2019.08.0805:29:00UTC+00China Exports Unexpectedly Rise In July

China's exports rose in July, defying expectations for further decline, but the improvement is unlikely to last as the country's trade spat with the U.S. intensified significantly in recent weeks.

Exports grew 3.3 percent year-on-year after a 1.3 percent fall in June, figures from the General Administration of Customs showed on Thursday. Economists had forecast a 1 percent decline.

Imports dropped 5.6 percent annually after a 7.3 percent slump in the previous month. Economists had forecast a 9 percent fall.

The trade surplus for July was $45.1 billion, which was larger than the $42.65 billion economists' had forecast. In June, the surplus was $50.98 billion.

The Asian country's exports to the U.S. shrunk 6.5 percent year-on-year, apparently reflecting the impact of the tariffs slapped by President Donald Trump administration.

In July, imports from the U.S. plunged 19.1 percent annually, which was the weakest fall since the fourth quarter of last year.

The trade surplus with the U.S. narrowed to $27.97 billion from $29.92 billion in June.

The softening in the declines came after a truce agreed between Trump and the Chinese President Xi Jinping during the G20 summit late June.

However, the situation has deteriorated significantly in recent weeks.

The latest round of U.S.-China trade talks late July failed to achieve a breakthrough, prompting Trump to announce a plan to slap a 10 percent tariff on the remaining $300 billion worth of Chinese imports, starting September 1.

The U.S. is already charging a 25 percent tariff on $250 billion worth of Chinese goods.

Intensifying the trade tensions, Trump branded China a "currency manipulator" this week after the Chinese yuan fell below the psychologically significant value of seven against the U.S. dollar for the first time since 2008 on August 5.

Subsequently, the US Treasury assigned the currency manipulator status to China for the first time since 1994.

China has warned of retaliation and announced that it will stop buying U.S. agricultural products and is planning levies on imports from the country.

On Thursday, the People's Bank of China allowed the yuan to weaken further below the seven-mark against the U.S. dollar.

Economists expect better export performance for China in August due to front-loading activities before the new U.S. tariffs take effect at the start of September. However, they do not expect any sustained improvement in the trade situation in the near term.

"This factor is a one-off, so for the rest of the year, we expect China's export volume to shrink due to the escalation of the trade war," ING economist Iris Pang said.

A weaker yuan is also unlikely to benefit Chinese exporters much if they lose orders due to more tariffs and consequently, they may move away from the U.S. market to Europe and the domestic market, the economist added.

Gareth Leather at Capital Economics expect the yuan to fall a further 4.5 percent between now and the end of the year to 7.3 per dollar.

"A weaker renminbi will have a negative effect on the rest of the region by boosting the competitiveness of Chinese exports vis-?-vis those from the rest of Asia," the economist added.

The trade war escalation between the two big trading countries is causing concerns of a severe global economic slowdown.

This was one among the major reasons why the U.S. Federal Reserve slashed its funds rate last week, the first such move since 2008.

Central banks across the world are busy following suit with those in New Zealand, India, Thailand and Philippines cutting their rates this week.