In October, China’s export figures fell for the first time in nearly two years. This downturn was driven by a high base effect and a slowdown in the preemptive shipping surge as anticipation grew for a meeting between U.S. and Chinese leaders.

Exports dropped by 1.1% in October when measured in U.S. dollars compared to the previous year. This marked the first decline since March 2024, when exports had seen a sharp contraction of 7.5%.

This decline came as a surprise, as economists had predicted a 3% increase according to a Reuters poll. This was in stark contrast to September’s robust growth of 8.3%, which was the highest in six months.

Meanwhile, imports increased by a modest 1% last month, falling short of the anticipated 3.2% rise. The sluggish growth was attributed to a prolonged slump in the housing market and persistent weaknesses in the job market, which continued to dampen consumer demand. In September, imports had surged by 7.4%.

“It seems the frontloading finally faded in October,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, expecting China’s exports to normalize as trade curbs have been put on hold for one year.

Chinese exporters and American buyers breathed a sigh of relief last week after U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, struck a deal during their meeting in South Korea, de-escalating a situation that had threatened to plunge bilateral relations into a full-blown trade war.

China’s exports to the U.S. declined 25% in October from the same month a year earlier, marking the seventh consecutive month of double-digit declines, according to customs data. Imports decreased by nearly 23% last month.

The two countries agreed to roll back a range of punitive measures, including steep tariffs, export controls for critical minerals and advanced technology, while Beijing committed to buying more U.S. soybeans and working with Washington to crack down on fentanyl flows.

Following the trade truce, the effective U.S. tariff rate on Chinese exports dropped to 31%, according to Macquarie Group’s estimates.

The sharp slowdown last month was in part due to the high base in October 2024, when exports grew at their fastest pace in more than two years.

Over the first 10 months this year, Chinese shipments to the U.S. declined 17.8%, while inbound goods dropped 12.6%, narrowing the trade surplus by 20% from a year earlier to $233 billion.

Despite the drop in U.S.-bound goods, China’s overall exports grew 5.3% this year as of October, as Chinese exporters sought out alternative markets or re-routing goods indirectly into the world’s biggest economy.

Exports to the Association of Southeast Asian Nations, the European Union and Africa surged 14.3%, 7.5% and 26.1%, respectively in the first 10 months.

China has racked up a trade surplus of over $964.8 billion in the first 10 months of this year, 23% higher than that during the same period of 2024.

Oxford Economics raised its forecast for Chinese exports to grow at 3.5% to 5% annually in real terms, according to a report on Thursday, buoyed by Beijing’s push to deepen industrialization in its next five-year development plan and Chinese exporters’ efforts to diversify into regional and emerging markets.

The research firm improved its forecast for China’s real GDP growth to 4.5% for 2026 and 4.4% for 2027.

“Now that export momentum weakens, China needs to rely more on domestic demand,” Zhang added, anticipating policymakers to unleash more supportive fiscal measures in the first quarter next year.

Echoing that sentiment, Larry Hu, chief China economist at Macquarie Group, said that Beijing would turn to boost domestic demand as the main growth driver to achieve the annual GDP target “at some point between 2026 and 2030.”

Beijing will likely maintain the growth target of “around 5%” in 2026 and calibrate stimulus to neither miss nor over-achieve that goal.

Falling prices and cutthroat price competition has prompted Beijing to step up efforts to rein in industrial overcapacity in recent months. Profits at the major industrial firms rose 3.2% in the first nine months.

Economic data for October suggested that manufacturing activity had contracted for seven consecutive months, as trade tensions with Washington had reignited.