In May, China’s export growth reached a three-month low as the impact of U.S. tariffs significantly affected shipments, while the country’s factory-gate deflation intensified to its worst level in two years. This has added pressure on China’s domestic and international economic fronts. President Donald Trump’s global trade policies have created volatile conditions in Sino-U.S. trade relations, affecting Chinese exporters and contributing to a broader global economic slowdown.

Customs data revealed a steep 34.5% year-on-year plunge in China’s exports to the U.S. during May, marking the most substantial decline since the onset of the COVID-19 pandemic in early 2020. Overall, China’s exports grew by 4.8% in value terms year-on-year, down from an 8.1% increase in April, and below the expected 5.0% growth. Imports also dropped by 3.4% year-on-year, deepening from a 0.2% decline in April, which surpassed the anticipated 0.9% downturn.

Despite a temporary reprieve in May, where Beijing and Washington paused most levies for 90 days, tensions remain high between the two economic powerhouses. Trade representatives from both nations are meeting in London to continue their negotiations. Meanwhile, tightened export controls led to significant decreases in rare earth and electric machinery exports.

China’s trade surplus for May stood at $103.22 billion, an increase from April’s $96.18 billion. Additional data highlighted a drop in the import of essential commodities like crude oil, coal, and iron ore, reflecting weak domestic demand amid rising external challenges. To combat these issues, China has implemented monetary stimulus measures, including reducing lending rates and launching a 500 billion yuan loan program to support services consumption.

The financial markets in China showed little reaction to these developments, with the CSI300 Index and the Shanghai Composite Index each rising by about 0.2%. Producer price data showed a 3.3% decline in May from the previous year, marking the most significant contraction in nearly two years. Consumer prices also fell by 0.1% year-on-year, signaling persistent deflationary pressures.

The slow recovery of retail sales indicates ongoing consumer caution amid job insecurity and stagnant property prices. Companies like Starbucks have responded to these trends by reducing prices, exemplifying the challenging economic environment in China. Despite a slight improvement in core inflation, experts predict that overcapacity issues will sustain China’s deflationary conditions in the near future.