US banning trade loophole will cut China’s growth, Nomura says

THE decision by US President Donald Trump to ban Chinese companies from using a US tariff loophole will hit tens of billions of US dollars of trade and reduce China’s economic growth this year, according to new estimates by economists at Nomura Holdings.

Last year, companies such as Shein and Temu shipped US$46 billion worth of small parcels to the US to take advantage of the loophole, according to Nomura’s estimates. Tariffs of 10 per cent or more and other new costs will slash such shipments, cutting total export growth by 1.3 percentage points and reducing China’s gross domestic product growth this year by 0.2 percentage point, economists including Ting Lu wrote in a note.

The cross-Pacific trade in small parcels grew rapidly over the past few years, with China officially reporting about US$23 billion worth of these exports last year, according to Bloomberg analysis of government data. That is almost certainly an undercount, with reports that companies are shipping goods in bulk to Mexico and then breaking them down into small packages to enter the US.

That rise in package trade is one of the factors causing the widening gap between US and Chinese data on the bilateral trade, as the Chinese side is counting at least some of these parcels while the US is not. Since 2020, China has reported exporting more to the US than the US reports receiving from China, an abnormal gap that widened last year to US$86 billion.

The new tariff is already causing companies to raise prices, with Chinese logistics firm SF International saying on Wednesday (Feb 5) it would impose a 20 yuan (S$3.71) fee on all packages shipped from China or Hong Kong, as well as taking a 30 per cent tariff deposit. The cost to fly goods to the US from China is poised to fall as much as 50 per cent after the tariff changes, a leading air-freight booking platform said this week. BLOOMBERG