Tag Archives: trade surplus

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.

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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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OECD Raises China Growth Forecast And Risks To It

THE OECD HAS edged up its growth forecast for China this year to 6.7% from the 6.6% it projected in November but holds its 2019 forecast unchanged at 6.4%. The revised numbers are contained in the newly published interim Economic Outlook from the rich countries’ think tank.

Overall, the OECD sees a steady or improving expansion across most G20 economies thanks to the bounce back of trade and private investment, with fiscal stimulus in the United States and Germany providing a boost to short-term growth, while inflationary pressures are subdued. Specifically, on China it says

Growth surprised on the upside in China in 2017, helped by a strong rebound in exports, but is set to soften to just below 6½ per cent by 2019. Macroeconomic and regulatory policies are gradually becoming more restrictive, the working age population is now declining and credit conditions are less expansionary. Regulatory efforts are continuing to reduce financial risks, deal with overcapacity in some sectors and improve environmental quality. Fiscal policy is now broadly neutral, but additional measures could be implemented if output growth were to slow more sharply.

However, the risks to its general forecast all threaten particular vulnerabilities of the Chinese economy: tightening monetary policy in the advanced economies, high debt and asset valuations, and a potentially damaging escalation of trade tensions.

The importance of tackling high debt levels is illustrated in this chart.

Chart of G20 total debt, public and private non-financial sector, as % of GDP, 2001-2017. Source: OECD

The OECD calls on Beijing for policy initiatives to reduce the high level of corporate debt, in particular.

The OECD also makes a point of the importance of safeguarding the rules-based international trading system. China has repeatedly been saying the same thing, if somewhat self-servingly and with itself as the guarantor, since long before the Trump administration announced import tariffs on steel and aluminium. It is likely to echo the call again as the United States readies a Section 301 action on intellectual property rights and technology transfer practices aimed at what the US president has flatly called China’s theft of US technology.

Meanwhile, the Trump administration has reportedly told Beijing that it has to come up with a plan to reduce China’s $375 billion trade surplus with the United States by $100 billion within a year.


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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.

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Exports Fell In November – Official

Now they have been released, the official November trade figures show the expected decline in exports as the global slowdown bites deeper into the economy.

At $115 billion, November’s exports were down 2.2% on the same month a year earlier, the General Administration of Customs says. Seasonally adjusted it is the first fall in export values since June 2001, and a bigger decline than some economists were expecting, according to the FT.

In October, exports were worth $128 billion, up 19.2% year-on-year. As rule of thumb every 1% fall in economic growth in the U.S., China’s main export market, translates into a 10% fall in China’s exports.

Imports also contracted last month, down 17.9% from a year earlier at $74.8 billion, reflecting the collapse in commodity prices over the past year as well as the more recent slowing demand for raw materials and semimanufactures, so the monthly trade surplus widened to a record S40.1 billion.

That will help expand the war chest for stimulating domestic demand. There is little more Beijing can do to help exporters absent a recovery in global demand; it has gone as far as is practical with yuan devaluation and export tax credits. The sharp fall in imports suggests slackness in the supply chain that will be reflected in weak export numbers for some months to come.

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Record Trade Surplus Masks Falling Domestic Demand

A 19.2% growth in exports over the same month a year earlier and a record trade surplus paint a picture of a slowing but still growing economy. The export growth rate was its lowest in October for four months, but still better than many economists had expected. The opposite was true of imports, and those are the key number in this set of trade figures. Their growth rate in October was down to a lower than expected 15.6%. $128.3 billion of exports but only $93.1 billion of imports, half of which are used for export manufacturing, left a record monthly trade surplus of $35.2 billion that masks the cooling of domestic demand, falling commodity prices and stumbling exports. That should concern the China-as-locomotive-of-global-growth school of thought.

The 4 trillion yuan of infrastructure spending, tax cuts and credit easing announced two days ago is meant to stimulate domestic demand and protect jobs, particularly in the export driven south which has seen a wave of factory closings and layoffs even though demand for Chinese exports has remained brisk. Interestingly, Xiao Zhiheng, vice governor of Guangdong was reported as saying on Monday that though there had been 50,000 bankruptcies in the province in the first nine months of the year, more than 90,000 new business were registered.

Meanwhile, inflation nationally has fallen to 4%, its lowest level in 17 months, providing room for another interest rate cut. The central bank has also put a brake on the yuan’s gains against the dollar since mid-July, helping to protect light manufacturing exporters from the effects of a rising currency. Those exporters have also been given higher export-tax rebates and rebates are being restored to copper and aluminum producers.

Economists at Credit Suisse forecast earlier this month that growth for the economy as a whole may slow to 5.8% this quarter and 7.5% in 2009, its slowest in almost two decades. With Europe in recession and the U.S. and Japanese economies both contracting, how much longer will exports stay as resilient as they are proving? Net exports account for up to three percentage points of China’s growth rate. They are the swing factor in how rapidly the economy as a whole will slow.

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Slowing Surplus

One swallow doesn’t make a summer. One month’s economic statistics doesn’t make a trend.

The large drop in the trade surplus for February to $8.6 billion from $19.5 billion in January and $23.8 billion a year earlier is probably an aberration caused by the timing of New Year and the disruption to production and shipping from the severe winter, a point reinforced by the 6.6% rise in producer prices for the month (which in itself bodes ill for the next set of inflation numbers).

That all said, looking at the trend of the rolling 12 month surplus, it does seem that the surplus is at least slowing its pace of growth. Export growth is likely to slow to 15% this year while rising oil and other commodity prices will push up the import bill.

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