Tag Archives: exports

When Declaring Victory Is Not The Same As Wining A Trade War

Made in China label. Photo credit: Martin Abegglen, 2010. Licenced under Creative Commons.

CHINA HAS IMMEDIATELY retaliated against the first tranche of the 25% tariffs on $50 billion a year of Chinese exports to the United States announced by the Trump administration.

China will impose an matching tariff on 659 categories of US imports worth $50 billion a year, effective July 6. Vehicle and aircraft parts and vegetables account for the bulk of the targeted imports.

The Trump administration on Friday said its tariffs would come into effect on July 6 and cover more than 800 types of Chinese exports worth $34 billion a year. The largest category of goods affected are machinery, mechanical appliances and electrical equipment (full list). The White House says the remaining $16 billion of exports to be targeted will be announced later.

It is imposing the tariffs for what it deems unacceptable and unfair intellectual property and technology transfer practices by China that it has said cost the US economy $225 billion-600 billion a year.

There is, however, careful calibration on the United States part of these actions. It has reduced its original list of 1,300 targeted categories to focus on those sectors Beijing is promoting as part of its ‘Made In China 2025’ plan to develop advanced industries and to minimize the impact through international supply chains on domestic US industries. Some of the 500 categories removed from the list were done so following lobbying by US importers.

Beijing, for its part, has taken aim at the most politically sensitive US industries. where it believes it can have most impact on US President Donald Trump’s electoral support in rural areas and the Rustbelt.

US restrictions on Chinese firms’ investment in the United States are expected to be announced at the end of the month.

The president’s advisor on trade and manufacturing policy, Peter Navarro, says that the ‘era of American complacency’ on trade is over. But there is an old adage about how generals always fight the last war. The Trump administration’s tariffs seem to be doing the same thing.

International supply chains mean much of the value of the goods China exports is not added in China, so they hurt the non-Chinese part of the supply chain as much or more as the Chinese part.

Furthermore, policymakers may not care too much if the United States tries to choke off the sales of its cheap products; they want Chinese companies to export the higher value-added goods the US actions will push them towards making (and they have plenty of alternative markets in which to sell both cheap and more expensive products; the US accounts for only one-quarter of China’s exports).

Meanwhile, China’s industry has developed to the point that in sectors such as artificial intelligence and autonomous vehicles it is already internationally competitive. Intellectual property protection is now more important to its companies than intellectual property theft.

Trump may end up declaring victory in this particular trade war by being able to show he is being ‘tough on China’ and cutting the headline number of the bilateral goods trade deficit, but it will be China that actually wins the war.

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United States Puts Trade War On Hold

THE US-CHINA trade war is on hold. Official. Or official, at least until the US president tweets that it is back on, or was never off or is over.

US Treasury Secretary Steve Mnuchin says the Trump administration will not, for now, impose tariffs on up to $150 billion in Chinese imports for alleged violations of US American intellectual property and unfair trade practices. The rationale, according to Mnuchin, who was speaking on one of the United States’ Sunday morning TV talk shows, is the progress made in last week’s trade talks towards a ‘framework’ for cutting the $375 billion merchandise trade surplus with the United States.

High-level US trade officials met their opposite numbers from Beijing in Washington last Thursday and Friday, which was followed by a communique that vowed that neither side would launch a trade war against the other.

China said it would buy more agricultural and energy products from the US as part of a substantial cut in its trade surplus with the United States, which will include still-to-be-discussed purchases of US manufactures and services.

Both of those, and particularly the latter, require structural reforms on Beijing’s part likely to come later rather than sooner.

Beijing said it would drop it anti-dumping investigation into US sorghum, but that at best will protect existing US exports now at risk, rather than create new business in itself. Also, while the US has plenty of energy, particularly liquefied natural gas, it could sell China it would have to build distribution infrastructure to deliver it. Privately, US trade officials say it could take three to five years to double US energy exports to China.

