As tensions between the United States and China escalate into a full-blown trade war triggered by US President Donald Trump’s imposition of levies on the Asian country that was raised as high as 145 per cent, Nomura said the current situation has revealed how economies are exposed to the flood of ‘cheap China imports’. These countries particularly belong to the Asian region.
According to the report by Nomura based on data analysis for 45 countries wherein it mapped China’s import share to local manufacturing production at a detailed product level (at 6-digit HS code level; i.e., over 5000 products), it found that the flood of China imports was already impacting economies before Trump started his second term. It further noted that the countries that experienced large increases in their shares of imports from China are generally also the ones that faced sharpest slowdowns in manufacturing growth.
While the findings are based on the data that are up to 2024, predating Trump 2.0, this year with a full-blown US China trade war in picture, Nomura said, “…the results illuminate just how exposed economies are to the flood of cheap China imports turning into a deluge, particularly those in Asia.”
Background check – Let’s go back a little in time
Now for the background story of this trade war…Donald Trump had, on March 4, announced his intention to impose reciprocal tariffs, criticizing countries like India, China, Brazil, and the European Union for imposing higher tariffs on US goods than the US does on theirs. He had said that the move is aimed at correcting longstanding trade imbalances and making the US “rich again and great again”.
Subsequently, on April 2, 2025, Trump formalized this policy. The executive order outlined a 10 per cent universal tariff on all imports to the US, effective April 5. Besides this, a higher tariff in the range of 11 per cent to 50 per cent on imports from countries that trade with the US was expected to take effect on April 9.
However, on April 9, the US administration announced a 90-day postponement for the implementation of these higher tariffs for over 75 countries, barring China. Trump announced an immediate increase in tariffs on China to 125 per cent, up from the previously declared 104 per cent, which later was increased to 145 per cent after China retaliated.
In line with this, it’s safe to say that what was supposed to be an era-defining trade war launched by Donald Trump against a range of countries has, for now, narrowed in on a singular target: China.
A little more into the past, if we go as far as the 1990s, China’s abundant low-cost labour, FDI inflows and technological advances were transforming the economy into the manufacturing workshop of the world. In 2017, US imports from China peaked at 25 per cent of total US non-oil goods imports. While it’s not as clear if this flood of ‘cheap imports’ from China was directly responsible for the hollowing out of US manufacturing, it did play an important role in Trump’s rise to power in 2017, on his pledge to rebalance trade and bring manufacturing investment and jobs back home. During Trump’s first term and Joe Biden’s presidency, there was an almost ten percentage point decrease in China’s share of US non-oil goods imports to 16 per cent in 2024, the Nomura report maintained.
Yet over this period, China’s share of global goods exports remained near its all-time high of 15 per cent. It was clear that China’s highly competitive manufacturers, far from retreating, have penetrated new markets around the globe to make up for lost orders in the US.
Basis the data collated by Nomura, it said, “Over 2017-24, China’s exports to the US grew by a cumulative 21 per cent to $524 billion, whereas China’s exports to the rest of the world grew three times as fast, by 67 per cent to $1.2 trillion, though a non-trivial portion of these exports – we estimate some $100 billion – were re-exported to the US via Mexico and ASEAN, as a way for companies in China to circumvent US tariffs.”
And now through trade negotiations, Trump is pressing Mexico and ASEAN countries to close the backdoor loophole of China re-routing exports to the US through them, and per Nomura, he will also pressure US allies to assist in boxing-in China by clamping down on China dumping imports of overproduced goods and refraining from absorbing any Chinese trade diversions from, for example, the US to the EU.
What are China’s options?
If we assume that Trump succeeds in boxing-in China, Nomura said, in that case, in aggregate some $560 billion of China’s annual exports would need to find new markets.
According to the brokerage firm, China essentially has three options:
1. A sudden, significant retrenchment in manufacturing production. “This is the least likely outcome, as it would lead to large-scale job losses and, for an already fragile economy, risks outright recession,” it said.
2. Increasing fiscal and monetary policy stimulus to boost domestic demand. This, per Nomura, will not be very effective as “it is not easy to encourage households to run down their high precautionary savings when the economy is still grappling with a property market crisis and a US-China trade war”.
3. Increasing import penetration into non-US markets. This is likely but the consequence of this may be that China’s increasing import penetration disproportionately affects other EM economies.
Focusing on option 3, Nomura said, “To illustrate the significance of China redirecting its massive exports to other EM economies, we assume that half of the $560 billion of China’s exports are redirected to emerging market and developing economies (EMDE, IMF definition), then China’s share in EMDE’s (ex-China) total imports would jump from 21.4 per cent to 25.2 per cent. That is a significant jump in just one year.”
Within EMDE, China has a higher import penetration to countries in Asia, and because of the close geographical proximity, it is reasonable to assume that a disproportionate share of China’s trade diversion would be to Asia. “Of China’s trade diversion to EMDE, if we assume that half of the $280 billion of China’s exports are redirected to Asia’s EMDE, then China’s share in EMDE’s (ex-China) total imports would jump from 25.5 per cent to 31.7 per cent, and potentially with much higher shares for some smaller economies,” it said.
Economic impact of ‘cheap China imports’
“A sudden flood of cheap China imports into the EM economies can be very disruptive.” said Nomura. Faced with increasing intense competition from imports, local companies are likely to initially lower their prices to hold onto their market share even as this would reduce their profits. This will benefit the consumers in the short term, but over time, as local firms suffer mounting financial losses, they would be forced to downsize, cut back on jobs and capex, and ultimately many may need to shutter.
The macro impact of this, Nomura explained, would be larger trade deficits (or smaller surpluses), strong dis-inflation (possibly deflation) and larger fiscal deficits (or smaller surpluses) as governments try to protect local industry. Governments may want to retaliate by imposing higher tariffs but there’s an underlying problem there as well. China, for many, is their largest trading partner and a key source of FDI for building power plants, high-speed rail and other infrastructure projects.
To conclude…
Nomura concluded, “Countries that have experienced large increases in their shares of manufactured imports from China are generally also the ones that have experienced the sharpest slowdowns in manufacturing growth.” At the industry level, a strong negative relationship between China import share and producer price inflation has been witnessed. As expected, 2024 saw a sharp increase in the number of trade investigations launched against Chinese imports, reaching a record high, with most cases involving anti-dumping measures.