Investing.com-- China’s exports are likely to deteriorate amid a bitter trade war with the U.S., ANZ analysts said in a Tuesday note, but the country’s trade balance- particularly its massive surplus- may be less impacted.
ANZ said that China’s exports to the U.S. had increased its product sophistication, which in principle could make exports relatively less price sensitive than goods imported from the United States.
U.S. President Donald Trump’s trade tariffs have also largely overlooked services, ANZ noted, with China’s retaliatory restrictions on U.S. service exports standing to potentially diminish the U.S.’ service surplus with Beijing.
“As China continues to upgrade its manufacturing capacities, many analyses have noted its export basket shifting to a more complex mix and becoming less price sensitive in modern global supply chains,” ANZ analysts wrote in a note.
ANZ noted that China’s product complexity index- a gauge of how many countries can produce the same product and the economic complexity of the countries- doubled to 0.50 in 2024 from 0.23 in 2000, granting Beijing’s exports less sensitivity to trade tariffs relative to duties on U.S. goods.
“The final products China exported to the US are relatively complex with positive PCI, which means fewer countries can produce the same product and the exporting country requires a more complex supply chain network,” ANZ analysts said.
This could keep China’s large trade surplus with the U.S. largely intact, despite Trump’s efforts to reduce this deficit with his tariffs.
The latest round of trade tariffs also stand to dent the U.S.’ services surplus with China. A particular driver of this is Chinese tourism and education in the U.S., which Beijing now appears to be cracking down on.
Trump hiked tariffs on China to as high as 245%, while China retaliated with a 125% duty, with ANZ noting that the tension had now moved beyond merchandise trade to broader economic relationship.
Still, ANZ noted that both the U.S. and China may be more open to negotiation after seeing the economic damage of their trade war in real terms. ANZ trimmed its growth forecasts for both the U.S. and China.