southeast Asia has emerged as a major winner or a 'dumping ground'. Vietnam is experiencing a trade boom, with exports to China surging 24.4 percent. Vietnam exports to US have alsosurged exponentially, raising doubts over effectiveness of tariffs, since China is the major exporter to Vietnam. China is also increasingly using Mexico as an export hub to bypass US tariffs.