How China's exports avoid US tariffs

China's has begun to aggressively transship goods to the US via third countries

For the past three years, I’ve been documenting transshipment of goods from Germany to Russia via Kyrgyzstan and Uzbekistan. If the Russians are able to figure out how to import German cars via such out-of-the-way places, there is little doubt that China is also capable of using such transshipments to circumvent US tariffs. This post examines the magnitude of Chinese transshipments, finding that they began to rise already in late 2024 and have grown to such an extent that they now fully offset the drop in China’s direct goods exports to the US.

China’s customs agency just published import and export data for April 2025, the month that US tariffs hit in earnest. These data are seasonally adjusted - this is important because Chinese New Year heavily distorts trade in the early part of every calendar year - and cover trade with 15 of the worlds largest economies, including the US, the EU, Japan and the UK in the advanced world as well as Brazil, Hong Kong, Indonesia, Singapore, South Korea, Thailand and Vietnam in emerging markets.

The chart shows China’s trade surplus with the US (black line) and China’s trade surplus with the 14 other economies (blue line). China’s trade surplus in April 2025 fell sharply, from $33 bn in March 2025 to $21 bn in April 2025, a drop of $12 bn. For reference, China’s trade surplus in February 2020 - at the height of COVID - fell $15 bn, so the April 2025 drop in China’s trade surplus is huge. This fall in China’s trade surplus with the US is more than offset, however, by a rise in its trade surplus with the 14 other economies. That surplus began rising in late 2024, i.e. before US tariffs kicked in, and has risen a cumulative $20 bn. This raises the possibility that - despite all the rhetoric - the inflow of Chinese goods into the US may not have fallen as much as headline numbers suggest.

A couple of caveats apply. First, in the face of prohibitive US tariffs, Chinese goods will no doubt be looking for new markets, so it’s not obvious that ALL of the rise in China’s non-US trade surplus is about transshipments to the US. However, my bias is to think that the bulk of it is. After all, the US is the world’s biggest consumer of goods and China is the world’s biggest producer. These two forces have to meet - even with high US tariffs on China - and transshipments are the way that happens. Second, many countries, including some of the main transshipment hubs like Thailand and Vietnam - are racing to make trade deals with the US. The US will likely make every effort - as part of those negotiations - to shut these transshipments down. My bias therefore is to think that - unlike Russian transshipments that are ongoing for over 3 years now - the Chinese transshipment trade will be of short duration.

One last point that is worth making in this context. US tariffs have trapped a wall of goods in China that’s trying to get out. Much has been said about how much of an inflationary impulse this poses to the US, but little has been said about what a huge deflationary shock all this is for China. That deflationary shock is a very big deal, which is something I’ll write about in coming posts.