In a new report from Citi Research, a team of analysts led by Chief Asia Economist Johanna Chua outlines why the front-loading of Asia exports to avoid U.S. tariffs risks “payback” effects in coming quarters, and looks for signs that the effect may be felt soon. They find two such potential signals: a weakening of global manufacturing purchasing managers indices (PMI) and a widening gap between Asian tech exports and industrial-production growth in the tech sector.

We’ve been warning about the potential consequences of export front-loading to get ahead of U.S. tariffs for some time, with an expected slowdown in the U.S. economy exacerbating these payback effects. But Asia’s export data have been mixed, with those signals not obvious yet — and extended export front-loading and a positive semiconductor cycle strike us as confounding factors at work. But signs of softness are emerging in recent export data for China, where growth momentum eased in April and May after a much stronger first quarter.

We think export front-loading is particularly evident in the electronics sector. This is corroborated by U.S. import data that show a strong surge in imports of chips, computers and electronics so far this year, led by East Asia (plus India). This is the same sector where there’s been a precipitous drop in imports from China. We see this divergence as intuitive: Many electronic products come from “Factory Asia,” which was hit hard by the original reciprocal tariffs, and their supply chains aren’t easy to relocate to places less affected by tariffs. Moreover, China is an important focal point for the global electronics supply chain, and faced particularly punitive U.S. tariffs. 

Clues in trade patterns?

Another trend we need to watch is the shifts in China’s trade patterns with the region, made more evident during the second Trump administration. We note that China’s exports to the U.S. have fallen sharply in recent months, but its overall export growth to the rest of the world has held up, with ASEAN among the regions where export growth has picked up

This could be a sign of Chinese trade diversion. China’s export price deflation deepened in Asia across key products, and China inflation data for May showed a decline in inflation for key durables such as autos, telecom equipment and household appliances. Recent softness in indicators of Chinese domestic demand, along with President Xi appearing to double down on self-reliance in advanced manufacturing, may only further this trend.

In recent months, China’s import share has risen sharply in Indonesia, Thailand and Vietnam. Looking at Indonesia’s import data, two items stand out: Textile and electrical-machinery imports from China have reached new monthly highs. We think some of the sharp increase in Indonesia’s electrical-machinery imports may be transshipment, noting that Indonesia’s electrical-machinery exports to the U.S. reached a record high in April. We suspect trade diversion via Thailand and Vietnam could also explain their sharp increases in Chinese imports, which accompanied strong exports to the U.S.

U.S. authorities are likely to tighten rules of origin and transshipment from China through “connector” countries, and this seems to be changing the composition of China’s exports to the rest of the world. In recent months we’ve seen an increase in China’s exports of intermediate vs. final electronic goods, with the latter declining in April. This may be a sign of China shifting more downstream production to third markets given risks related to U.S. tariffs, while maintaining its dominance in the supply chain for intermediate goods.

Weakness in the data?

We see signs of weakness in the soft data of PMI manufacturing surveys in Asia, including sub-components that show material weakness in new export orders and backlogs in the region. These are sources of concern, with the downward trend particularly pronounced in China, South Korea, Taiwan and Vietnam. India is an outlier, with new export orders on an upward trend and backlogs stable; given India’s more domestic-driven economy, this is likely capturing domestic-growth dynamics that are less related to trade-policy uncertainties.

The other possible telltale sign of a potential payback effect is the significant gap in tech export growth momentum and the lack of strong tech production momentum across Asia. This may indicate a lack of confidence in future orders, and would imply we’re seeing a de-stocking of inventories amid export front-loading.