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China’s exports declined by more than -4% in 2023, and the country’s exporters are facing pressure on their European and US trade revenues. Most of the country’s trade with the EU flows through the Red Sea, a narrow maritime corridor that is continually under threat of missile and drone strikes by Houthi militants in Yemen. Increasing insurance rates and transit time for diversions around Africa are heaping heavy costs on exporters that are already dealing with sequential contractions in Chinese manufacturing activity.

In the US, tariffs helped push China’s share of seaborne US imports to an 18-year low and slashed total shipments to the US by a fifth. Tariffs could be intensified further in the future, as they’ve become a popular political initiative among American voters who are showing particular aversion to China. President Biden has thus far deferred any action on Trump-era tariffs, which have won favor among US labor unions, and Trump himself is claiming he would raise duties on Chinese goods to 60% or more if he were to be re-elected President this November.

Related ETFs: Global X MSCI China Industrials ETF (CHII), iShares MSCI China ETF (MCHI)

Chinese exporters are suffering under costs imposed by the danger of potential drone attacks targeting commercial ships in the Red Sea, a key shipping lane along the shortest maritime route from Asia to Europe. Around 60% of China’s exports to Europe pass through the Suez Canal, which is the gateway between the Red Sea and the Mediterranean. Reuters data shows more than 30 ships have been attacked since November 19, with more than a dozen suffering direct strikes from missiles or drones launched by Houthi militants in Yemen. That has pushed up insurance rates and forced vessels to re-route thousands of nautical miles around Africa’s Cape of Good Hope. According to some exporters, the cost of shipping a container to Europe had more than doubled to roughly $7,000 from $3,000 in December. Drewry’s World Container Index showed freight rates for container ships traveling from Shanghai to Genoa, as well as New York, in excess of $5,000 and $6,000, respectively.

Chinese ships transiting the Red Sea are enjoying significantly lower insurance rates than their western counterparts (worth hundreds of thousands of Dollars in savings), as well as protection from the Chinese navy, but the ongoing threat of…

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