Chinese companies are ramping up shipments to Britain to levels not seen in years, a possible sign that the Asian factory powerhouse is finding export markets unimpeded by high tariffs like those President Donald Trump has imposed.Official data from both nations point to a pick-up in the value of Chinese exports to the UK after the US president slapped hefty duties on products from the world’s second-largest economy before recently reducing them. Exports of small parcels and electronics have jumped in a sign of possible rerouting to avoid the US tariffs.
The figures add to evidence that as Trump’s trade barriers reduce the US’s reliance on Chinese production, demand for those exports often shifts elsewhere rather than disappears.
While Beijing reached a deal with the Trump administration to alleviate the highest of Washington’s import taxes, that’s considered a fragile truce and US tariffs on Chinese goods are still elevated at 55%, more than double the rate imposed before Trump’s second term began Jan. 20.Business secretary Jonathan Reynolds has said his department is monitoring for trade diversion effects and stands ready to use powers to prevent dumping on the UK market, such as cheap steel.The effects of China flooding Britain with cheaper goods can offer both upsides and downsides: It can bring down inflation faster while also undercutting domestic manufacturers on pricing.Goods imports from China climbed to £6 billion ($8.2 billion) in April, up 11% from a year earlier and the highest in more than two years, according to seasonally adjusted figures from the UK’s Office for National Statistics. Non-seasonally adjusted data from Beijing also suggests exports sent to the UK in May was the highest since mid-2022 and running above levels normally seen for this time of year.Sanjay Raja, chief UK economist at Deutsche Bank, said the data could have “important consequences for inflation, with trade diversion into the UK likely to put downward pressure on core goods.”“It seems natural to think that there will be some trade dumping across Europe, particularly across things like household goods, clothing goods, and leisure goods,” he added.
One possible sign of export diversion from the US is small parcels from Shein Group Ltd., Temu and other companies, with shipments of those to the UK and Europe rising rapidly in May after the US imposed some of its highest tariffs on imports from China.Exports from China of small packages to the UK were up 66% in May from a year earlier, hitting a record of almost $2 billion in the first five months of this year.Chinese exporters of low-value items in small packages directly to consumers have been saying they will shift to other markets once the US imposed tariffs. That looks to have happened in May, with global exports basically unchanged despite a big drop in shipments to the US.This also looks to be an issue for many European countries, with exports across the 27-nation trading bloc of small packages also picking up.Another area where trade is realigning is in electronics, with Chinese exports of smartphones to the UK rising 26% in the first five months of this year, while the value of shipments to the US fell 18%. Shipments of computers to the UK increased 11% while slipping 25% to the US over the same period.Bank of England rate-setters are monitoring the data closely to see whether trade diversion may help to bring down inflation faster in the UK.In a rush to sell products once destined for the US, Chinese exporters may provide discounts when they divert the goods to other markets. That could help stem a recent pick-up in goods prices, which has helped to push overall UK inflation to 3.4% — its highest in more than a year.However, external BOE rate-setter Catherine Mann recently cast doubt on this channel, saying that retailers may use the discounts to help them rebuild profit margins squeezed by inflation.“The data shows tentative signs of Chinese exports diverting to the UK,” said Thomas Sampson, associate professor at the London School of Economics and Political Science. “The increases to date are relatively small and monthly trade data can be quite volatile. So it’s too soon to conclude that big changes are afoot.”Also Read: Yes Bank shares’ lowest price target implies a 25% downside on lack of re-rating triggers
