China’s Export Growth Expected to Slow as US Tariff Truce Loses Steam

Economic

Summary:

China’s export growth is projected to decelerate in August to 5% year-on-year, down from July’s 7.2%, as the temporary lift from a tariff truce with the US fades and trade tensions resurface....

Slowing Momentum After Temporary Boost

China’s export sector, long a cornerstone of its growth model, is showing signs of slowing momentum. According to a Reuters poll of 23 economists, outbound shipments in August are expected to expand by 5% year-on-year, compared with a stronger 7.2% growth in July. The weaker figure highlights how the temporary relief provided by the August 11 tariff truce with the US is already fading, underscoring the fragility of the arrangement.

The deceleration is partly tied to a high base effect, as China’s exports surged in August 2024, making this year’s comparison less favorable. This creates a statistical drag rather than a direct causal shock, but combined with structural headwinds, the result is a more modest expansion.

Impact of US Trade Policy and Tariff Pressures

The US remains China’s most important export market, once absorbing more than $400 billion annually in Chinese goods. However, President Donald Trump’s erratic trade policy featuring tit-for-tat tariff escalations continues to disrupt China’s export flows. Levies currently stand at 30% on Chinese imports into the US, while Beijing imposes 10% on US goods. Trump has also threatened tariffs as high as 40% on goods deemed transshipped through third countries to evade earlier restrictions.

This policy mix has caused a sharp drop in container traffic from China to the US. Ship departures fell 24.9% year-on-year in the first half of September, accelerating from a 12.4% decline just a week earlier, according to Citi data. The causal relationship here is clear: higher US tariffs and enforcement threats directly suppress China’s exports to its largest consumer base, forcing producers to scramble for alternative buyers.

Shifting Export Markets Provide Limited Relief

Chinese manufacturers are increasingly pivoting to Asia, Africa, and Latin America to offset US losses. However, these markets cannot replicate US consumption power. Analysts note that attempts to replace US demand have created intense competition among exporters, with one factory owner describing the process as a “mad rat race.”

The shift illustrates a correlation rather than a full substitute: while diversification cushions some losses, it cannot causally restore the scale of demand lost to the US. Consequently, the export slowdown persists despite geographic reorientation.

Domestic Economy Weighed Down by Structural Weakness

On the import side, growth is forecast to slow to 3% in August, down from 4.1% in July. The drag reflects deeper domestic structural issues: a prolonged property sector downturn, rising job insecurity, and diminishing returns from earlier consumer stimulus programs. Weak household demand limits the ability of imports to grow, and by extension, reduces the pressure on exporters to import intermediate goods.

China’s trade surplus is projected to rise modestly to $99.2 billion in August, up from $98.24 billion in July, but still well below June’s $114.7 billion. This signals that while exports remain strong in absolute terms, their contribution to the surplus is softening relative to earlier peaks.

Policy Options and Constraints

Analysts are watching closely to see if Beijing will introduce additional fiscal measures in the fourth quarter to stabilize growth. However, signs suggest policymakers are reluctant to deploy aggressive support. For instance, the flagship “cash-for-clunkers” program has run out of funds in several provinces, yet the central government has not rushed to replenish them. This restraint reflects a balancing act between short-term growth needs and longer-term concerns over fiscal discipline.

China’s export slowdown highlights both external and internal challenges. US tariffs exert a direct causal drag on shipments, while weak domestic demand and structural imbalances create a reinforcing effect. Diversification into emerging markets offers partial relief but cannot replace the consumption scale of the US. Unless trade tensions ease or domestic stimulus ramps up, China’s export-led growth model faces sustained pressure, leaving policymakers with limited room to maneuver as they attempt to stabilize the economy in the months ahead.

Source: Reuters

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Gerik

Economic

Tariff Threats Target Semiconductor Imports

Speaking at a White House dinner with more than two dozen top tech leaders, President Donald Trump reaffirmed that semiconductor imports face “fairly substantial” tariffs unless manufacturers relocate production to the US. The remarks highlight a continuation of Trump’s protectionist stance, now focused squarely on a sector that is central to both economic security and the global technology race.

While Trump offered little clarity on the scale or timeline, his rhetoric follows a previous statement last month promising a 100% tariff on imported chips, with exemptions for firms willing to invest heavily in domestic operations. This creates a direct causal link between corporate investment choices and exposure to trade penalties. Companies that align with US industrial policy by building or expanding local facilities are rewarded, while those dependent on overseas production risk costly tariffs.