Sales of agricultural commodities could be ramped up within a crop season, however. China bought $19.6 billion-worth of US farm produce in 2017, making it US farmers’ second largest foreign market. The United States is hoping for a 40% increase this year. If that comes about, there will be only another $188 billion to go to the $200 billion cut in the trade surplus that the United States reportedly seeks.

Beijing also promised to address US concerns about intellectual property protections (although that is pushing against an open door given that Chinese firms have an increasing amount of intellectual property of their own to protect these days).

Whatever short-term concessions might be made to provide Trump with an arithmetical win on the trade deficit, Beijing will do nothing that compromises its Made in China 2025 industrial policy, which is the real war.

Meanwhile, our man in Washington sends word that President Donald Trump’s U-turn on sanctions against telecoms equipment maker ZTE got a rebuff from the US Congress last week.

The House Appropriations Committee snuck into an appropriations bill an amendment that forbids the Commerce Department from changing the sanctions on ZTE that it imposed last month for trading with Iran and North Korea.

The inclusion of a seven-year ban on US companies selling components to ZTE has led the company to cease operations, and it was that ban that Trump, surprisingly, a week ago ordered the Commerce Department to rescind and replace with a less onerous alternative.

There is a long distance between an amendment being passed in committee and making it into law, a distance few such amendments survive. However, even getting past the first step, acceptance into a bill, shows how driven US-China trade relations are going to be on the US side by domestic politics, and especially in the run-up to November’s mid-term Congressional elections.

The Democrats — and it was one of their number, Dutch Ruppersberger, a Congressman representing a district in Baltimore, that proposed the amendment — are attacking Trump’s policies at every turn, scenting the opportunity to recapture control of at least one house of Congress from the Republicans in the mid-terms.

This partisan dimension further complicates the already complex trade relationship between the two countries. There may be no war-war for now, but there will be plenty of jaw-jaw.

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China Trade Does America A Service

US PRESIDENT DONALD Trump lambasted cheap Chinese imports for destroying American jobs when he was on the campaign trail last year.

A National Bureau of Economic Research working paper by Robert Feenstra of the University of California, Davis and Akira Sasahara of the University of Idaho, which  recently came across our desk though published in August, suggests the damage may not have been as extensive as previously thought once the gain in jobs from US exports to China are taken into account.

Looking at the impact of trade on employment in the United States from 1995 to 2011, the authors say:

For merchandise exports and imports from China, we have found added demand of 3.7 million jobs and reduced demand of 2.0 million jobs, respectively, giving a net gain of 1.7 million jobs.

Including services trade, Feenstra and Sasahara count a much larger net gain of 4 million jobs.

Different modelling approaches give some variation of results, showing that in merchandise trade the net job gain from the China trade could have been as low as 730,000 jobs or as high as 2.7 million and for trade in all sectors from 4 million to 5.1 million jobs. But all show a net gain in jobs.

At least some of that growth will have been as a result of China’s growth stimulating global growth and thus world trade.

Previous studies have estimated that since China’s accession to the World Trade Organization in 2001, unleashing the ‘China shock’ on world trade, Chinese imports accounted for one-quarter of the decline in U.S. manufacturing employment and have contributed to the unusually slow employment growth following the 2008 financial crisis.

Imports from China — or anywhere — else have twin effects. They create import competition and labour-market dislocation, but also benefit domestic consumers through lower prices. Trump concentrated on the former.

But what Feenstra and Sasahara highlight is the importance of services in the United States’ global trade. Thus Trump’s emphasis on restoring manufacturing jobs, if politically salient, is economically misplaced.

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China’s February Export Slump: New Year Distortion Or Full-Year Herald?

LUNAR NEW YEAR always makes forecasting China’s February export numbers something of a lottery. Yet few if any foresaw the 18.1% decline just announced.

