Vietnam has surpassed Japan to become China’s third-largest export destination for the first time, marking a significant shift in global trade patterns.

This transformation is largely driven by US tariffs, which are compelling companies to find new suppliers outside of China while still relying on Chinese manufacturers for essential components.

Record exports to Vietnam fuel supply chain diversification

Data released by China’s customs administration on Monday reveals that China’s exports to Vietnam surged almost 18% in 2024, reaching a record $162 billion.

This surpasses the $152 billion in shipments to Japan, which had previously held the third-largest spot.

The growth in exports to Vietnam has largely been fueled by a surge in shipments of parts that are then assembled and exported to the US and other countries.

Eight of the ten fastest-growing exports were electronics components, including screen modules and computer memory, according to Chinese data through November last year.

Vietnam benefits from diversified supply chains

While the rerouting of trade may increase costs for businesses and consumers, it has proved to be beneficial for Vietnam.

The Southeast Asian nation has seen a surge in investment as businesses seek to diversify their supply chains away from China.

Leading electronics manufacturers such as Samsung Electronics Co., Luxshare Precision Industry Co., and Hon Hai Precision Industry Co. have invested billions in Vietnam in recent years to assemble products like AirPods and MacBooks.

“We’ve seen more and more companies moving from China to Vietnam to avoid the future tariff risk,” Bloomberg quoted Nguyen Mai, chairman of Vietnam’s Association of Foreign Invested Enterprises, adding that this has significantly increased exports to the country.

AI boom and export restrictions drive investment

The boom in artificial intelligence (AI) and US export restrictions on AI chips have similarly boosted investment in Vietnam while maintaining China’s relevance in the supply chain.

Hon Hai began manufacturing Nvidia’s AI graphics cards at its Vietnamese subsidiary last year, sourcing key components such as integrated circuits and printed circuit boards from China, according to a Bloomberg report which quoted data from NBD, a private customs data provider.

The majority of the finished products were then shipped to American customers, driving up Vietnam’s trade surplus with the US to record levels in the year through November.

Potential challenges for Vietnam under a Trump administration

This surge in Vietnam’s trade surplus with the US could potentially put the country in the crosshairs of President-elect Donald Trump, who has expressed a need to balance trade with Vietnam and has previously referred to it as a trade “abuser.”

The US has already begun pushing back against this trend.

The Biden administration imposed tariffs on solar panels manufactured in Vietnam and three other Southeast Asian nations late last year.

Most of the panels were produced by Chinese companies that had invested in those countries, partially to circumvent US tariffs.

“From what Trump has said before and with his ‘America First’ policy, we may see higher tariffs and other trade challenges such as technical barriers this year,” Mai said.

But we also believe that the Trump administration, same as the Biden administration, would also recognize the importance of Vietnam in their foreign policy and how the two markets can benefit from each other.

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Asian markets presented a mixed picture on Tuesday, as bargain buying following recent losses was countered by ongoing concerns about the global economic outlook and the potential impact of a second Donald Trump presidency.

The release of US inflation data this week, as well as the start of the corporate earnings season, is adding to the uncertainty in the markets.

Trump’s tariff plans and a weaker dollar

A report suggesting that President-elect Donald Trump’s economic team is considering a more gradual approach to increasing tariffs on imports provided some support to traders and slowed the dollar’s recent surge.

However, despite this development, worries persist that his tax cuts, deregulation, and immigration policies could reignite inflation.

The potential impact of new US export restrictions targeting AI chips to China also seemed to have little immediate impact on the markets.

Traders scale back Fed rate cut expectations

Traders have significantly adjusted their expectations regarding the Federal Reserve’s interest rate policy, reducing the projected number of rate cuts through 2025 to just one, down from four predicted last year.

There’s even discussion that the Fed’s next move could be a rate hike, driven by persistent inflation and the uncertainty surrounding Trump’s policies.

The better-than-expected December jobs report released on Friday dealt another blow to the hopes for a rate cut at the Fed’s next meeting, sending equity markets lower.