Apple Positioned to Benefit from Domestic Investment Pledge

Apple stands out as a beneficiary of Trump’s carve-outs. The company pledged an additional $100 billion toward domestic manufacturing earlier this year, on top of a $500 billion commitment announced in February. During Thursday’s dinner, Trump remarked that “Tim Cook would be in pretty good shape,” signaling that Apple’s proactive investment strategy has secured preferential treatment.

This dynamic illustrates a clear causal relationship: Apple’s capital commitments are directly influencing its insulation from tariffs. For other tech firms, the correlation is more uncertain. While major global semiconductor players such as TSMC and Samsung have already pledged billions to US-based fabrication plants, the extent of their exemptions will depend on how Trump defines “coming in” or “planning to come in.”

Tech Leaders Court Trump Amid AI Race

The dinner also underscored the political alignment between Trump and Silicon Valley leaders as artificial intelligence reshapes global competition. Executives including Meta’s Mark Zuckerberg, Oracle’s Safra Catz, Google co-founder Sergey Brin, and OpenAI’s Sam Altman praised Trump’s pro-business orientation and AI policies. This suggests a correlational trend: as the AI arms race intensifies, tech firms seek proximity to Washington power to secure favorable regulatory and industrial conditions.

Notably absent was Tesla’s Elon Musk, who had clashed publicly with Trump earlier in the year. Musk later clarified that he was invited but unable to attend, choosing instead to send a representative. His partial distance highlights the complex mix of rivalry and cooperation shaping relationships between leading tech entrepreneurs and the administration.

Onshoring Semiconductors as Strategic Priority

The administration’s tariff strategy is part of a longer-term effort to reconfigure the semiconductor supply chain. Since 2020, companies such as TSMC and Samsung Electronics have committed hundreds of billions of dollars to build fabrication plants in the US. These moves reflect both government incentives and geopolitical risks in relying on East Asian supply hubs, particularly Taiwan and South Korea.

Trump’s comments effectively reaffirm the causal logic that has been guiding policy since the early 2020s: strengthening US chip production reduces exposure to geopolitical disruption and secures national competitiveness in AI and advanced technologies. However, the lack of detailed tariff structures leaves uncertainty about how uniformly the policy will be applied and whether exemptions will tilt the competitive balance within the industry.

Policy Clarity Still Lacking but Pressure Rising

Trump’s remarks signal that semiconductor tariffs are imminent, with a design that punishes foreign-based production while rewarding domestic investment. Apple’s immunity demonstrates how capital commitments directly translate into political insulation, while global giants like TSMC and Samsung must navigate opaque exemption criteria.

The stakes are high: a poorly defined tariff regime could disrupt global supply chains and raise costs for US tech firms that remain partially dependent on imports. Conversely, a transparent policy could accelerate the buildout of US manufacturing capacity and reinforce America’s position in the AI-driven technology race. For now, investors and corporate leaders alike remain in a holding pattern, awaiting the specifics of how “fairly substantial” tariffs will be enforced.

Source: CNBC

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James Whitman

Economic

Japan risks having to pay higher tariffs if it doesn’t fund US President Donald Trump’s investment recommendations, according to a document fleshing out a $550 billion funding initiative agreed by the two nations in July.

Trump will pick investment projects based on recommendations from an investment committee led by US Commerce Secretary Howard Lutnick, according to an Understanding of Memorandum of the investment mechanism signed by Lutnick and his Japanese counterpart Ryosei Akazawa in Washington on Thursday.

The investment committee will incorporate input from Japan via a separate panel, with investments to be made up to Jan. 19, 2029, the memorandum said, a time frame that coincides with Trump’s presidential term.

“The idea is to build supply chains within the United States,” Akazawa said in Washington on Thursday evening. “Therefore, it is only natural that the US side’s intentions, and more specifically, President Trump’s intentions, are strongly reflected.”

The memorandum provides more details of how Japan will be obligated to supply funds for Trump’s investment choices than has so far been indicated by Japanese officials. Akazawa said there was no change from July in the details agreed.

The investment fund forms part of a trade deal agreed with the US that limits universal duties on Japanese goods and sectoral tariffs on the auto sector to 15%. The Trump administration has included similar funding arrangements in other trade deals too, including the US agreement with South Korea.

