China’s manufacturers are struggling with sluggish demand at home and abroad, and a sharp US tariff hike announced in May is threatening to crush already-thin profit margins, reinforcing views that Beijing needs to announce more stimulus measures soon.
Exports fell 1.3 percent from a year earlier, not as bad as the two percent drop analysts had expected but reversing a surprise gain in May, customs data showed on Friday.
Imports fell 7.3 percent, a sharper drop than the 4.5 percent forecast by analysts and following an 8.5 percent contraction in May, suggesting domestic demand remains tepid despite a flurry of growth boosting measures since last year.
That left China with a trade surplus of $50.98bn last month, compared with a $41.66bn surplus in May. Analysts had forecast a surplus of $44.65bn for June.
“The latest US tariff hike probably contributed to this drop, alongside a broader slowdown in foreign demand,” Capital Economics said in a note.
“We don’t expect global growth to bottom out until next year. And while the truce reached between [presidents] Trump and Xi at the G20 late last month removes the immediate threat of further US tariffs, our base case remains that trade talks will break down again before long.”
June marked the first full month of higher US tariffs on $200bn of Chinese goods, which Washington implemented weeks earlier after trade talks between the world’s largest economies broke down.
Though both sides agreed in late June to resume negotiations, and Washington said it would hold off on additional levies, existing tariffs remain in place.
No timeframe has been set for the new round of trade talks, and the world’s two largest economies remain at odds over significant issues needed for an agreement, raising the risk of a much longer and costlier battle.
China’s trade surplus with the United States, a major source of friction with its biggest trading partner, rose to $29.92bn in June from $26.9bn in May.
For the first half, China’s trade surplus with the US rose around 5 percent to $140.48bn, compared with $133.76bn in the same period in 2018.