China exports in June rise at fastest pace since 2021 as AI boom, tariff rush lift trade

China's trade growth accelerated far more than expected in June, as booming global demand for AI hardware and a rush by exporters to beat anticipated U.S. tariff hikes turbocharged shipments.

Overall exports rose 27% from a year earlier in U.S. dollar terms, the strongest since October 2021, customs data showed Tuesday, quickening from the 19.4% gain in May and sharply beat economists' estimates for a 18.2% growth.

In the first half-year, China's fastest-growing export categories were semiconductors, rare earths, autos and ships, while laggards included toys, footwear, steel and furniture.

The country's shipments to the U.S. jumped around 14% last month, while imports grew 26%, according to CNBC calculation of the official data.

Factory activity accelerated in June, as U.S.-bound orders recorded sharp year-on-year gains, according to China Beige Book, pushing up freight rates. Manufacturers are bracing for additional tariffs from U.S. President Donald Trump's Section 301 probes as the 10% broad-based duty is set to expire on July 24.

China's exports to the U.S. have returned to positive territory in the first half of this year after experiencing double-digit year-on-year declines for most of last year.

Imports grew 36% in June, the largest jump since June 2021, gaining pace from the 27.4% growth in May and sharply beating economists' forecast for a 24% growth. The trade surplus stood at $125.6 billion in June.

Similar to exports, the import strength was concentrated in high-tech products, while persistent weakness in other categories pointing to sluggish domestic demand.

Beijing has grappled with a deepening supply-demand imbalance, as strong industrial output and exports tied to the global AI investment boom continue to power headline growth, even as consumption and private investment weakens amid a prolonged property downturn and volatile global oil prices.

Exports will likely remain strong in the second half of the year, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, potentially further increasing trade tensions between China and trading partners, particularly Europe. Brussels and Beijing set up a trade and investment consultation mechanism last month aimed at rebalancing bilateral trade, with European officials targeting October for "tangible results."

Shipment to the European Union rose 18.5% and imports from the bloc grew more than 9%.

Another wildcard is the Russia sanctions bill proposed by the late U.S. Senator Lindsey Graham, which originally suggested secondary tariffs of up to 500% on goods from countries buying Russian oil and gas — a penalty that would hit China, the largest buyer of Russian crude.

"These factors could potentially throw a wrench in the excellent export performance so far," said Lynn Song, chief economist for Greater China at ING Bank.

China's crude imports dropped 41% from a year earlier to 29.3 million tons, according to CNBC calculations, reportedly the lowest level in nearly a decade. In the first half-year, China's total oil imports dropped 11% from a year ago in terms of volume.

"This appears to reflect inventory drawdowns rather than a collapse in oil demand," said Julian Evans-Pritchard, head of China economics.

China is expected to release its gross domestic product growth for the second quarter on Wednesday. Economists polled by Reuters expect growth to have slowed to 4.5% in the second quarter, after a solid 5% in the first quarter.

Industrial output and retail sales for June, also due Wednesday, are projected to expand 4.7% and shrink 0.1%, respectively. Urban investment is estimated to decline 4.9% in the first half-year, deepening from 4.1% in the first five months, according to a Reuters poll.

Investors are now looking to an expected Politburo meeting in late July for clues on stimulus that could shape policy for the rest of the year, although analysts expect no meaningful stimulus unless growth slows more sharply, given resilient exports and Beijing's focus on curbing excess factory capacity to fight deflation.