China's C/A: Weathering the tariff war - Standard Chartered

Peak fear around US-China tariff war is likely behind us; we expect tariffs to stay at current levels in 2026. Diversification, upgrading, and innovation to help China maintain export competitiveness, Standard Chartered's economists report.

Navigating the storm

"The latest US-China trade agreement marks a significant de-escalation of tensions; the deal features mutual concessions on tariffs, export controls and other restrictions, and is intended to last one year. China's rare earth controls have proven to be an effective bargaining tool and will likely remain so for at least a few more years. We expect tariffs to remain at current levels through 2026 in our baseline; future negotiations will likely continue to focus on pragmatic, quid pro quo arrangements."

"China's exports have held up well this year despite higher US tariffs, while imports have remained soft compared with other Asian countries (Figure 1). As a result, net exports were the key contributor to growth as of Q3, offsetting weak domestic demand, and the current account (C/A) surplus has registered a record high since 2011. We believe the resilience of China's exports is built on more than just trans-shipment and front-loading: diversification, upgrading, and innovation are also driving competitiveness. Additionally, the softness in imports stems not only from weak demand but also from reduced import intensity due to domestic rebalancing and increasing self-reliance in key inputs."

"China's total factor productivity (TFP) growth has finally resumed its upward trend in recent years following the extended deceleration in the 2010s. Efficiency gains, likely benefiting from automation and digitalisation, have been disinflationary, fuelling China's export strength especially in the manufacturing sector. With the 15th Five Year Plan (FYP) prioritising technology and promoting services exports, we expect China's C/A surplus to remain sizable. We revise up our C/A forecasts for 2025-27 to 3.3%, 2.5% and 2% of GDP, from 2.8%, 1.7% and 1.4%, respectively."