Wall Street recovery and mixed Asian performance

Wall Street managed a slight recovery on Monday, with the Dow and S&P ending in positive territory, although tech stocks, including Nvidia, dragged the Nasdaq down again.

Asian markets experienced a volatile trading session on Tuesday morning.

Hong Kong, Shanghai, Sydney, Wellington, Taipei, and Jakarta saw gains, while Singapore, Manila, and Seoul all experienced losses.

Tokyo was the biggest loser as traders returned from a long weekend, catching up with Monday’s sell-off.

Dollar weakens, eyes on inflation and earnings

The dollar retreated against other currencies after Bloomberg reported that members of Trump’s team were considering a gradual increase in tariffs.

This contrasts with Trump’s previous statements that he would impose huge levies on China, Canada, and Mexico as soon as he took office.

Despite the weaker dollar, the pound remained at levels not seen since the end of 2023, and the euro was close to its weakest level since late 2022, with continued concerns that it could return to parity with the dollar.

All eyes are now on the release of US inflation data this week and the start of corporate earnings season.

Earnings and outlook to set tone for 2025

“This earnings season will set the tone for financial stocks in 2025, but the stakes are high,” Charu Chanana, chief investment strategist at Saxo Markets, told Agence France-Presse.

Even with solid fourth-quarter results, the macro backdrop — characterised by lingering inflation concerns, steeper yields, and recalibrated Fed expectations — may weigh on sentiment.

She added that “uncertainty around Fed policy and a potential shift in fiscal priorities under Trump’s new administration will keep markets on edge.”

Chanana noted:

With valuations already elevated after a strong 2024, further stock gains will require more than just decent earnings. Robust outlooks, ongoing loan demand, and resilient consumer credit will be critical to sustaining investor confidence.

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The US dollar experienced a broad decline against almost every major currency on Tuesday, following a Bloomberg News report that Donald Trump’s incoming economic team is considering a more gradual approach to imposing tariffs.

This shift in potential policy is a notable development in the foreign exchange market, triggering a strong reaction among investors.

The Bloomberg Dollar Spot Index fell as much as 0.4% in early Asian trading, after the report indicated that Trump’s advisors are discussing a slow and steady increase in tariffs, rather than an immediate, large-scale implementation.

This proposed approach could potentially alleviate some inflationary pressures from tariffs, which may, in turn, give the Federal Reserve more flexibility in reducing interest rates.

This marks the most substantial drop in the dollar gauge since January 6, when it fell after a Washington Post story, also disputed by Trump, suggested that he was planning to scale back his tariff plans.

“Dollar weakness can be sustained unless President Trump denies the reporting like he did in reaction to the report by the Washington Post,” Carol Kong, a strategist at Commonwealth Bank of Australia, highlighting the importance of Trump’s response to market confidence, told Bloomberg.

Risk-sensitive currencies rally on relief

Risk-sensitive currencies such as the Australian and New Zealand dollars jumped against the greenback, signaling a sense of relief that a major tariff shock might be averted.

The Chinese offshore yuan, a primary target for traders betting on US tariffs, also edged higher.

Market outlook: a tug-of-war between hope and reality

However, the dollar’s dominance is not expected to disappear immediately, according to Bloomberg Strategist Mary Nicola, which suggests that there are still potential headwinds for Asian currencies in the coming year.

The dollar’s drop underscores the significant role tariffs play in shaping sentiment within the $7.5 trillion-a-day foreign-exchange market.

This move, though, may prove to be temporary, as most Wall Street banks expect the greenback to strengthen.

The blowout employment numbers released last week have further intensified questions about the pace of potential rate cuts.

Goldman Sachs Group Inc. has predicted that the dollar could climb 5% or more this year.

Bloomberg data further revealed that speculative traders, including hedge funds and asset managers, are now more bullish on the greenback than they have been since 2019.

“You can’t chase this thing, as a denial will be coming soon,” Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. in New York, referring to the recent headlines, told Bloomberg.

