China's Trade Surplus Dips in April: Exports Defy Tariffs, But Storm Clouds Loom

China’s April trade data revealed a paradox: exports surged past expectations, yet the trade surplus shrank from March’s levels, underscoring both resilience and vulnerability in the face of escalating U.S. tariffs. While the headline numbers paint a mixed picture, the data hints at deeper structural shifts in global trade and the urgency of resolving U.S.-China trade tensions.

Exports, the star performer, rose 8.1% year-on-year in April, far exceeding forecasts of 1.9% growth. This outperformance came despite the highest-ever U.S. tariffs (up to 145%) and China’s retaliatory duties (up to 125%). Total exports hit ¥315.69 billion (US$315.69 billion), though the growth rate slowed sharply from March’s 12.4%. Meanwhile, imports dipped 0.2%, barely bettering expectations of a 5.9% decline. The resulting trade surplus in U.S. dollar terms expanded to $96.18 billion—above the $89 billion estimate—but fell slightly from March’s $102.63 billion.

The yuan-denominated surplus also declined, dropping to ¥689.99 billion from ¥736.72 billion in March, signaling a potential cooling of domestic demand. Imports rose 4% month-on-month, suggesting that while external demand remains uneven, internal consumption is also losing momentum.

Regional Winners and Losers: Diversification vs. U.S. Declines

The regional breakdown tells a story of shifting trade dynamics. Exports to Southeast Asia and Latin America each grew 11.5% year-on-year in the first four months of 2025, while shipments to India and Africa soared 16% and 15%, respectively. These gains reflect China’s success in diversifying trade partners, particularly in emerging markets.

In contrast, exports to the U.S. fell 2.5% year-on-year, with the bilateral trade surplus narrowing to $20.46 billion—down from $27.6 billion in March. This decline aligns with U.S. import data showing a rise in sourcing from non-Chinese suppliers not subject to tariffs, such as Vietnam and Mexico.

The "Tariff Lag" and Pre-Stockpiling Effects

Analysts attribute April’s export resilience to two factors: pre-tariff stockpiling by U.S. buyers and transshipment via third countries. As U.S. tariffs took effect in early 2025, importers likely front-loaded purchases, temporarily boosting Chinese exports. Similarly, goods destined for the U.S. may now be routed through countries like Malaysia or Singapore to avoid duties, a practice that could mask the true impact of tariffs.

However, Zhang Zhiwei, chief economist at Pinpoint Asset Management, warns that this "tariff lag" will eventually bite. "The pain of higher tariffs is just starting to show," he said, noting that the true drag on trade could intensify in coming months.

The Domestic Demand Dilemma

Imports’ weak performance (down 0.2% year-on-year) and the yuan-denominated surplus decline highlight a worrying trend: slowing domestic demand. While exports to emerging markets are strong, China’s internal economic activity—driven by consumption and investment—is losing steam. This could pressure policymakers to roll out further stimulus, though the government has so far been cautious about aggressive measures.

What’s Next?

The data underscores two key risks for investors:
1. Trade War Fatigue: The U.S.-China trade relationship remains a major overhang. With negotiations stalled, the current "transshipment" workaround won’t last indefinitely.
2. Supply Chain Shifts: Companies are already moving production or sourcing out of China, a trend that could accelerate if tariffs persist. Sectors like electronics and textiles are particularly vulnerable.

Meanwhile, the resilience of non-U.S. exports offers hope. Investors should watch trade flows with Southeast Asia, Africa, and India, where China’s trade ties are deepening.

Conclusion: A Resilient Present, Uncertain Future

China’s April exports defied expectations, but the numbers mask underlying vulnerabilities. The trade surplus decline and slowing domestic demand suggest that the tariff-driven headwinds are starting to take hold. While transshipment and stockpiling have provided a temporary boost, the structural challenges—geopolitical tensions, supply chain reconfiguration, and weak domestic demand—are formidable.

The data paints a clear path forward: U.S.-China trade talks must deliver a resolution, or the current export gains will prove fleeting. For investors, the focus should shift to companies benefiting from China’s non-U.S. trade relationships and those insulated from the trade war’s disruptions. Without a breakthrough, the storm clouds on China’s trade horizon will only grow darker.

The numbers tell the story: 8.1% export growth is impressive, but it’s built on sand. The next few months will determine whether China’s trade engine can sustain its momentum—or if it’s already beginning to stall.