Trade Figures Bring No Cheer To Trade War

THERE IS NOT much comfort to be drawn from the latest monthly trade statistics. The 4.4% year-on-year fall in exports for December to $221.25 billion, and 7.6% decline in imports to $164.2 billion were the opposite of the increases on both sides of the ledger that had been expected. The increase in the trade balance, to $57.1 billion from $44.7 billion last month, is just the result of the arithmetic.

The trade dispute with the United States appears to be starting to bite after several months of front-loading of orders to get ahead of tariffs, but there have been plenty of straws in the wind suggesting the economy is slowing, from the first fall in annual car sales in two decades to Apple’s warnings about slumping iPhone sales.

The question is whether this will make the need to strike a trade deal with the United States by the March 1 deadline self-imposed by Presidents Xi Jinping and Donald Trump  more pressing on Beijing’s part. Or will it stiffen the resolve of the leadership to tough it out, knowing that it can only make superficial concessions unless it is willing to make structural changes that it will not?

It may also judge that a slowing global economy and jittery equity markets worldwide impose pressures of their own on the US administration, which has plenty of domestic distrctions of its own right now.

Vice Premier Liu He, Xi’s point man on the trade talks with the United States, is due in Washington before the end of the month. He might arrive with a willingness to make some big-ticket purchases to cut the headline number for the trade surplus with the United States (2018’s was the largest in a decade) and some token concessions on greater market access for US firms. Last week, the sherpas preceding his visit made some if unspecified progress on both fronts.

However, he is unlike to bring significant concessions in the contentious areas such as intellectual property and Beijing’s support for state-owned enterprises. The slowdown in China’s economy may more likely encourage Washington’s China trade hawks to believe that they need to continue to until he does.

Advertisements

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.

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.

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.

China’s Commerce Ministry Dampens Recovery Expectations

The Commerce Ministry has poured cold water over some of the optimism that China’s economy has reached the end of its slowdown. Ministry spokesman Shen Danyang said September’s surge in exports and the return of import growth wasn’t enough in itself to confirm a recovery. As one who, as regular readers will know, cautions about extrapolating anything from one month’s economic data, this Bystander has some sympathy with the ministry’s caution. One does wonder what the somewhat more upbeat prime minister Wen Jiabao would make of such remarks, though.

Beijing has been doing its bit to boost exports such as accelerated payments of export tax rebates and making bank loans and services cheaper for exporters. There is a limit to how much support it can give without being repeatedly hauled before the World Trade Organization, an activity that is seemingly becoming a national sport not just in the U.S. but now Mexico as well. Nor is there much Beijing can do in the short-term about reinvigorating demand in the country’s export markets in Europe and the U.S. The official target of 10% export growth for the year looks likely to be missed, especially if the ministry is already dampening down expectations.

China’s Trade Figures Show Global Demand Slowing Not Collapsing

The one point to be made about China’s latest trade figures is that demand from developed economies has not collapsed, regardless of the fact that last year’s trade surplus, at $155 billion, was down from 2010’s $183 billion and the smallest since 2005. Year-on-year export growth in December was 13.4%, and even 7.2% from debt-struck Europe. Slowing growth rates, to be sure–November’s export growth was 13.8% y-o-y–but not contracting ones.

December’s increase in the monthly surplus from $14.5 billion to $16.5 billion was largely due to slower import growth, at 11.8% y-o-y, a 26-month low. Commodity imports were resilient. It was domestic consumers who kept their wallets shut, another reason for the recent priming of the credit pumps. The trade figures also provide inconclusive support to visiting U.S. Treasury Secretary arguments that Beijing needs to let its currency appreciate further against the dollar.

China’s Q1 Trade Figures Point To Wobbly Balance

China ran a trade deficit in the first quarter, its first quarterly deficit in seven years. One quarter does not a rebalanced economy make, but it does indicate movement in that direction. The question is how solid is that progress.

Reasons to be cautious: The quarterly surplus was tiny. Imports, at $400 billion, barely exceeded exports at $399 billon, and high commodity prices tipped the balance; adjust for the change in the prices of oil and iron ore alone and the deficit would have become a surplus of $18 billion. The quarter also ended with a surge in exports, up 36% in March to $152 billion, not far short of December’s record $154 billion, and moving the monthly trade account into surplus. A tsunami-related decline in imports from Japan would have a effect on the margins, too.

Reason to be a bit cheerful: for two years imports have been growing at a faster rate exports, but not sufficiently so for the full year to turn in a trade deficit this year, we suspect. So currency and trade frictions with the U.S. and Europe will continue in 2011.

The strength of domestic demand, as evidenced by the growth in imports, does suggest, however, that China’s economy is growing robustly enough for the central bank to continue mopping up excess liquidity through raises in interest rates and the capital reserve requirements imposed on banks.