While the US-Japan deal was struck on July 22, the auto tariffs had remained at 27.5% while existing duties were still being charged on top of the new tariffs imposed this year. Trump signed an executive order Thursday to lower the duties to 15% and stop the stacking up of tariffs, a move that delivers embattled Japanese Prime Minister Shigeru Ishiba a limited success as he tries to hold on to power in Tokyo amid calls for him to resign.

The memorandum states that the US does not intend to raise tariffs provided Japan faithfully implements it and doesn’t fail to provide funding. The US president would determine the tariff rate should that option be taken in the case of Japan choosing not to fund a project.

Japan will need to make funds denominated in dollars available within 45 days of an investment project being presented for review, the memorandum states. Separate Special Purpose Vehicles will be set up for each investment.

“Each Investment SPV will be managed and governed by the United States or its designees in the capacity of a general partner,” the memorandum stated.

Akazawa reiterated Thursday that Japan will contribute to the funding initiative partly using loan guarantees. A senior Japanese government official who briefed the press in Washington also said Akazawa’s previous explanation of how the investment fund would work remains the same.

“In short, we will provide investments, loans and loan guarantees for up to $550 billion. That remains the same,” he said.

Akazawa has largely played down the size of actual investments that Japan is likely to make via the new setup, which will involve the government-backed Japan Bank For International Cooperation and Nippon Export and Investment Insurance.

Of the total, investment will comprise 1% or 2% and the US and Japan will split the profits of that investment at a ratio of 90-10, he said in July following the deal’s announcement. The Japan side has cited JBIC and NEXI as the government-backed organizations that will be leading financing for the projects.

Source: Bloomberg

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Gerik

Economic

Equities Rise Despite Weak Labor Signals

Markets closed higher on Thursday even as labor data pointed to further signs of economic weakness. The S&P 500 notched its 21st record high of the year, supported by gains across the Nasdaq Composite and Dow Jones Industrial Average. In Europe, the Stoxx 600 advanced 0.6%, with media and telecom shares leading the move.

This optimism comes against a backdrop of disappointing employment figures. The ADP report showed private payrolls rising by just 54,000 in August, well below the 75,000 expected and down sharply from July’s revised 106,000. Weekly jobless claims also increased to 237,000, an 8,000 rise from the previous week. These indicators suggest that the labor market is softening, a development that investors interpret as strengthening the case for monetary easing by the Federal Reserve. The relationship here is causal: weaker labor data lowers the barrier for rate cuts, which in turn supports equity valuations.

Corporate Earnings Send Mixed Signals

Company-specific results added nuance to market sentiment. Broadcom’s stock jumped in extended trading after securing $10 billion in new custom chip orders and posting stronger-than-expected quarterly earnings. This highlights a direct link between booming demand for AI-related products and tech sector resilience.

In contrast, Lululemon’s shares plunged after the retailer issued a significantly weaker full-year outlook, citing $240 million in expected losses from tariffs. While second-quarter earnings exceeded estimates, revenue slightly missed, underscoring how external pressures can outweigh operational gains. This case demonstrates a causal connection between tariff policy and corporate profitability, showing how geopolitical factors directly erode earnings projections.

Political Uncertainty Adds Pressure

Political developments continue to complicate the market landscape. President Donald Trump renewed his attempt to fire FTC commissioner Rebecca Slaughter, escalating his efforts to consolidate influence over federal agencies. Though not directly tied to immediate market performance, such moves correlate with heightened institutional uncertainty that can influence investor risk appetite.

The nonfarm payrolls report due Friday is expected to show 75,000 job additions in August, only slightly above July’s 73,000. If actual figures fall below expectations, recession concerns could resurface, potentially derailing the current rally. Conversely, an outcome that aligns with forecasts might maintain the status quo, leaving markets buoyed by the prospect of imminent rate cuts.

The analogy of an “oncoming freight train” captures the tension: markets may continue their ride upward if the data simply confirms a mild slowdown, but a sharp miss could jolt sentiment and trigger a wave of risk aversion. The relationship here is causal and immediate the labor report will directly influence both Fed policy expectations and investor positioning.

The juxtaposition of record-breaking equity gains with deteriorating labor market indicators reveals the fragile balance underpinning investor sentiment. Weak jobs data has thus far fueled optimism for monetary easing, but Friday’s payrolls report represents a critical inflection point. Whether markets sustain their momentum or shift abruptly into defensive mode will depend on whether the data signals a manageable slowdown or a deeper economic contraction in progress.

