China’s imports show surprise decline as trade tensions escalate

China’s imports unexpectedly contracted in the January-February period while exports lost momentum, as increasing US tariff pressures cast a shadow over recovery in the world’s second-largest economy.

The US-China trade war accelerated after US President Donald Trump imposed an extra 10% tariff on Chinese goods, claiming Beijing wasn’t making enough effort to stop the flow of deadly opioid fentanyl.

Analysts say the drop in imports indicates that Beijing has begun reducing key commodity purchases as it prepares for four more years of difficult trade tensions with a second Trump administration.

“The decline in imports is seen in grain, iron ore, and crude oil and could be related to China’s thinking about building strategic reserves,” said Xu Tianchen, senior economist at Economist Intelligence Unit.

Speaking to Reuters, Xu added, “China may have imported too much of these products in 2024 and might need to reduce purchase volumes.” “This is definitely true for iron ore as steel production clearly exceeds the economy’s needs,” he said.

Export momentum had been a bright spot for an economy struggling with weak household and business confidence caused by the long-running property market debt crisis.

According to customs data released Friday, China’s imports fell 8.4% year-on-year, missing the 1% growth forecast in Reuters’ survey of economists and December’s 1% increase.

Exports from the largest manufacturing country rose 2.3% in the same period, missing expectations of a 5% increase and slowing from December’s 10.7% rise.

“The export slowdown may partly be due to the slowdown of export front-loading that was strong late last year to avoid the trade war,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

“The sharp drop in imports may reflect both weak domestic demand and a decline in imports for processing trade,” he added.

The economist believes the damage from US high tariffs on Chinese goods will “likely show up next month.”

The January-February period ended with Chinese manufacturers anticipating a second wave of US tariffs and Chinese countermeasures. On March 4, Trump doubled tariffs on China to 20%.

In response, Beijing imposed 10-15% retaliatory tariffs on US agricultural exports and restrictions on 25 US firms just minutes after Trump’s tariffs took effect.

Chinese policymakers promised on Wednesday to prioritize boosting consumption and domestic demand in 2025, which Chinese Premier Li Qiang described as “insufficient” and “weak.”

“The increasingly complex external environment and rising unilateralism and protectionism could have a greater impact on China’s trade,” said Li, emphasizing the urgency for China to restructure a growth model currently mostly dependent on manufacturing and trade.

Similarly, US Treasury Secretary Scott Bessent called on China to rebalance its economy during his meeting with Chinese Vice Premier He Lifeng in late February. Bessent has repeatedly accused the Chinese economy of over-reliance on exports.

China’s manufacturing activities contracted in January partly due to the Lunar New Year holiday but expanded in February at the fastest pace in recent months.

South Korea, an important indicator of China’s imports, reported a 1.4% contraction in shipments to China in February as trade war fears increased.

China’s customs agency publishes January and February trade data together to correct distortions caused by the changing timing of the Lunar New Year, which fell between January 28 and February 4 this year.