In the bustling wholesale markets of Yiwu, a city at the heart of China’s manufacturing prowess, there are few signs that American tariffs are succeeding in crippling the country’s industrial might. Instead, factories continue to thrive, suggesting an economic resilience that may exceed Washington’s expectations.
This manufacturing strength serves as a crucial trump card for Beijing. Last week, China tightened its grip on the global supply of critical rare earth metals, ending a fragile trade truce with the United States and signalling its readiness to fight, as a New York Times report described it. While rare earths are a powerful lever, China’s factories are another. Despite the high tariffs imposed by US President Donald Trump, the country’s industrial sector continues to buttress economic growth, giving President Xi Jinping a stronger hand in his confrontation with America.
The evidence of this resilience is palpable in Yiwu, home to the world’s largest wholesale market. Here, vast complexes sell everything from toys and electronics to drones. Last week, the city unveiled a new trade centre, equivalent in size to hundreds of football pitches, designed to be a platform for exports and a showcase of China’s “solid manufacturing power to the world.”
With the return of tariffs, the city has begun to shift its exports to new markets in Southeast Asia and South Africa, according to the newspaper. In a sign of this adaptation, authorities at Yiwu’s new digital trade hub allow vendors to use an internet connection that bypasses China’s great firewall, enabling them to sell products on platforms like TikTok and YouTube, which are banned elsewhere in the country.
A competitive edge
Several factors are contributing to this resilience. The Chinese yuan has weakened against most currencies this year, making Chinese exports more competitive even as it signals domestic economic headwinds. “The worse things get domestically, the more competitive their exports become,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics. “Between the deflationary shock and the weak currency, Chinese goods have become cheaper and more competitive against products from many other countries.”
According to Chinese customs data, exports rose to $328.6bn in September, the highest monthly level in six months. While exports to the United States fell by 27%, they jumped in most other markets.
However, this export-driven strategy is not without risks. It relies on other markets remaining open, a prospect facing growing opposition, even in some Southeast Asian countries that have seen their imports from China soar. The surge in exports is also a warning sign about the domestic economy, which economists say is suffering from a “deflationary shock.” With a four-year property market collapse eroding household savings, prices are falling, youth unemployment is rising, and urban wages are stagnating.
Despite these challenges, China’s trade surplus this year has exceeded $875bn and is on track for a new record. This manufacturing power, backed by government policy, is part of a major economic shift that is seeing China export its products to a wider array of markets around the world.
A billion dollars a day
Six months after President Trump launched his trade war, the durability of China’s exports underscores the vital importance of many of its products, despite US tariffs reaching as high as 55%.
Every day, nearly $1bn worth of Chinese goods are shipped across the Pacific to the United States. While the overall value of trade has fallen over the past six months, exports of some products have actually increased compared to 2024, defying the escalating tensions.
This reality suggests that tariffs have a limited ability to curb US imports, given the difficulty of bypassing China’s dominance in sectors like rare earth metals and electronics, at least in the short term.
“China’s strong position in global supply chains gives it a degree of negotiating power with US importers in the near term,” wrote Bloomberg economists Chang Shu and David Qu, warning that other countries cannot quickly replace China as a key supplier. “Redirecting production will take time.”
This situation strengthens President Xi’s negotiating position as his team prepares for talks aimed at extending the temporary tariff truce beyond its 90-day limit, which ends in November.
While most of China’s top 10 export products to the US saw a decline in the last quarter, shipments of e-cigarettes and electric bicycles held firm. Exports of refined copper sheets surged from near-zero to $270m, while electrical cable exports jumped 87% to $405m in the same period.
“Both sides may seek to reduce their mutual dependence, but it is impossible to reduce it to zero,” said Zhaoping Xing, chief China strategist at Australia & New Zealand Banking Group.
Despite the signs of resilience, the broader trend is towards a contraction in trade between the two economic giants. Chinese shipments to the US this year have fallen below $320bn, back to the level seen in 2017 before the first rounds of the trade war began. The IMF has estimated that the damage to bilateral trade this year exceeds that seen during Trump’s first term. “The trade decoupling between the US and China appears to be happening at a faster pace compared to the 2018-2019 tariff shock,” the fund said in a report this month.
