Unexpected Decline Signals Fragile Recovery Amid Global Slowdown and Domestic Headwinds

China’s export engine — a critical pillar of its post-pandemic recovery — faltered in October, contracting 1.1% year-on-year, marking the first decline since February. The sharper-than-expected drop highlights renewed pressure on the world’s second-largest economy as global demand weakens and shipments to the U.S. plunge by more than 25%, underscoring the enduring cost of trade frictions and shifting supply chains.

The latest figures surprised nearly all economists surveyed by Bloomberg, with most predicting continued expansion. The disappointment arrives at a delicate moment for Beijing, as the country contends with sluggish consumer spending, a deepening property crisis, and a cautious investment environment.

Economists at Barclays warned that if export strength cannot recover soon, “China’s growth could face a ‘triple whammy’ from the prolonged contraction in the property sector, weakened private consumption, and softening exports.”

Trade Tensions and Currency Dynamics Pressure China’s Export Momentum

The October setback followed months of resilient trade performance, driven by Chinese firms expanding into new markets amid Western decoupling trends. Yet, even diversification could not offset the slump in U.S. demand. Shipments to other destinations rose 3.1%, but the gains were too modest to balance the steep losses in trans-Pacific trade.

Tensions between Washington and Beijing remain a defining drag on trade dynamics. Although Presidents Donald Trump and Xi Jinping agreed in late October to a limited thaw — including a 10% reduction in U.S. tariffs on Chinese goods starting next week — the impact may be muted. Duties on Chinese products remain higher than those imposed on competitors such as Vietnam and Mexico, continuing to erode China’s pricing advantage in key categories like electronics, machinery, and consumer goods.

The yuan’s appreciation over the past year has compounded the challenge. Having reached its strongest level against the dollar in nearly a year, the Chinese currency has made exports less competitive even as deflation pressures have lowered domestic production costs. Analysts at Lombard Odier noted that the currency’s strength, coupled with import restrictions in markets such as Mexico, is beginning to weigh on Chinese sales to ASEAN and Latin America — regions that had helped offset U.S. losses earlier in the year.

Broad-Based Weakness Across Markets Reflects Cooling Global Demand

October’s trade data showed declines not only in the U.S. but also across multiple major partners. Exports to South Korea, Russia, and Canada all recorded double-digit drops, while growth to the European Union slowed to just 1%, the weakest since February.

Despite the monthly setback, China’s export total for the first ten months of 2025 still surpassed $3 trillion, marking the fastest pace on record. The cumulative trade surplus has reached $965 billion, buoyed by weak import growth, which rose only 1% in October, leaving a surplus of $90.1 billion for the month.

Meanwhile, China’s Shanghai port processed its fewest containers since April, signaling a broader deceleration in logistics activity. However, the final week of October brought signs of stabilization — container traffic jumped nearly 14% in the week ending November 2, suggesting that some of the weakness may be temporary as firms adjust to new trade terms.

Fragile Near-Term Outlook, but Structural Resilience Ahead

Economists expect China’s economy to post its slowest quarterly growth since late 2022, when COVID lockdowns still constrained activity. Yet, some analysts see reasons for cautious optimism. Goldman Sachs economists said that while front-loading of shipments may dampen short-term data, structural trends — including supply chain diversification, digital trade, and sustained global demand for electric vehicles — could help stabilize export performance into 2026.

Beijing’s immediate challenge will be to maintain momentum amid tightening global liquidity, geopolitical uncertainty, and a cooling property sector. If trade with the U.S. fails to rebound meaningfully, China may rely more heavily on emerging markets and domestic consumption to drive growth. For now, the October slump serves as a reminder that the road to recovery remains uneven for the world’s manufacturing powerhouse.