China’s Trade Boom, Profit Squeeze, and the Possible Caribbean Fallout.

China’s economy is entering a new, uncomfortable equilibrium. Surging exports and record trade surpluses mask a far deeper tension, falling industrial profits, deflation, and eroding economic confidence at home. To compensate, China is doubling down on export competitiveness and strategic infrastructure diplomacy abroad, particularly in regions like the Caribbean, where it has quietly built financial and logistical influence over two decades.

For Trinidad & Tobago, this shift presents a dilemma. Once a passive importer of low cost Chinese goods, it is now caught in a structural imbalance: rising dependency on China for goods, infrastructure, and trade linkages, while local industries struggle to remain competitive. As China exports its way through a domestic slowdown, small open economies in the Caribbean risk absorbing the consequences, in the form of inflation shocks, balance of payment pressures, and industrial displacement.

Source - TradeView (China's BoT data monthly).

At first glance, China’s trade performance looks strong. Exports are up, shipping volumes are rising, and container rates are recovering. But beneath the surface, a more troubling picture is emerging. From January to May, industrial profits in China fell by 1.1% yoy, with a sharp 9.1% drop in May alone. The pressure is most visible among state owned enterprises (SOEs), which saw their profits decline by 7.4%, and in the mining sector, where profits plunged 29% yoy. Only private enterprises managed to eke out a modest profit gain of 3.4%, reflecting deep strain across much of the economy.

Source - Bloomberg (Jan data combine with Feb, Lunar Year)

Meanwhile, prices are falling. China’s Consumer Price Index (CPI) is at –0.1%, and its Producer Price Index (PPI) is at –3.3%, signaling broad-based deflation. Manufacturers are being squeezed on both ends, costs are sticky, prices are falling, and profits are eroding.

As a result, Chinese firms are choosing volume over margin. Rather than cut output, they’re flooding global markets with cheap goods to keep factories running and workers employed. This is not about profitability, it’s about survival and maintaining capacity utilization. This export strategy is not a sign of strength, but a symptom of weakness. It’s how deflation is being exported, through aggressive price discounting on goods like steel, chemicals, vehicles, and electronics.

Source - Bloomberg

However, despite the decline in profitability, this is where things get interesting, while China’s direct exports to the US plunged, 34.5% yoy in May 2025, the data shows an apparent paradox: Chinese exports to other regions, especially Southeast Asia and Europe are booming.

• ASEAN (Southeast Asia): +9.1%

• European Union: +2.9%

• France: +24.1%

• Germany: +21.5%

• Netherlands: +7.1%
  

But these gains are not necessarily driven by organic demand in those markets. Instead, they reflect a strategic shift in how China is navigating US tariffs. Chinese firms are rerouting goods through regional trade partners such as Vietnam, Malaysia, and Singapore to bypass punitive US tariffs, which have soared to over 35% on average. These third countries, facing far lower effective tariff rates (typically under 5%), serve as transshipment hubs, relabeling or lightly modifying Chinese exports to reclassify their origin.

Source - Bloomberg

This tactic, while technically legal under current trade rules, undermines the spirit of tariff enforcement and inflates regional trade figures. As a result, US customs data may show fewer imports from China and more from Southeast Asia, even though the source of production remains unchanged. This has significant global implications. It complicates trade surveillance, frustrates protectionist objectives, and most importantly for price taking economies like Trinidad and Tobago, keeps global supply chains awash in low-cost Chinese goods. With China’s domestic profits falling, and manufacturers increasingly focused on volume over margin, these offshored exports flood global markets, making it harder for smaller, local producers in the Caribbean to compete even when tariffs are supposedly in place to level the playing field.

For instance, T&T’s trade relationship with China has exploded in the past decade, China is now T&T’s 2nd largest import source, accounting for approximately 13 to15% of total imports, up from <5% in 2010 (1st being US).

Source - CSO

This dynamic has contributed to T&T’s persistent trade deficit with China, which now exceeds TT$500M monthly, heavily concentrated in manufactured goods, electronics, and construction materials. As Chinese exporters prioritize price over profitability to maintain global market share, local industries in T&T face growing pressure. Domestic manufacturers are seeing profit margins squeezed and risk being crowded out entirely by cheaper Chinese alternatives. Moreover, China’s erratic export behavior, fueled by internal profit instability, raises the threat of supply chain disruptions, with periods of oversupply followed by abrupt shortages.

