Tariff Storm Forces China’s Exporters to Abandon the US Market and Seek New Global Frontiers

Economic

Summary:

Amid escalating trade tensions and unpredictable tariff policies, many Chinese exporters are retreating from the US market, shifting focus to Latin America, Europe, and Southeast Asia as they face declining profits and intensifying global competition....

A Strategic Withdrawal from a Former Goldmine

The US market, long regarded as a cornerstone for Chinese exporters, is no longer a reliable pillar of growth. Amid persistent waves of tariffs and a volatile trade policy environment under the US administration, Chinese manufacturers are actively reorienting their global strategies. From electronics to Halloween decorations, exporters report fatigue and frustration, not from a lack of global demand but from the unpredictability and high costs associated with sustaining operations in the United States.

Jacky Ren, who runs Gstar Electronic Appliance in Ningbo, Zhejiang, illustrates this shift clearly. Previously, over 60% of his firm’s revenue came from American clients. Now, his company has halted US-bound orders entirely. He equates losing the US a consumer market of unmatched scale to a freight train losing its locomotive. With price wars and thinning margins, selling at a loss has become a norm. His comments highlight a causal chain where fluctuating tariffs erode long-term business confidence, pushing firms to abandon one of the world’s most lucrative markets.

Exports Rise Overall, But the US Is No Longer Central

Despite the retreat from the US, China's total exports rose 7.1% in the first nine months of 2025, reaching 19.95 trillion yuan (about USD 2.8 trillion). However, the decline in shipments to the US is evident, underscoring a clear structural shift in trade strategy. Chinese businesses are now deliberately diversifying risk by moving into emerging markets, a strategy driven more by necessity than by preference. This shift is not merely correlational but reflects a deliberate adjustment to mitigate exposure to unilateral policy shocks from Washington.

Efforts to expand into Latin America, the Middle East, and Southeast Asia have delivered mixed results. Lou Xiaobo, who owns a Halloween decorations factory in eastern China, reports that even after moving into the Latin American market, revenue has halved. While diversification spreads geopolitical risk, it does not fully compensate for the massive consumer demand previously captured in the US.

Moreover, as more Chinese firms crowd into the same alternative markets, price competition intensifies. This saturation leads to shrinking profit margins, highlighting a causal relationship between overconcentration in replacement markets and reduced financial viability. According to Ren, many firms now focus less on expansion and more on survival, hoping for a global trade landscape reset.

A Buyer Exodus from the US, Not Just a Supplier Exit

The psychological and practical severance from the US market was visible at the Autumn Canton Fair in Guangzhou, one of the largest trade events in the world. Among 15 Chinese exporters interviewed, none reported American buyer attendance. This absence marks a stark contrast from past fairs and is not solely due to Chinese sellers shifting priorities. As Cai Jing, director of a long-standing thermos company, explained, "It’s not that we left the American market the American buyers left us."

Her company has pivoted to developing personal blenders as part of a broader strategy to adapt to non-US consumers. Yet, even with these innovations, US-bound sales have halved. This indicates a demand-side collapse in the bilateral trade relationship, not just a supply-side shift, driven in part by buyer caution, regulatory costs, and rising tensions.

The case of Chinese exporters abandoning the US market is emblematic of a broader recalibration in global trade. What was once a relationship of deep mutual reliance is now fractured by policy unpredictability, geopolitical friction, and commercial fatigue. While Chinese export data shows resilience, the distribution of trade flows is evolving. In this context, diversification becomes a defensive necessity, not a strategic luxury. But these new arenas are far from being golden replacements they are competitive, fragmented, and less profitable. For many Chinese exporters, the world is now a more complicated marketplace, and the search for stability continues without its most powerful locomotive.

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Unanimous Support Reflects Political Consensus

On October 17, 2025, the Polish Sejm (Lower House) voted unanimously 422 in favor, none opposed to approve the ratification of the EU–Vietnam Investment Protection Agreement (EVIPA). This move signals broad cross-party support within Poland for deeper economic and diplomatic ties with Vietnam, reflecting a shared strategic intent across all political factions to foster stronger bilateral cooperation. The consensus builds upon the commitments made during Prime Minister Phạm Minh Chính’s official visit to Poland in January 2025, where both sides agreed to expedite the ratification process within the year.

