Trade War Monitor, May 21: U.S.-China Trade War Truce Prompts Export Frenzy

Following a temporary truce in the U.S.-China trade war last week, Chinese exporters are racing to ship goods to the United States before the situation potentially deteriorates. This surge is causing freight rates to skyrocket and cargo slots to become overbooked at major Chinese ports, mirroring the supply chain chaos experienced during the pandemic-era surge in trade [para. 1][para. 6]. A Shanghai freight forwarder described the export rush as “trying to ship a year’s worth of goods in three months,” highlighting severe congestion and a prevailing sense of panic among exporters [para. 7].

This scramble comes in the wake of a 90-day tariff reprieve, which has led shipping costs to soar. According to the Shanghai Shipping Exchange, as of May 16, the Shanghai Containerized Freight Index (SCFI) rose 10% from the previous week to 1,479.39. Freight rates to the U.S. West Coast surged by 31.7% to $3,091 per forty-foot equivalent unit (FEU), and to the East Coast by 22% to $4,069 per FEU [para. 8].

Despite the temporary easing of trade tensions and a pick-up in international shipping activity, China’s domestic economic indicators remain weak. Fixed-asset investment grew only 4% year-on-year for the first four months of 2025, retail sales rose by 5.1% in April, and industrial production increased by 6.1%, all slower compared to previous years. Analysts partly blame the sluggishness on recent tariff hikes [para. 3].

In tandem with the export rush, Chinese rare earth magnet producers have resumed overseas shipments under a new, more restrictive export licensing regime implemented in April. This move, which industry observers view as Beijing leveraging its dominance in the global rare earth supply chain, has lifted prices and raised supply chain concerns in Europe and the U.S. Three leading Chinese magnet companies have confirmed resuming shipments to Europe and North America after receiving their required export licenses. These permits are issued on a “one batch, one license” basis due to variations in metal content [para. 4][para. 10].

To support exporting companies amid these uncertain conditions, regulatory authorities in China have expanded export credit insurance and domestic trade credit insurance programs. Additionally, they have reduced banks’ reserve requirement ratios and cut interest rates, marking the first such monetary moves since September [para. 12].

Following earlier capital outflows triggered by rising U.S.-China tensions, institutional investors are reassessing China, attracted by opportunities to diversify geographically amid recent declines in U.S. markets. Leading passive global funds that had withdrawn due to tariffs are now returning, though foreign investment remains cautious [para. 14].

Reflecting improved trade prospects, major banks such as UBS have revised China’s 2025 GDP growth forecast upward to 4% (from 3.4%). Second-quarter growth is now projected to reach 4.5%–5% year-on-year, driven by the export surge, stimulus efforts, and a favorable year-on-year base [para. 16][para. 18]. Morgan Stanley has similarly upgraded its outlook, anticipating robust second- and third-quarter figures [para. 19].

Longer-term, the underlying geopolitical rivalry and divergent economic interests between the U.S. and China pose unresolved risks. The aftermath of recent tariff wars has weakened the World Trade Organization and reinforced high, uneven U.S. tariffs, challenging the prospects for global trade liberalization. Moving forward, international trade may trend toward regionalization, with smaller free trade blocs supplanting broad globalization [para. 2][para. 23][para. 24][para. 25].