Source: CNBC

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Economic

Forex

Political

China: Trade likely to be stable, while inflation dips again

On Monday, we don’t expect major surprises from China’s August trade data in light of the extension of the US-China trade war truce, which kept tariffs at the status quo. Export growth could slow to around 3.8% year on year, while imports could continue to pick up to around 6.2% YoY, thanks to base effects from 2024.August inflation data, to be released on Wednesday, could show price pressures dipped back into negative territory at around -0.1% YoY after coming in at zero in July.

Taiwan: Exports expected to slow, while imports accelerate

When Taiwan releases its August trade data on Tuesday, we will be on the lookout for any early signs of a pullback after the tariff hikes from 10% to 20% during the month. After Taiwan's government characterized the 20% rate as temporary, it’s possible that prospective importers held off in hopes that the tariff could soon be lowered. This may be more evident in subsequent months than in August. We look for export growth to slow to 29.5% YoY, while import growth continues to accelerate to 32.9% YoY.

South Korea: Employment expected to remain stable

South Korea’s unemployment rate is expected to stay at 2.5% for a second consecutive month. Unusually severe weather conditions may have reduced employment in agriculture and construction, while leisure-related services may see an increase in jobs. Aided by government support for small businesses, the unemployment rate may stay at the current low level for a considerable time.

Japan: Pipeline price pressures may drive up the PPI

Japan’s second-quarter GDP likely remained near the flash estimate of 0.3% quarter-on-quarter growth. Meanwhile, the August producer price index is projected to rise to 2.7% YoY, indicating continued pipeline price pressures.

Key events in Asia next week

Source: ING

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James Whitman

Political

Key points:

● Ruling party to vote Monday on holding leadership race

● Markets see strong chance of race, costing Ishiba his job

● Leadership change could bring looser fiscal policy

● Political uncertainty complicates BOJ's rate-hike timing

Lawmakers of Japan's ruling party will vote on Monday whether to hold an extraordinary leadership election that could oust embattled premier Shigeru Ishiba and have a significant impact on the world's fourth largest economy.

Concern over political uncertainty has led to a sell-off in the yen and Japanese government bonds (JGB) this week with the yield on the 30-year yield hitting a record high on Wednesday.

While the policy paralysis around such a vote could add pain for an economy hit by U.S. tariffs, markets are focusing more on the chance of Ishiba's replacement by an advocate of looser fiscal and monetary policy such as Sanae Takaichi, who has criticised the Bank of Japan's interest rate hikes.

"The dominant market bet is for the LDP to hold a leadership race and for Ishiba, known as a fiscal hawk, to lose his job," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

"We'll likely see further selling in Japanese government bonds as whoever succeeds Ishiba probably will be more open to loosening fiscal policy than him."

Ishiba has refused calls from within his Liberal Democratic Party (LDP) to step down and take responsibility for its July loss in an upper house election.

Staying in power, however, has become increasingly hard for him. Having lost a majority in both houses of parliament, his ruling coalition needs opposition support to pass legislation.

Wary of being attached to the unpopular premier, opposition parties have refused to cooperate. Even some of Ishiba's cabinet members are now calling for the choice of a new party leader.

Party rules require at least half the LDP members to request holding the race, which could follow this month or in October.

Such a leadership race could delay parliament's passage of an expected supplementary budget aimed at cushioning the blow to households from rising living costs.

Eurasia Group gave odds of 60% that Ishiba would not survive.

"Ishiba's poor performance as party leader in lower and upper house elections and events in recent days, including former prime minister Aso Taro announcing his support for the special election, have turned the tide against Ishiba," said David Boling, director of Japan and Asian Trade at Eurasia.

That puts the focus his potential successor.

While the LDP lacks a majority in parliament, its leader would still be the favourite to become next prime minister, due to a fragmented opposition.

The choice could affect not just the scale of fiscal stimulus, but the timing of the BOJ's next interest rate hike, analysts say.

Front-runners include 44-year-old Shinjiro Koizumi, a charismatic agriculture minister popular with the public, but whose views on economic policy are unknown.

Takaichi, who represents the party's right wing, is also seen by some analysts as a strong candidate to become Japan's first female prime minister. She lost the September leadership race to Ishiba in a run-off vote.

While several other candidates are seen in the fray, Takaichi stands out for her vocal opposition to BOJ rate hikes and calls to ramp up spending to underpin a fragile economy.