With the Lower House's resounding approval secured, the agreement now awaits endorsement from Poland’s Senate, which is expected to approve it by the end of October. Upon passage, it will be sent to President Karol Nawrocki for formal promulgation. Once signed, Poland will officially become the 19th out of 27 EU member states to ratify EVIPA, bringing the agreement one step closer to full implementation across the European Union.

Strategic Timing and Bilateral Significance

This ratification milestone aligns with the 75th anniversary of diplomatic relations between Vietnam and Poland (1950–2025), adding symbolic weight to what is already a legally and economically significant development. The timing underscores a mutual desire to elevate the long-standing friendship into a more robust, future-oriented partnership especially in the domains of trade, investment, and strategic cooperation.

The vote also reflects a causal relationship between diplomatic visits and legislative momentum: the commitments made earlier in the year clearly catalyzed institutional action in Warsaw.

EVIPA: A Strategic Framework for Vietnam-EU Investment Flows

EVIPA, ratified by the European Parliament in February 2020 and by Vietnam’s National Assembly in June 2020, requires unanimous ratification by all 27 EU member states to fully enter into force. Unlike the EU-Vietnam Free Trade Agreement (EVFTA), which primarily addresses trade in goods and services, EVIPA focuses on investment protection, including fair treatment, protection against expropriation without compensation, and investor-state dispute settlement mechanisms. These provisions are expected to enhance legal certainty and confidence for EU investors entering Vietnam and vice versa.

The agreement’s gradual ratification across Europe illustrates the challenges of aligning national legislative processes within the EU. However, each ratification adds incremental legal coverage for European investors and signals growing EU-wide commitment to deepening economic ties with Vietnam a country increasingly seen as a strategic partner in Southeast Asia amid global supply chain shifts.

Poland’s pending ratification of EVIPA marks a meaningful advancement in Vietnam’s relations with the European Union. It not only reaffirms Poland’s recognition of Vietnam as a priority economic partner in Asia but also contributes to the broader EU strategy of diversifying trade and investment relationships beyond traditional markets. As Vietnam continues to position itself as a stable and open economy, agreements like EVIPA backed by growing multilateral support will play a pivotal role in accelerating foreign direct investment, enhancing legal protections, and reinforcing global investor confidence.

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Immediate Cash Transfers Target Domestic Demand

On October 17, 2025, the Indonesian government announced a new economic stimulus package valued at 30 trillion rupiah, approximately USD 1.81 billion. The initiative comes as part of the administration’s broader response to mounting economic and social pressures despite a stable post-pandemic growth rate of around 5%. A core component of the package is the direct cash transfer program, aimed at 35 million low- to middle-income households, with disbursements beginning as early as the following week and continuing through the end of 2025. This initiative follows a smaller USD 1 billion package launched in September, and reveals a direct causal strategy: bolstering household income to stimulate consumption and stabilize domestic demand.

Beyond cash transfers, the government is intensifying its focus on youth employment. The number of university graduates eligible for paid internships will rise fivefold, from 20,000 to 100,000 participants. An additional allocation of 1.4 trillion rupiah has been earmarked to fund stipends for 80,000 new interns. The move reflects a structural intervention in labor market entry points, responding to recent public discontent linked to job scarcity and income inequality. The correlation between unemployment-driven protests and rising political and economic stress underpins the urgency of this initiative.

VAT Incentives to Stimulate Year-End Tourism

The Ministry of Finance introduced a complementary fiscal incentive in the form of partial VAT relief on domestic airfare. From December 22, 2025, to January 10, 2026, the government will subsidize 6% of the 11% value-added tax on economy-class tickets. This measure is designed to invigorate domestic tourism during the holiday season, a sector seen as vital for short-term economic dynamism. While the link between lower travel costs and tourism activity is correlational, the policy is expected to generate causal gains in associated industries such as hospitality and retail.

In recent months, Indonesia has witnessed a series of protests, some turning violent. Analysts attribute these tensions to deepening income inequality and limited employment opportunities, particularly for the youth. These protests, occurring despite the country maintaining approximately 5% GDP growth since the pandemic, reveal a disconnect between headline macroeconomic stability and on-the-ground socioeconomic well-being. The stimulus package thus functions both as an economic tool and a political salve, intended to defuse public dissatisfaction while maintaining consumption-led growth.

