China’s export growth experiences a significant slowdown as the conflict in Iran disrupts global demand

China’s exports are experiencing a slowdown due to disruptions caused by the Iran war, while increasing energy costs are dampening demand and putting pressure on the global trade outlook.

In March, China’s export-driven growth model faced increased challenges as the ongoing conflict involving Iran affected global demand, leading to higher energy and transportation expenses and revealing structural weaknesses in the world’s second-largest economy.

Customs data released on Tuesday indicated that outbound shipments increased by only 2.5% in March, representing a five-month low and a significant deceleration from the 21.8% rise observed during the January–February period. The figure also fell notably short of economists’ expectations of 8.3%, highlighting the immediate effects of geopolitical instability on global trade flows.

The slowdown follows a robust beginning to 2026, as demand for artificial intelligence-driven electronics spurred export growth and heightened expectations that China might exceed its former $1.2 trillion trade surplus record. Nonetheless, the rise in tensions associated with the Iran conflict has shifted that path, diminishing external demand and complicating Beijing’s dependence on manufacturing exports to maintain economic growth.

“Export growth to major destinations has decelerated universally,” stated Zhiwei Zhang, chief economist at Pinpoint Asset Management, linking the decline to increased global uncertainty resulting from the war. He noted that China’s trade surplus is anticipated to decline this year, emphasizing that rising energy costs cannot fully shift to international buyers.

The trade data highlights that trend. China’s trade surplus for March was reported at $51.13 billion, significantly lower than the market expectations of $108 billion. Simultaneously, imports increased by 27.8%, marking the quickest rate since November 2021 and adding more strain to the balance. This contrasts with a 19.8% increase in the initial two months of the year and forecasts that had anticipated a more modest 11.2% rise.

China stands as the world’s largest manufacturer and a significant energy importer, which renders it especially susceptible to global energy shocks. Despite the country’s development of diversified supply chains and substantial oil reserves, the ongoing uncertainty regarding the duration and escalation of the Middle East conflict casts a shadow over its economic outlook.

The disruption has raised concerns regarding the sustainability of demand for crucial export sectors, especially those linked to advanced technologies like semiconductors and server infrastructure. While the demand related to artificial intelligence had significantly boosted export strength earlier in the year, increasing input costs and declining global purchasing power are starting to obscure the growth outlook, leading to concerns that the overall economic performance may not meet previous expectations.

Economists anticipate that China’s extensive economy, valued at around $19 trillion, will demonstrate a degree of resilience in the first-quarter GDP data. Nonetheless, the anticipated growth for the full year is expected to decelerate to approximately 4.6%, a decrease from last year’s 5.0%, which is in line with the government’s target range of 4.5% to 5.0%.

Some analysts contend that, despite the challenges, China may achieve a relative advantage as global energy prices increase. Chen Bo, a senior research fellow at the National University of Singapore’s East Asian Institute, stated that Chinese goods could gain a competitive edge as production costs rise more significantly in other countries.

He pointed out the possibility for a rise in global demand for electric vehicles manufactured in China, especially as energy shocks alter cost structures across various industries.

Other elements are impacting the data. Disruptions related to the Lunar New Year holiday, occurring later this year, led to a decline in output within labor-intensive sectors like textiles, garments, and furniture. Migrant workers play a crucial role in these industries, with many of them temporarily departing from factories during the holiday season.

A significant base effect from the previous year also impacted the figures for March. In early 2025, Chinese exporters ramped up shipments to circumvent tariff deadlines set by U.S. President Donald Trump, skewing the comparison for current data.

The trade flows related to energy further underscore the effects of the conflict. China’s exports of refined oil products increased by 20.5% month over month, totaling 4.6 million metric tons. In contrast, natural gas imports decreased by 10.7% year-over-year, marking the lowest level since October 2022. Shipping data revealed that Chinese vessels redirected several cargoes to capitalize on elevated prices in alternative markets, particularly in regions where demand for refined oil products has surged due to supply constraints.

Crude oil imports experienced a decline of 2.8% compared to the previous year, though analysts pointed out that the decrease was partially attributed to shipments organized prior to the onset of the conflict.

Data on factory activity released with the trade figures indicated that exports remained a pillar of economic growth; however, sentiment has declined as increasing commodity prices elevate input costs.

Some economists continue to express a sense of cautious optimism. Zichun Huang from Capital Economics observed that export growth in the first quarter hit its peak in four years, indicating that the demand for semiconductors and green technologies may continue to offer support in the months ahead.