BEIJING (Reuters) - China’s exports unexpectedly shrank in April but imports surprised with their first increase in five months, painting a mixed picture of the economy as Washington ratchets up pressure on Beijing with threats of more punishing tariffs.

FILE PHOTO: Containers and cargo vessels are seen at sunset at a port in Lianyungang, Jiangsu province, China March 12, 2019. REUTERS/Stringer/File Photo

The latest trade data, which would normally be pored over for clues on how the world’s second-largest economy is faring, has been overshadowed by worries that the U.S.-China trade war is escalating, rather than nearing a resolution as many investors had expected.

High-level Chinese and U.S. negotiators will meet in Washington in the next two days, as Beijing tries to avoid a sharp increase in tariffs on its goods ordered by President Donald Trump to take effect from Friday.

Investors have been hoping that China’s April trade data would add to signs that its economy is beginning to steady, easing worries about cooling global growth.

But exports fell 2.7 percent from a year earlier, customs data showed on Wednesday.

ANZ estimated more than 80 percent of the headline decline was due to a sharp drop in shipments to the United States, while its high-tech exports continued to be weighed down by sluggish global demand for smartphones and other electronic gadgets.

Economists polled by Reuters had expected growth to slow to 2.3 percent after March’s surprising 14.2 percent jump, which some analysts suspected was inflated by seasonal factors and temporary business distortions related to a cut in the value-added tax (VAT) effective April 1.

“The outlook for Chinese exports is challenging. If Trump follows through on his latest tariff threats, we think this would drag down export growth by two to three percentage points,” Capital Economics said in a note.

“Even if a last-minute deal is struck this week to avoid further tariffs, the downbeat prospects for global growth will probably mean that export growth remains subdued.”

POSITIVE IMPORT SURPRISE

Imports, however, beat expectations with a 4.0 percent rise year-on-year, much better than analysts’ forecasts for a 3.6 percent fall and March’s 7.6 percent drop.

The gain was the first since November, suggesting domestic demand is starting to perk up as Beijing rolls out more stimulus, such as higher spending on roads, railways and ports. Imports of copper, widely used in construction and manufacturing, rose from March, but were down on-year.

China’s major trading partners, big multinational suppliers like Caterpillar and global investors have been closely watching to see how long it will take support measures announced in recent months to take hold.

Tang Jianwei, a senior economist at Bank of Communications in Shanghai, said China stands to lose in either case.

“If there is a set-back in trade talks, both external demand and domestic demand could be hit. If the U.S. and China reach a trade deal, China will have to step up imports form the U.S., which will reduce its trade surplus, which will reduce net exports’ contribution to GDP growth,” he said.

China had an overall trade surplus of $13.84 billion in April, smaller than forecasts of $35 billion.

Its trade surplus with the United States, a major irritant for Washington, widened to $21.01 billion in April, from $20.5 billion in March. China’s imports from the U.S. fell nearly 26 percent while exports to the U.S. fell just over 13 percent.

TRADE TURNABOUT?

Some analysts believe recent signs of improvement in both the Chinese and American economies may have hardened their negotiating positions on trade after months of progress made when the business outlook appeared much more shaky.

China posted surprisingly strong data for March, but initial April readings have been more subdued, suggesting the economy is still struggling for traction.

Factory surveys for April suggested demand was improving at a much slower rate at home and abroad, adding to the debate over how much more stimulus China needs to generate a sustainable recovery, without risking a rapid jump in debt.

“Weak growth in Chinese exports to the U.S. will also be concerning to Chinese officials, particularly amid a potential escalation in the trade war,” said Nick Marro, an analyst at The Economist Intelligence Unit.

“The data will add more urgency to the trade negotiations this week and could push China more forcefully towards an agreement, despite its past reluctance to negotiate under threat.”

Top U.S. trade officials said China had backtracked on substantial commitments it made earlier in trade talks. That prompted Trump to issue a new deadline of Friday to raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent. Trump also threatened new levies soon.

The swift deterioration in negotiations between the world’s two largest economies has jolted global financial markets, which had been increasingly betting that a deal would be reached soon.

Major stock indexes in trade-reliant Asia continued to fall on Wednesday, tracking a slide on Wall Street.

“Today’s exports data support our view that there is real risk of double dip in growth, and Beijing cannot afford to stop easing (policy) yet. With the rapid escalation of the trade conflict with the U.S., we believe Beijing will likely step up easing measures again,” Nomura analysts wrote in a note.