After ending a decade-long, massive stimulus programme last year, the BOJ raised interest rates to 0.5% in January on the view that Japan was on the cusp of sustainably meeting its inflation target of 2%.

Most economists polled by Reuters expect the central bank to raise rates again this year, with some betting on a hike in October.

"Under Takaichi, fiscal discipline will be out the window," Inadome said. "Markets still remember the time she made it to the run-up in September, and triggered huge selling in JGBs."

Source: Reuters

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Gerik

Economic

Domestic Demand and Policy Support Drive Expansion

India's solar manufacturing sector is experiencing accelerated growth as the country pursues two strategic goals: reducing dependence on Chinese imports and capturing global market share, particularly amid rising geopolitical trade tensions. At the heart of this effort is the ReNew manufacturing facility in Jaipur, capable of producing 4 gigawatts of solar modules annually enough to power roughly 2.5 million homes. This output illustrates the sector’s growing industrial capacity and its critical role in India’s broader clean energy transition.

Government support, including tax breaks, domestic procurement mandates, and import restrictions on foreign-made components, has created a highly favorable environment for local producers. These policy levers have led to a significant increase in capacity: over the fiscal year ending March 2025, solar module manufacturing more than doubled to 74 gigawatts, while solar cell production tripled to 25 gigawatts.

The correlation between strong domestic policy signals and industry growth is evident, showing how deliberate state intervention can steer investment and production in a strategic sector.

US Tariffs Create Headwinds but Domestic Market Absorbs the Shock

The recent imposition of a 50% tariff by the Trump administration on Indian solar goods presents a challenge for exporters. Historically, the US accounted for roughly one-third of Indian solar panel exports. However, the domestic market’s capacity to absorb production has helped offset potential losses from declining US demand.

Energy analyst Charith Konda notes that India is not as dependent on exports as other solar manufacturing countries, emphasizing the causal role of strong domestic demand in buffering against external shocks. The solar boom in India is fueled not only by environmental imperatives but also by economic logic solar energy is now half the cost of building new coal plants, making it the cheapest source of new power in the country.

Vinay Keesara of Vega Solar highlighted a structural pivot post-pandemic, with his business transitioning from 90% export-oriented to 90% domestically focused, further underscoring how internal demand has restructured business models. This shift reflects an internal market dynamic resilient enough to absorb shocks from trade restrictions.

India’s Manufacturing Infrastructure Still Faces Limitations

Despite recent progress, India’s solar industry continues to rely on imported raw materials, especially from China. Data shows that India imported $1.3 billion in solar cells and modules from China in the first quarter of 2025, though this figure is down by more than one-third compared to the previous year. The country's current dependency is not on finished goods alone but extends to critical upstream inputs such as polysilicon and other rare minerals, where domestic mining and processing capabilities remain underdeveloped.

However, analyst Neshwin Rodrigues anticipates that by 2030, India may only need to import polysilicon, while other components could be locally produced. This projection depends on the successful execution of government programs targeting critical mineral production and supply chain expansion.

The relationship here is partly causal and partly developmental while India’s policy frameworks and domestic demand have directly driven capacity growth, further progress hinges on the gradual resolution of infrastructure gaps and supply chain bottlenecks.

Clean Energy Goals Anchor Long-Term Industry Vision

India has positioned its solar sector within a larger clean energy transformation. With nearly 170 gigawatts of renewable energy projects underway, most of them solar, and an ambitious goal of 500 gigawatts by 2030, the long-term market outlook is firmly anchored in government-backed sustainability targets.

This large-scale policy commitment incentivizes domestic manufacturers to invest in long-term capabilities despite current challenges. Sanjay Verghese of ReNew notes that policy support is still a critical pillar of the sector’s expansion, and maintaining that support will be essential for the industry to reach full maturity.

Strategic Realignment Underway in Global Solar Supply Chains

India’s solar industry is entering a transformative phase. While US tariffs and continued dependency on Chinese raw materials present immediate challenges, the combination of domestic market strength, favorable policy, and long-term climate goals is enabling the country to reorient its solar strategy.

Rather than viewing trade restrictions as purely detrimental, Indian firms are using the disruption as an opportunity to deepen domestic integration and reduce external reliance. If infrastructure bottlenecks can be resolved and critical mineral processing is scaled up, India may emerge not only as a regional solar powerhouse but as a legitimate competitor to China in global clean energy manufacturing.