China's export growth bounced back in September, but renewed trade threats from Beijing and Washington have rekindled worries about jobs and further deflation in an economy heavily reliant on selling its manufactured goods overseas.
The world's second-largest economy has greatly diversified its export markets this year to insulate itself from US President Donald Trump's 35-percentage-point tariff hikes, helping to keep GDP growth on track towards a roughly 5 per cent target for the year.
However, this strategy could get a reality check should Trump carry out his threat of re-imposing triple-digit tariffs on China in retaliation for Beijing announcing sweeping rare earth export controls last week.
"While China's economy has proven more resilient in the face of US tariffs than many had feared, there is still significant potential downside from a deeper rift with the US," said Capital Economics analyst Julian Evans-Pritchard.
China's exports rose an annual 8.3 per cent last month, customs data showed on Monday, beating a 6 per cent increase in a Reuters poll and registering the fastest growth since March. They compared with a 4.4 per cent increase in August.
While the faster export growth is welcome news for a still-fragile economy, Trump's latest threat to raise US tariffs above 100 per cent would deal a deflationary shock to China and put smaller exporters and jobs of factory workers at risk.
China's choke on rare earths and magnets, where its near-monopoly position gives it great leverage in the trade war, could also paralyse global supply chains in industries from autos to green energy and aircraft.
These global risks have most analysts predicting that Beijing and Washington will work towards de-escalation in the coming weeks, and potentially preserve some chances that Trump and Chinese President Xi Jinping may still meet at an APEC summit in South Korea at the end of the month, as previously expected.
But the range of outcomes is now much larger than it was only a few days ago - a level of uncertainty investors may have to get used to as the US-China rivalry intensifies.
"We believe both sides, after testing the other's boundaries, will likely make concessions again, and we still see a decent chance of a Xi-Trump in-person meeting during the upcoming APEC summit in South Korea at end October," Nomura analysts said.
"We view this cycle of tension, escalation and truce as the new normal for US-China relations."
Monday's trade data was overshadowed by the fresh salvos in the US-China trade war, denting Asian markets and sending Chinese stocks sinking sharply in volatile trade.
Source: channelnewsasia