On November 7, local time (3:00 a.m. Beijing time on November 8), the U.S. Federal Reserve announced that it would lower the target range for the federal funds rate by 25 basis points to a level between 4.5% and 4.75%. This is the second time in a year that the Federal Reserve announced an interest rate cut, which will undoubtedly significantly affect the development of Chinas import and export trade.

I. Multi-faceted impacts on China’s imports and exports

1. Pressure from RMB appreciation on exports
The Fed's interest rate cuts usually lead to a weaker dollar and a relative appreciation of the RMB. This significantly reduces the price competitiveness of Chinese export products in the international market. Foreign buyers need to pay more foreign currency to purchase Chinese products, resulting in a decrease in export volume. At the same time, the profits of export companies are also compressed, because costs are denominated in RMB and revenues are denominated in US dollars. The change in exchange rate has greatly reduced the profit margins of companies.

2. Benefits of lower import costs
The appreciation of the RMB has made the cost of imported raw materials denominated in US dollars relatively lower. This is undoubtedly good news for companies that need to import a large amount of raw materials.

II. Impact of changes in market demand

The Fed's interest rate cut will reduce borrowing costs for companies and individuals, stimulating consumption and investment in the United States. As domestic economic activities in the United States increase, demand for imported goods may rise accordingly. This is a potential opportunity for Chinese export companies.

Although the demand in the US market has increased, the price competitiveness of Chinese export products in the international market will decline due to the expectation of RMB appreciation, which increases the uncertainty of corporate export performance.

III. Pros and Cons of Changes in International Financing Costs

1. Low-cost financing opportunities
Under the Fed's interest rate cut environment, the global capital cost has generally declined, which has brought rare low-cost financing opportunities to export-oriented state-owned enterprises. This change is extremely beneficial to enterprises that need a lot of funds for operation and expansion. On the one hand, enterprises can use the low interest rate environment to refinance existing debts, optimize debt structure and reduce financial risks. On the other hand, enterprises can use international capital to increase investment in key areas and strategic emerging industries, lead and promote industrial upgrading, and improve the added value and competitiveness of products.

2. Increased volatility in financial markets
While the global cost of capital is falling, the volatility of financial markets is also increasing, which brings certain risks to enterprises. The instability of international financial markets may lead to increased exchange rate fluctuations and greater uncertainty in capital flows. Enterprises need to consider market risks more carefully when making financing and investment decisions.

IV. Countermeasures for Chinese Foreign Trade Enterprises

1. Exchange rate risk management
Foreign trade enterprises can reasonably use foreign exchange derivatives such as forfaiting (bill buyout), documentary credit, forward foreign exchange transactions, and foreign exchange options to lock in exchange rate risks and reduce exchange losses. At the same time, actively negotiate with customers to adopt multiple currencies for settlement, such as RMB settlement or other relatively stable currencies, to reduce dependence on the US dollar. Add exchange rate adjustment clauses to the contract and adjust prices according to exchange rate fluctuations. In addition, open foreign currency accounts and reasonably plan the use of foreign exchange funds. For enterprises without financial pressure, the foreign currency received can be temporarily not converted into RMB, and exchanged after the US dollar appreciates to reduce exchange rate losses.

2. Market expansion and customer management
1. Foreign trade companies should reduce their dependence on the U.S. market and actively expand into other international markets such as Europe, ASEAN, and Latin America to find new customers and business opportunities.
2. Strengthen the maintenance and management of existing customers, improve customer satisfaction and loyalty, and stabilize order sources.
3. Keep abreast of consumer demand, policies and regulations, technical standards and other information in different markets, and adjust product and marketing strategies according to market changes.

(III) Product upgrade and innovation
Enterprises have increased their R&D investment, actively carried out technological innovation and product structure adjustments, improved product quality and technological content, enhanced their product competitiveness in the international market, and consolidated their export advantages.

4. Strengthening coordination with government policies
Enterprises should strengthen communication and coordination with the government, promptly understand the government's policy orientation and support measures, and actively seek government policy support.