Strategic Growth Target for Presidential Tenure

President Prabowo Subianto has articulated an ambitious vision of raising Indonesia’s growth rate to 8% by the end of his term in 2029. The newly announced stimulus measures represent an early-stage tactic in that broader economic agenda. While structural reforms will be necessary to achieve that target, especially in areas like education, industrial upgrading, and infrastructure, these short-term injections serve to preserve momentum and protect economic sentiment amid global uncertainties.

Indonesia’s latest USD 1.81 billion stimulus package represents a multi-pronged approach to preserving economic momentum while addressing social instability. By combining direct cash support, youth employment expansion, and sector-specific VAT relief, the government is attempting to engineer a short-term uplift in domestic demand while also laying groundwork for long-term inclusivity. The effectiveness of this approach will depend on consistent implementation and the capacity to transition from short-term relief to sustained structural improvement.

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Stronger-Than-Expected Growth Amid Global Headwinds

Malaysia’s economic performance in the third quarter of 2025 has exceeded market expectations, expanding by 5.2% year-on-year according to preliminary estimates from the Department of Statistics Malaysia (DOSM). This growth rate outpaced the 4.4% increase recorded in the previous two quarters and surpassed the highest projection in Bloomberg’s survey. The acceleration is particularly notable given ongoing global trade uncertainties and persistent tariff pressures stemming from US trade policy, suggesting that the Malaysian economy is demonstrating both resilience and flexibility.

The central engine behind this growth remains robust domestic demand. DOSM Chief Statistician Mohd Uzir Mahidin emphasized that consumer spending, especially during holiday and school break periods, played a vital role in sustaining momentum. Fiscal interventions such as the July interest rate cut and a one-off cash handout in August further supported household expenditure. This illustrates a causal relationship between government stimulus and consumer behavior, wherein targeted fiscal measures directly bolstered domestic demand and economic activity.

Sectoral Performance Reflects Broad-Based Recovery

Malaysia’s Q3 growth was underpinned by simultaneous rebounds across key industries. The services sector expanded by 5.1%, manufacturing grew 4.0%, and the mining sector reversed its previous quarter’s contraction with a significant 10.9% increase. Construction output also rose by 11.2%, showing the strongest growth among all sectors. This indicates a synchronized recovery, where each sector’s rebound collectively strengthened the economy’s overall performance rather than relying on any singular industry. While correlation exists between these gains and broader macroeconomic stabilization, it is likely that structural policy support and renewed confidence after pandemic disruptions contributed causally.

External trade also provided a strong boost. Malaysia’s exports surged 12.2% in September compared to the same month in 2024, up from just 1.9% in August. This exceeded analysts’ expectations of a 3.4% increase, with electrical and electronic goods leading the export portfolio. Notably, exports to the US climbed 24.4% while exports to China increased 2.9%, even as US tariffs on Malaysian goods rose to 19% in August. According to the Ministry of Investment, Trade and Industry (MITI), these tariffs had a limited impact, with bilateral trade flows remaining stable. The ability of Malaysian exporters to maintain and diversify demand suggests a strong underlying competitive advantage, rather than mere circumstantial fluctuation.

Trade Surplus and Import Growth Reinforce Stability

Imports also expanded by 7.3% in September, contributing to a healthy trade surplus of 19.86 billion Ringgit (approximately USD 4.6 billion). This reinforces the narrative of a well-balanced recovery, where increased import activity reflects growing domestic production and consumption needs, rather than overreliance on exports alone. The causal link between internal consumption and import levels highlights the strength of Malaysia’s domestic cycle.

Malaysia’s government projects full-year GDP growth between 4% and 4.8% in 2025, slightly slower than the 5.1% achieved in 2024, acknowledging risks from global trade volatility. Projections for 2026 have been adjusted slightly lower to between 4% and 4.5%, reflecting anticipated drag from external developments. Nonetheless, Q3 data suggest the economy is on track to meet its 2025 target, with domestic demand providing a reliable cushion against any future export shocks.

Regional Context Highlights Malaysia’s Relative Strength

Compared to its ASEAN peers, Malaysia’s performance stands out. Vietnam reported a remarkable 8.23% growth rate, the highest since 2022, while Singapore posted a modest 2.9% expansion, still ahead of forecasts. Data from Thailand, the Philippines, and Indonesia are expected in November. This positions Malaysia as one of the more stable and adaptable economies in Southeast Asia, with an effective balance between domestic strength and external competitiveness.

