China exports slow to 2.5% as Iran war hits demand

China exports slow sharply in March, offering an early signal that the global economic fallout from the Iran war is beginning to ripple through trade flows.

Shipments rose just 2.5% compared with a year earlier, a steep drop from the 21.8% surge recorded in the first two months of 2026. The data, released Tuesday by China’s customs agency, also fell short of analysts’ expectations.

At the same time, imports jumped 27.8%, suggesting stronger domestic demand but also reflecting volatility tied to energy prices and supply chains.

The slowdown comes as the conflict in the Middle East disrupts global trade routes and drives up fuel costs—two factors that directly affect China’s export engine.

Economists say the impact is already visible.

“Exports have decelerated as the Iran war starts to affect global demand and supply chains,” said Gary Ng, an economist at Natixis.

Despite the weaker headline number, the picture underneath is more mixed.

Technology exports remain a bright spot. Shipments of semiconductors and other AI-related components continue to grow, fueled by global demand tied to artificial intelligence. At the same time, clean energy products—such as solar panels and electric vehicles—are expected to benefit from rising energy costs.

Analysts at Bank of America warn, however, that the broader trend could weaken if the conflict drags on. A prolonged war risks dampening global consumption and slowing industrial activity.

Trade tensions are adding another layer of pressure.

Exports to the United States dropped 26.5% in March compared with a year earlier, deepening a decline already seen at the start of the year. Tariffs imposed under President Donald Trump continue to weigh on shipments.

In contrast, China has increased exports to other regions, including Europe and Southeast Asia, partially offsetting losses in the U.S. market.

The timing of the Lunar New Year may also have distorted the data. With the holiday falling in mid-February this year, some production and shipping delays likely spilled into March.

Still, economists caution against dismissing the slowdown as purely seasonal.

The bigger concern is whether the war—and the uncertainty surrounding energy supplies—will trigger a broader cooling in global demand.

Beijing is watching closely.

China has set a 2026 growth target of between 4.5% and 5%, already its lowest in decades. Exports remain a key pillar supporting that goal, especially as the country’s property sector continues to drag on domestic investment and consumption.

Some analysts argue China may be better positioned than others to weather the shock. Its large energy reserves and diversified supply sources could cushion the blow from disruptions in the Strait of Hormuz.

But much will depend on how long the conflict lasts—and how deeply it reshapes global trade.