Throw in slowing credit growth, the National People’s Congress meeting going as expected — i.e. offering no new answers of how both a 7.5% growth target for the year and reforms to rebalance the economy will be achieved — political tension over Ukraine and the mystery disappearance of the Beijing bound Malaysia Airlines’ passenger jet and it is scant surprise investors, already jittery about growth prospects, have taken umbrage. Shares hit a five year low in Shanghai and the yuan weakened against the dollar, with the ripples being felt in Hong Kong and in U.S markets beyond.

Most forecasters had expected an increase in exports for February, if a modest one. The most recent official purchasing managers index had pointed to weakness in new export orders, thought to be a consequence of the untypically harsh winter in the U.S., China’s second largest export market after the E.U. In addition, exporters tend to front-load their deliveries ahead of the New Year’s holiday when factories are closed for a week or so.

Nonetheless, across January and February taken together exports were down 1.6% while imports rose 10%. That has taken a chunk out of China’s trade surplus. February’s was the largest monthly trade deficit in two years. Across the two months, the surplus was $8.9 billion, down 79.1% on the same period a year earlier.

The question, of course, is whether this is all just a holiday induced blip in long-term deceleration of the growth rate or harbinger of a harder than previously expected braking of the economy. The March trade figures will be looked at closely for clues to the answer.  However, exporters will have to go at it if they are to make good the forecast of the State Information Center, a government think tank affiliated to the top economic planning agency, the National Development and Reform Commission. It is forecasting an 8.1% growth in exports in the first quarter, and about 7.5% GDP growth. Investors would be delighted, and surprised.

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China Uncooks Its Trade Books

That China’s reported trade figures are, to put it mildly, a bit dodgy will come as no surprise. The 21st Century Business Herald has put some numbers on those suspicions.

Quoting commerce ministry sources, the paper says that $75 billion of fake invoicing covering the months of January to April have been uncovered. That is sufficient to change the export growth for that period to 7%, against the 17.4% reported and to cut the corresponding imports number to 6% from the reported 10.6%.

The fake invoicing was part of a scheme by some Chinese companies who were cooking their order books in order to get funds to speculate on the appreciation of the yuan against the dollar. In short, they were disguising hot money as trade payments. This was done by parking goods in Hong Kong and booking them as exports so they could get forex  loans from the banks, or in some cases, it is now clear, by just creating phantom export orders.

Authorities cracked down on the practice in May. The $75 billion figure has been derived by applying May’s trade growth rates to the previous four months for China’s special customs regulation zones, the bonded warehouses in places like Shenzhen on the border with Hong Kong.

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Treat China’s January Trade Figures With Optimistic Caution

Caution should be exercised in interpreting China’s newly published trade and inflation figures for January. Next week’s New Year holiday will have caused distortions. Importers and exporters will have tried to get as much business as possible done before work stops for the holiday. In addition, the timing of the festival, which fell in January last year but this month this, will have made year-on-year trade growth appear stronger and inflation weaker. A clearer picture will appear after February’s trade and inflation figures are published in March and the first two month’s numbers can be compared in aggregate.

With that those caveats, on the face of it, the numbers suggest that the calendar year has started with solid growth both in China and abroad. Exports rose a greater than expected 25% from a year earlier, the fastest pace since April 2011, and up from 14.1% in December. Imports increased 28.8%, more than four-times December’s 6% rise. The boom in imports trimmed China’s trade surplus to $29.2 billion in January, from $31.6 billon a month earlier. Inflation also receded, slowing to 2% from 2.5% in December, though food prices spiked.

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December’s Export Growth: Flattering To Deceive?

China’s exports picked up in December with surprising vigour, up 14.1% year-on-year, far outstripping expectations of 4% growth. That was the fastest pace of growth in seven months. It remains to be seen if it is indicative of a trend, or a one-off seasonal outlier. U.S. and European demand for Chinese goods remains subdued going into 2013. For the full year trade expanded by 6.2% overall, short of the government’s 10% growth target for 2012.

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