Malaysia’s stronger-than-expected economic expansion in Q3 2025 reflects the effective interplay of domestic consumption, sectoral revival, and trade resilience. Government stimulus played a pivotal causal role in sustaining demand, while strategic export orientation softened the impact of external headwinds. As global uncertainties persist, Malaysia’s ability to maintain this balanced growth model will be crucial to securing its economic trajectory in the coming year.

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Sluggish Consumption Undermines Post-Pandemic Recovery

Despite a wide array of fiscal and monetary stimulus efforts implemented since the pandemic, China continues to face difficulty in revitalizing consumer spending. The latest survey by AFP anticipates the nation's GDP to grow by only 4.8% in the third quarter of 2025, marking the lowest expansion rate in the past year and falling short of the government’s full-year target of approximately 5%.

This moderation in growth follows a previous quarter’s expansion of 5.2%, revealing a sustained decline in momentum. The causal relationship between weak consumer confidence and limited retail activity is evident; despite loosened restrictions and targeted policy incentives, households remain cautious, which directly reduces consumption's contribution to GDP.

Property Market Troubles Continue to Cast a Shadow

A core structural weakness remains the property sector, historically a critical pillar supporting China’s urbanization-led growth. The debt crisis that began in 2020 continues to suppress investor sentiment. Multiple housing projects remain incomplete, and developers struggle with cash flow constraints. Although regulatory easing has been introduced to encourage home purchases, these measures have not significantly reversed the market's downtrend.

The correlation between this sector’s health and broader economic performance is strong; property-related industries account for substantial employment and materials demand, so prolonged weakness in this area exerts downward pressure on national growth figures.

Inflation Trends Indicate Deflationary Risks

China’s consumer price index showed continued decline in September 2025, following a six-month low recorded in August. This deflationary trajectory raises serious macroeconomic concerns. Alicia Garcia-Herrero from Natixis highlights weakening consumption as the most pressing issue, warning that persistent downward pressure on prices could trigger a deflationary spiral. While this price behavior might appear to relieve consumers in the short term, it discourages spending and investment, creating a feedback loop that further drags on growth.

Another structural constraint is local government debt. Numerous provinces and municipalities are struggling to meet debt obligations, illustrating the limits of China’s decentralized fiscal model. Although these fiscal vulnerabilities are not fully reflected in the current GDP data largely thanks to robust export performance and continued infrastructure investment the underlying financial stress is mounting. This situation suggests a causal risk of future contraction if defaults or credit disruptions spread.

Trade Resilience and Supply Chain Adaptation

On the external front, trade continues to serve as a buffer. The renewed trade confrontation initiated by US President Donald Trump in 2025 has revived tariff tensions, yet China’s exports have proven resilient. Shipments to Southeast Asia have accelerated, helping compensate for reduced US-bound volumes. The latest data reveals an 8.3% year-on-year export increase in September, the strongest since March 2025. Analysts like Heron Lim from ESSEC note that supply chain reconfiguration has helped maintain factory utilization. This adaptation illustrates a non-causal, adaptive correlation between geopolitical friction and trade redirection suggesting flexibility rather than a collapse in trade reliance.

Guo Shan from Hutong Research emphasizes that achieving the 5% growth target for 2025 remains possible but will require additional policy interventions. Expected focal points in the upcoming policymaking session include stimulating household consumption, expanding services, and promoting innovation. Shifting the growth model away from infrastructure and property dependency toward domestic demand is seen as a structural necessity, not merely a short-term fix. This transition, while logical, may yield uneven outcomes in the short term due to entrenched institutional and behavioral patterns.

In summary, China’s economic performance in Q3 2025 underscores a complex interplay of internal fragility and external resilience. Weak consumer sentiment, entrenched property sector malaise, local government debt, and creeping deflation all act as structural brakes on growth. However, adaptability in trade and continued government willingness to intervene provide a cushion. The outlook for the remainder of 2025 hinges on the effectiveness of upcoming measures to revive domestic demand and steer the economy toward a more sustainable model.