Source - CSO

Added to this, if Chinese exporters begin using Trinidad as a transshipment or relabeling hub to circumvent US tariffs, it could trigger heightened scrutiny from American trade authorities. Such a move would likely invite regulatory backlash or stricter customs enforcement under US anti-circumvention laws, especially as Washington intensifies efforts to police rerouted Chinese goods entering through third countries. For Trinidad or any other Caribbean nation, this poses not only a reputational risk but also the threat of being caught in the crossfire of a broader geopolitical and trade conflict which can threaten domestic exporters.

And the UN ECLAC (United Nations Economic Commission for Latin America and the Caribbean), exposes these vulnerabilities . It has already underscored several structural issues within Caribbean economies that leave them highly exposed to shifts in global trade dynamics, especially those stemming from China’s current deflationary export push. In their report, they primarily identified three key issues that could possible arise from this push, 1) The region’s reliance on 3rd party logistics providers and foreign owned port operators. Because much of the Caribbean’s shipping infrastructure is operated or financed by external stakeholders (including Chinese SOEs and private logistics firms), national authorities have limited control over enforcement protocols, container screening, and rules of origin verification. This makes the region vulnerable to becoming a passive conduit for transshipped goods, especially as exporters seek to circumvent rising tariffs in the US and Europe.

2) The Caribbean’s underutilization of modern customs integration programs, such as the WTO’s Trade Facilitation Agreement (TFA) and the WCO’s SAFE Framework. Unlike some Latin American economies that have adopted digital tracking systems, risk based inspections, and realtime customs data sharing, many Caribbean states still rely on manual processing and fragmented paper based systems. This not only hampers efficiency but also opens the door to compliance evasion and underreporting, precisely the kind of conditions that attract illicit or tariff-sensitive rerouting.

3) As we stated earlier, the region’s heavy dependence on Asian imports, particularly from China, amplifies the risks. With imports concentrated in electronics, construction materials, household appliances, and machinery, Caribbean economies are especially exposed to price shocks, inventory gluts, and strategic dumping by Chinese exporters. As domestic margins collapse in China, these firms are under pressure to offload inventory globally at firesale prices, leading to a surge in artificially cheap imports that can displace local industries or undermine nascent manufacturing ecosystems. This import concentration makes it difficult to separate what is locally necessary and what is being adjusted for transshipment.

So What Can T&T and the Caribbean Do?

1. Diversify Supply Chains - T&T and other Caribbean nations must prioritize reducing overdependence on Chinese imports, especially in critical sectors like electronics, construction inputs, and consumer goods. This means incentivizing import substitution by supporting local manufacturing, nearshoring production from Latin America, and expanding ties with diversified suppliers in countries like India, Vietnam, and Brazil. Establishing new sourcing relationships will not only reduce vulnerability to Chinese price shocks but also improve supply resilience in a more fragmented global economy.

2. Protect Vulnerable Industries - Governments should implement WTO compliant safeguard measures, such as temporary import quotas or tariff surcharges, to shield local producers from sudden surges in lowcost Chinese goods. Strengthening quality control and product certification regimes can also act as a buffer by ensuring that imported goods meet environmental, safety, and consumer standards. These measures create a more level playing field for domestic firms competing with subsidized or excess-capacity Chinese exports.

3. Reassess Trade Architecture - Given the scale of the trade imbalance, especially with Chinese state-owned or heavily subsidized exporters, T&T and its neighbors should initiate bilateral trade reviews. These negotiations can be used to request greater market access for Caribbean goods, address transparency concerns in Chinese bidding for infrastructure projects, and promote fairer treatment in areas like procurement, customs classification, and port access.

4. Deepen Regional Integration- The Caribbean must strengthen CARICOM as a unified economic bloc to increase its leverage in negotiating with China and other major trade partners. A regional framework can help standardize customs procedures, share enforcement technology, and develop coordinated policy responses to tariff evasion or unfair trade practices. Joint platforms could also attract regional investment in supply chain infrastructure and alternative manufacturing hubs.

With China’s deflation driven export push is reshaping global trade dynamics and the Caribbean is not immune. For T&T and the wider region in general, the consequences are both economic and geopolitical, eroded local competitiveness, rising trade deficits, and greater exposure to great power competition. Without strategic policy shifts, the region risks being caught in the crossfire of global tariff wars and becoming an unintentional conduit for trade circumvention. Now is the time for proactive, regionally coordinated action to build resilience, restore trade balance, and protect long-term development goals.