Look through the noise and rest assured the dollar rally will continue on the US economic outperformance alone.

Furthermore, even those who believe the dollar will lose momentum think that such a decline is likely to occur in the second half of the year, as per Mark Haefele, chief investment officer at UBS Global Wealth Management.

Emerging market currencies react positively, but caution remains

Emerging market currencies, led by the Philippine peso, the Thai baht, and the South African rand, moved higher on Tuesday, partially recovering losses from the beginning of the year when investors shunned riskier assets in anticipation of the new Trump administration.

“The tariff headlines are positive for Asia FX as it suggests a less draconian approach, but at the moment it’s still headlines,” Eddie Cheung, a senior emerging markets strategist at Credit Agricole CIB in Hong Kong, told Bloomberg.

While the knee jerk reaction is positive, I think markets will still want a bit more confirmation.

The decline in the Bloomberg Dollar Spot Index on Tuesday came after five consecutive days of gains, with the gauge currently about 0.6% higher this year, following an 8% rise in 2024.

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Chinese officials are reportedly exploring a scenario where Elon Musk could acquire the US operations of TikTok if the short-video app fails to overcome a looming ban in the United States.

While Beijing’s preferred outcome is for TikTok to remain under the ownership of its parent company, ByteDance Ltd., contingency plans are being discussed in anticipation of a potential loss at the US Supreme Court, according to a report in Bloomberg.

Strategic discussions in Beijing amid US legal battles

Although ByteDance is contesting the impending ban with an appeal to the US Supreme Court, the justices signaled during recent arguments that they are likely to uphold the law.

According to Bloomberg, senior Chinese officials have already begun debating contingency plans for TikTok as part of a broader discussion about navigating relations with the incoming Trump administration.

These confidential discussions include the possibility of Musk becoming involved.

Musk’s ties to Trump could facilitate a deal

A high-profile deal with a key ally of President-elect Trump may hold appeal for the Chinese government, which is expected to have a voice in any potential sale of TikTok.

Musk, who has provided over $250 million in support of Trump’s reelection, has been tapped for a prominent role in improving government efficiency after the Republican takes office.

The Chinese government reportedly sees TikTok negotiations as a possible area for reconciliation with the new US administration.

X and TikTok: a potential merger for increased user engagement

One of the scenarios being considered by the Chinese government involves Musk’s X (formerly Twitter) taking control of TikTok’s US operations, potentially running the two businesses together.

The combination of X and TikTok US, with its over 170 million users in the US, could significantly bolster X’s efforts to attract advertisers, as well as possibly benefiting Musk’s AI company, xAI, with access to TikTok’s vast data sets.

While these discussions are underway in Beijing, sources say that no firm consensus has been reached about how to proceed.

The discussions are still considered preliminary and it is also unclear how much ByteDance knows about these government deliberations, or whether TikTok and Musk have had any talks. Both Musk and representatives from ByteDance and TikTok have not responded to requests for comment.

Musk did note on X in April that he believes TikTok should remain available in the US, as banning it would be “contrary to freedom of speech and expression”.

China’s influence and TikTok’s future

These talks in Beijing suggest that TikTok’s fate may no longer be solely in ByteDance’s control, and that the Chinese government expects to face tough negotiations with the Trump administration over a range of issues.

They view the TikTok negotiations as a potential opportunity for mending ties with the new US administration.

The Chinese government also holds a “golden share” in a ByteDance affiliate, which allows them to influence the company’s strategy and operations, while also needing to approve of any sale that includes the valuable recommendation engine.

This is because China’s export rules prevent its companies from selling software algorithms like the one integral to TikTok.

Bloomberg Intelligence analysts estimate the US operations of TikTok could be valued at between $40 billion and $50 billion, which is a considerable sum even for the world’s richest person.

It’s also unclear how Musk would finance such a transaction, if it would involve selling other holdings, or whether the US government would approve of the deal.

Furthermore, spinning off TikTok’s US business would be an extremely complex operation.

