Contrarian Plays in China's Trade Crossroads: Navigating Tariffs and Weak Demand

The latest trade data from China paints a paradox: while exports to the U.S. slump under punitive tariffs, shipments to Europe and Southeast Asia surge, and domestic demand languishes. For investors, this divergence offers a rare opportunity to bet on sectors thriving in the new trade reality—and avoid those still shackled to U.S. frictions. Here's how to navigate the chaos.

The Tariff Truce's Uneven Impact

The May 14 tariff agreement between the U.S. and China reduced levies from 145% to 51.1% on key goods, but it came too late to salvage April's 21% collapse in U.S. exports. Yet the truce's partial relief has fueled a scramble among exporters to reorient supply chains. The result? A sectoral bifurcation in opportunities:

1. Logistics: Winners of the Route Shift

Ports and logistics firms serving Europe and Southeast Asia are prime contrarian bets. Take Taicang Port, which saw its JISU FORTUNE vessel carry over 5,000 vehicles to the Netherlands and Belgium in May. As Chinese exporters pivot to these regions, bonded logistics zones and e-commerce routes—where Taicang dominates—are critical.

The port's shares have underperformed broader markets this year, but its 22.3% year-on-year growth in bonded logistics in April suggests a turnaround is near.

2. Rare Earths: A Geopolitical Hedge

China's dominance in rare earth minerals—critical for semiconductors, EV batteries, and defense tech—makes this sector a contrarian must-buy. With tariffs easing on non-U.S. markets, companies like China Rare Earth Holdings (HKEX: 0769) can capitalize on rising demand from Europe and Southeast Asia.

Despite a 12% dip in 2025, rare earth prices are up 18% year-to-date, driven by EV adoption and U.S.-China supply chain fragmentation.

3. New Energy Vehicles (NEVs): High-Tech Resilience

NEV supply chains—think battery makers like Contemporary Amperex Technology (CATL) and automakers like BYD—are thriving as their premium pricing and high-tech content shield them from tariffs. European buyers, in particular, are snapping up Chinese NEVs, with exports to Germany surging 20.4% in April.

BYD's 63% year-on-year revenue growth in Q1 outpaced rivals, underscoring the shift to green tech even as overall auto exports lagged.

The Domestic Demand Weakness Opportunity

Imports' 3.4% drop in May signals sluggish domestic demand—but this is a contrarian's goldmine. Undervalued firms in sectors insulated from trade wars, like healthcare or consumer staples, could rebound as the government rolls out stimulus. For example:
- Shanghai Fosun Pharmaceutical (02196.HK): A low-risk play in healthcare, which remains a priority for domestic spending.
- Nongfu Spring (09633.HK): A stable consumer goods name benefiting from rising per capita consumption.

The Pitfalls: Avoid U.S.-Tethered Firms

Stay clear of manufacturers overly reliant on U.S. sales, such as Foxconn (00231.HK) or apparel exporters like Anta Sports (2020.HK). Goldman Sachs' warning of 16 million jobs at risk in U.S.-exposed sectors underscores the vulnerability here.

Tactical Allocations for Now

• Overweight logistics (Taicang Port, express delivery firms like ZTO Express).
• Buy rare earths and NEV supply chains for long-term structural growth.
• Dip into domestic staples as imports stabilize.
• Underweight U.S.-exposed sectors until trade tensions fully abate.

Final Take

China's trade data isn't just a numbers game—it's a roadmap for where capital can thrive in a fragmented global economy. The tariff truce hasn't solved the U.S.-China divide, but it has created clear winners in logistics, tech, and green energy. For contrarians, this is the moment to bet on adaptability—and avoid the relics of the old trade order.

The divergence is clear. Follow the ships to Europe and Southeast Asia—not the tariffs to Washington.