China: Imports come into play - Standard Chartered

China's exports likely to plunge, but imports may also slow, mitigating the tariff impact on net exports. Import intensity has been falling due to 'onshoring' of production and economic rebalancing. China's importance as a final demand market has risen notably, adding to its trade bargaining power, Standard Chartered's economists note.

A changed playbook

"The US and China's mutual tariffs have scaled sharply higher, with bilateral trade set to collapse near-term. While we estimate the direct drag on China's GDP growth at nearly 1.8ppt in the next 12 months, the final result may not be as devastating. The 90-day tariff delay for the US' other trade partners keeps the door open for Chinese goods to flow along the supply chain. Some export-oriented goods could also be pivoted to China's domestic market. And moderate CNY depreciation could help adjust the trade balance, which, along with China's decreasing import reliance and shift in focus to supporting domestic consumption, may somewhat offset the trade war's negative impact on net exports."

"As a final demand destination, China's share of global value-added imports (adjusted for re-exports and intermediate goods trade) has grown in the past two decades while the US' share has fallen notably. We see significant potential for China to boost domestic consumption's share of GDP, which should make it attractive to global exporters and add to its bargaining power in trade negotiations."

"While policy-makers' strategy to increase China's self-reliance and rebalance the economy should lower overall import intensity, import demand may continue to expand as the consumption-focused growth model takes hold and its benefits are shared with China's trade partners via a continued opening up of its markets. For now, China remains deeply integrated in the global manufacturing supply chain and trade system; as such, we think the US-China trade standoff is unsustainable and bilateral tariffs will likely be lowered substantially over the coming months."