Lawyers for TikTok have previously argued that separating the US components of the app would be “extraordinarily difficult.”

Whether a sale of US TikTok would happen through a competitive process or be arranged directly by the government is also uncertain.

Billionaire Frank McCourt and “Shark Tank” investor Kevin O’Leary are also reportedly part of a bid through Project Liberty to acquire TikTok, and have spoken about the deal with Trump. In the past, both Microsoft Corp. and Oracle Corp. have also shown an interest in acquiring the company.

One alternative for TikTok would be to transition existing US customers to a similar app (with different branding), which could potentially circumvent the ban, although the viability of this strategy remains uncertain.

Meanwhile, a person close to the company told Bloomberg, that before the Supreme Court hearing, their legal battle was the primary focus of top executives, and that they would prefer to keep fighting to maintain control, rather than sell TikTok’s US operations.

Musk’s potential role in US-China relations

Musk is uniquely positioned to influence the China-US relationship as the world’s wealthiest person, with business interests that span the world’s two largest economies.

His Tesla factory in Shanghai has established goodwill with Chinese government officials and has helped to grow its market share in China.

Although Trump is filling his administration with China hawks, such as Secretary of State nominee Marco Rubio, Musk has spoken out against some of the trade policies, including tariffs on Chinese EVs.

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Supertanker freight rates have surged in recent days, as the US government’s expanded sanctions on Russian oil trade send traders scrambling to book vessels for shipments from other countries to China and India.

This surge in demand is putting upward pressure on shipping costs, creating turbulence in the global oil market.

Chinese and Indian refiners are actively seeking alternative fuel sources in response to stringent new US sanctions imposed on Russian producers and tankers, which are intended to restrict the world’s second-largest oil exporter’s revenue.

Many of the newly targeted vessels, which make up part of a “shadow fleet,” had been used to transport oil to India and China.

These countries previously took advantage of cheap Russian oil supplies banned in Europe following Moscow’s invasion of Ukraine.

Some of these tankers had also been used to transport oil from Iran, which is also under sanctions.

VLCC rates surge after major charters

Freight rates for Very Large Crude Carriers (VLCCs), which can carry 2 million barrels of crude across major trade routes, jumped sharply after Unipec, the trading arm of China’s largest refiner, Sinopec, chartered multiple supertankers on Friday, according to industry sources.

One shipbroker reported that the rate for the Middle East to China route, known as TD3C, has surged by 39% since Friday to $37,800 per day, the highest level since October.

Shipping rates for Russian oil shipments to China have also seen a significant increase following the implementation of new sanctions.

Aframax rates double amid limited tonnages

The freight rates for Aframax-sized tankers, used to ship ESPO blend crude from Russia’s Pacific port of Kozmino to North China, more than doubled on Monday, reaching $3.5 million, as ship owners have begun requesting substantial premiums, given the limited number of tankers available for that route.

This information comes from S&P Global Commodity Insights data. Further contributing to the market tightness, sanctioned tankers are stranded outside China’s eastern Shandong province, unable to discharge their cargoes due to a ban imposed by Shandong Port Group before Washington’s announcement on Friday.

Analysts anticipate that tanker availability could tighten further as traders seek unsanctioned vessels to transport Russian and Iranian crude.

“We expect new ships will be pulled into the shadow fleet over the coming months, many of which will be new to this trade, tightening supply in the non-sanctioned freight market,” Kpler analysts said in a note, highlighting the complexity of the evolving shipping landscape.

Rate increases across major routes

The rate for VLCCs from the Middle East to Singapore has increased the most, rising by 11.15 on the worldscale (WS) to WS61.35, according to another shipbroker.

Worldscale is an industry standard tool used to calculate freight charges.

Additionally, on the Middle East to China route, freight jumped to WS59.70, an increase of WS10.40, while rates for VLCCs carrying West African oil to China rose to WS61.44, an increase of WS9.55.

Even the cost of shipping crude from the US Gulf to China has risen to $6.82 million, up $360,000 since last week.

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