China’s exports to US clock their sharpest drop in more than 5 years

China’s May export data delivered a harsh signal for the world’s second-largest economy, as the combined weight of US tariffs and weakening global demand dragged shipments to a three-month low. Exports rose just 4.8% year-over-year, missing expectations, and sharply down from April’s 8.1% growth.

The most staggering figure came from exports to the United States, which collapsed by 34.5%, marking the worst decline since the early COVID shock of February 2020.

While Beijing and Washington agreed to suspend most tariffs for 90 days, the data suggest damage was already done during the peak tariff period earlier this year.

“It’s likely that the May data continued to be weighed down by the peak tariff period,” said Lynn Song, Chief Economist for Greater China at ING.

Deflation Pressures Mount

Producer Price Index (PPI) fell 3.3% YoY, the deepest contraction in 22 months.
Consumer inflation (CPI) remains low, with core CPI up just 0.6%.
Retail sales, housing prices, and industrial imports all weakened further.
Imports overall dropped 3.4%, signaling softer domestic demand.

Rare Earth Exports Rise, But Details Remain Murky

Despite new restrictions, China’s rare earth exports spiked in May, causing disruption across global auto supply chains. More detailed data, due June 20, will clarify whether the curbs are actually impacting global output or simply reshuffling product types.

Surplus Grows as Imports Fade: China’s May trade surplus hit $103.2 billion, up from $96.2B in April — driven more by falling imports than export strength.

US-China Talks Resume in London

Trade reps from both countries are meeting today to try to stabilize ties, with rare earths, semiconductors, and student visa revocations on the table. The talks follow a turbulent period marked by tit-for-tat escalations and heated rhetoric from President Trump.

Trump previously posted that China had “totally violated” the prior trade agreement — comments Beijing publicly rejected.

Domestic Weakness Still Dragging

China’s reliance on exports has grown amid a sluggish post-pandemic recovery. Factory activity is down, housing remains stagnant, and car sales growth slowed to 13.9% YoY, down from 14.8% in April.

Even global brands are adjusting: Starbucks (SBUX) said it will lower prices on iced drinks in China by an average of 5 yuan, citing weaker consumer demand.