China’s exports slow amid Iran war disruptions, as rising energy costs weaken demand and pressure global trade outlook.
China’s export-driven growth model came under renewed pressure in March as the ongoing conflict involving Iran disrupted global demand, driving up energy and transportation costs and exposing structural vulnerabilities in the world’s second-largest economy.
Customs data released on Tuesday showed outbound shipments grew by just 2.5% in March, marking a five-month low and a sharp slowdown from the 21.8% surge recorded during the January–February period. The figure also fell significantly short of economists’ expectations of 8.3%, reflecting the immediate impact of geopolitical instability on global trade flows.
The slowdown comes after a strong start to 2026, when demand for artificial intelligence-driven electronics helped fuel export growth and raised expectations that China could surpass its previous $1.2 trillion trade surplus record. However, the escalation of tensions linked to the Iran conflict has altered that trajectory, weakening external demand and complicating Beijing’s reliance on manufacturing exports to sustain economic expansion.
“Export growth to major destinations slowed across the board,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, attributing the downturn to heightened global uncertainty stemming from the war. He added that China’s trade surplus is likely to shrink this year, noting that rising energy costs cannot be fully passed on to international buyers.
The trade data underscores that trend. China’s March trade surplus came in at $51.13 billion, far below market expectations of $108 billion. At the same time, imports surged by 27.8% the fastest pace since November 2021 placing further pressure on the balance. This compares with a 19.8% increase in the first two months of the year and forecasts that had projected a more moderate 11.2% rise.
China’s position as both the world’s largest manufacturer and a major energy importer makes it particularly vulnerable to global energy shocks. While the country has built up diversified supply chains and maintains significant oil reserves, the uncertainty surrounding the duration and escalation of the Middle East conflict continues to cloud its economic outlook.
The disruption has also raised concerns about the sustainability of demand for key export sectors, particularly those tied to advanced technologies such as semiconductors and server infrastructure. Although artificial intelligence-related demand had been a major driver of export strength earlier in the year, rising input costs and weakening global purchasing power are beginning to blur the growth picture.
Economists expect China’s broader economy, valued at approximately $19 trillion, to show some resilience in first-quarter GDP data. However, full-year growth is projected to slow to around 4.6%, down from 5.0% last year, aligning with the government’s target range of 4.5% to 5.0%.
Despite the challenges, some analysts argue that China could gain a relative advantage as global energy prices rise. Chen Bo, a senior research fellow at the National University of Singapore’s East Asian Institute, said Chinese goods may become more competitive as production costs increase more sharply in other countries.
He also pointed to the potential for increased global demand for Chinese-made electric vehicles, particularly as energy shocks reshape cost structures across industries.
Additional factors are influencing the data. Seasonal disruptions linked to the Lunar New Year holiday, which fell later this year, contributed to reduced output in labour-intensive sectors such as textiles, garments, and furniture. These industries rely heavily on migrant workers, many of whom temporarily left factories during the holiday period.
A high base effect from the previous year also weighed on March figures. In early 2025, Chinese exporters had accelerated shipments to beat tariff deadlines imposed by U.S. President Donald Trump, inflating the comparison for current data.
Energy-related trade flows further highlight the impact of the conflict. China’s exports of refined oil products rose 20.5% month-on-month to 4.6 million metric tons, while natural gas imports fell 10.7% year-on-year, reaching their lowest level since October 2022. Shipping data indicated that Chinese vessels diverted multiple cargoes to take advantage of higher prices in other markets.
Crude oil imports also declined by 2.8% compared to a year earlier, although analysts noted that this was partly due to shipments arranged before the conflict began.
Factory activity data released alongside the trade figures showed that exports continued to support economic growth, but sentiment has weakened as rising commodity prices push up input costs.
Still, some economists remain cautiously optimistic. Zichun Huang of Capital Economics noted that export growth for the first quarter reached its highest level in four years, suggesting that demand for semiconductors and green technologies could continue to provide support in the coming months.