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Market Overview

During the annual IMF meeting, Chinese officials privately told their international counterparts that the country’s new export controls on rare earths are part of a long-term regulatory framework and a response to U.S. provocations, rather than a shift toward economic aggression. Despite these reassurances, the impact has already become visible. September’s rare earth exports dropped to 6,538 tonnes from 7,338 tonnes in August, reversing a steady upward trend and marking a sharp break from the highest monthly export level since 2012.

This unprecedented move has stirred concern in Europe and Japan, raising alarms about potential supply chain vulnerabilities. The tension is simultaneously giving the U.S. an opening to solidify alliances. However, the G7 and other global actors appear to be adopting a wait-and-see approach, pending the outcome of an expected meeting between U.S. President Donald Trump and Chinese President Xi Jinping.

Diplomatic Outlook

Japan’s Finance Minister Katsunobu Kato warned against a retaliatory spiral that could destabilize the global economy and markets. Meanwhile, in a sign of cautious diplomacy, U.S. Treasury Secretary Scott Bessent held phone talks with Chinese Vice Premier He Lifeng and is scheduled to meet in person next week. President Trump remains publicly optimistic about reaching a resolution.

The rare earth market is highly sensitive to geopolitical signals due to China’s dominant position as a global supplier. A sharp drop in export volume, even if framed as regulatory recalibration, signals potential supply risks that could disrupt industries from electronics to defense manufacturing. While diplomatic communications are ongoing, markets may remain volatile until concrete resolutions or trade frameworks emerge from upcoming bilateral meetings.

For traders and analysts focused on rare earth-linked equities or materials (such as REE ETFs or companies like Lynas, MP Materials), monitor upcoming U.S.-China meetings closely. Should no easing be signaled, defensive positions or supply chain diversification plays may become more attractive in anticipation of further tightening or retaliatory measures.

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Expanding Infrastructure and Capacity Goals

The National Energy Administration (NEA) of China, in collaboration with five other state-level departments, has unveiled a strategic roadmap titled the “Three-Year Action Plan to Double the Service Capacity of EV Charging Infrastructure (2025–2027).” This initiative targets more than 300 million kilowatts (300 GWh) in public charging capacity and plans to grow the nationwide network to 28 million charging points by 2027. This expansion is intended to support a projected EV fleet of 80 million vehicles.

Despite China's relatively mature EV charging market, several challenges persist, especially in rural areas where coverage remains limited. The current average charging power at public stations stands at 45.5 kW insufficient during peak traffic hours. To address this, the government plans to deploy 1.6 million new DC fast chargers in urban zones, including 100,000 high-capacity units. Additionally, the plan outlines improvements to geographical distribution, power supply reliability, and rural infrastructure deployment.

Upgrading Aging Infrastructure and Highway Expansion

To enhance grid reliability, China will retrofit stations older than eight years and upgrade those with sub-800V capacity to meet current safety and performance standards. Furthermore, 40,000 new ultra-fast chargers (60 kW+) will be added across major highway service zones, ensuring rapid charging access along critical travel routes. All expressways except in extreme terrains will be equipped with fast-charging facilities.

To ensure full national coverage, at least 14,000 new DC chargers will be deployed in towns currently lacking public infrastructure. Moreover, the government is piloting private charging projects across 1,000 residential communities, providing regulatory and financial support for home-based infrastructure planning, construction, and operation.

Innovation: Bi-Directional Charging and Grid Integration

A key innovation in this action plan is Vehicle-Grid Integration (VGI), where electric vehicles actively participate in balancing power grid loads and storing surplus energy. Under this model, around 5,000 bidirectional chargers will be installed nationwide, representing a shift toward smarter and more interactive energy ecosystems.

Implementation responsibility is distributed across national and local authorities. While the National Development and Reform Commission (NDRC) and NEA lead the strategy at the macro level, local governments are tasked with tailoring regional plans and supporting grid upgrades. Power operators and industry stakeholders must also align with this national vision.

China's NEV (new energy vehicle) sales reached record levels in September, with 1.6 million units sold, including 1.06 million fully electric vehicles. Nearly 50% of all new cars sold in China are now capable of electric charging. However, this figure includes both domestic use and exports, further amplifying the demand for robust and scalable charging infrastructure.

China's three-year EV charging action plan reflects its ambition not only to accommodate the explosive growth of electric vehicles but also to create a globally leading infrastructure model. By integrating rural accessibility, grid innovation, and cross-agency coordination, the country aims to lead the next era of sustainable transport infrastructure development.

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