Nomura: China's May Foreign Trade Beats Expectations; AI and Chip Price Hikes Drive Growth

Overview

Nomura released a research note commenting on China's May foreign trade data, stating that growth in both imports and exports rebounded beyond expectations, primarily supported by booming semiconductor trade driven by the global AI super-cycle and price effects. Although physical volume growth was limited, soaring prices for high-tech products such as chips led to a substantial expansion in nominal trade value. Meanwhile, exports to the US staged a strong rebound amid a low base and tariff adjustments, further boosting overall export performance.

Core views

AI and Semiconductor Prices as Core Engines: The report estimates that AI-related exports in May (including integrated circuits and automatic data processing equipment) collectively contributed 9.3 percentage points to total export growth, accounting for nearly half of the total growth rate, and have maintained this contribution level for two consecutive months. Specifically, the export value of integrated circuits increased by 110.9% YoY, while export volume grew by only 2.1%, implying that over 106 percentage points of growth came purely from price increases. On the import side, growth was similarly dominated by chips; import value of integrated circuits rose 68.0%, while import volume turned negative (-1.0%), with chips alone contributing 39.4% to total import growth. This indicates that the current high trade growth is primarily driven by 'price' rather than 'volume,' reflecting the pass-through effect of rising DRAM and NAND contract prices. Strong Rebound in Trade with the US: In May, China's exports to the US surged 37.3% YoY, reaching the highest level since March 2021. The report attributes this to three factors: first, a low base caused by the tariff war during the same period last year; second, a substantial boost after the US Supreme Court overturned IEEPA tariffs in late February this year, lowering the effective tariff rate to 27.7%; and third, robust domestic AI demand in the US driving imports of related products. Meanwhile, imports from the US also rebounded by 20.4%, but the trade surplus with the US still widened to USD 26 billion. Divergence Between Traditional Industries and Commodities: Apart from electronics, shipbuilding export growth rebounded sharply from -15.0% to 29.7%, and automobile exports maintained high growth at 39.3%. However, exports of labor-intensive products (clothing, footwear, toys, etc.) remained in negative territory despite marginal improvements. On the import side, crude oil imports exhibited typical characteristics of 'higher value, lower volume' (value up 17.8%, volume down 29.0%), reflecting supply disruptions in the Strait of Hormuz and the dampening effect of high prices on procurement; soybean import volumes plummeted by 15.3%.

Analysis framework

The report employs an analytical framework combining 'volume-price decomposition' with 'growth contribution breakdown.' First, by decomposing total import/export growth into price and volume factors, it identifies that the essence of current high trade growth is a semiconductor price shock rather than broad-based overheating of real economy demand. Second, by calculating the percentage point contributions of specific categories (e.g., AI-related goods, crude oil) to overall growth, it quantifies the relative importance of different drivers (tech cycle vs. energy shock vs. tariff policy). Furthermore, when analyzing trade with the US, the report integrates three dimensions—YoY base effects, legal/policy changes (Supreme Court ruling, Section 122 tariffs), and industrial demand (AI)—for comprehensive attribution, avoiding the one-sidedness of single-factor explanations.

Methodology notes

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposing nominal trade value growth into price changes and physical volume changes

  In this report, the institution compared value growth and volume growth for commodities like integrated circuits, discovering a massive divergence (e.g., export value up 111% vs. volume up 2%). This allowed them to conclude that the current trade boom is primarily driven by price hikes rather than actual demand expansion, helping investors distinguish between cyclical prosperity and price bubbles.

• Macroeconomic framework

  Contribution to Growth

  Breaking down overall import/export growth rates into specific percentage point contributions by commodity category or trading partner. For example, calculating that 'AI-related exports contributed 9.3pp' allows readers to intuitively see which sector is the true engine of growth, preventing structural issues from being obscured by aggregate data.

• Event Arbitrage and Behavioral FinanceExpectation Gap/Expectation Management

  Tariff Policy Changes and Effective Tariff Rate Calculation

  The report focuses not only on nominal tariff rates but also calculates changes in the 'effective tariff rate' (e.g., dropping to 27.7%) incorporating legal events like Supreme Court rulings. This explains why exports to the US surged despite trade friction, demonstrating the analytical logic of deriving actual trade costs from policy texts.

Key data

• May Export YoY Growth (USD Terms)19.4%Higher than market expectation of 15.0% and Nomura's forecast of 13.7%; accelerated by 5.3pp from April
• May Import YoY Growth (USD Terms)27.4%Higher than market expectation of 26.0%; accelerated by 2.1pp from April
• May Trade SurplusUSD 105.4 BillionSignificantly widened from USD 84.8 billion in April
• Integrated Circuit Export Value Growth110.9%Price contributed approx. 106.5pp, while volume contributed only 2.1pp
• Exports to US YoY Growth37.3%New high since March 2021; was only 11.1% in April
• Contribution of AI-Related Exports to Total Export Growth9.3 Percentage PointsAccounts for approx. half of total export growth; remained at high levels for two consecutive months

Impact & implications

The report suggests that the current high growth in China's foreign trade is heavily reliant on the global AI super-cycle and rising semiconductor prices. This structural characteristic implies that nominal trade growth could face significant volatility risks if chip prices correct or AI demand slows in the future. While the strong rebound in exports to the US benefits external demand in the short term, trade policy uncertainty remains high in H2 given that the Trump administration has announced a new Section 301 tariff plan (proposing an additional 12.5% on China) and Section 122 temporary tariffs are set to expire on July 24. However, information from the Ministry of Commerce suggests the US tariff cap on China may remain around 30%, and a newly established trade committee might reduce tariffs on certain non-sensitive goods, providing some buffer. For the market, it is crucial to guard against the risk of misinterpreting 'price-driven nominal growth' as a 'comprehensive recovery in real demand.'

Risks

• Potential US tariff hikes in H2 (Section 122 tariffs expiring in July and new Section 301 tariff plans)
• A decline in semiconductor prices could lead to a sharp drop in nominal trade growth
• Supply disruptions in the Strait of Hormuz and sustained high oil prices continue to suppress crude oil import volumes
• Persistent negative growth in labor-intensive product exports indicates traditional external demand remains weak

What to watch

• Actual implementation of US tariff policies on China post-July 24
• Subsequent contract price trends for DRAM and NAND and their transmission to import values
• Whether US AI capex demand continues to drive exports of related Chinese products
• Progress on tariff adjustments for non-sensitive goods by the newly established trade committee