Trump's Trade War Spurs Chinese Export Rush to Beat Tariffs - EcoFinBiz Blog

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Trump's Trade War Spurs Chinese Export Rush to Beat Tariffs

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(Bloomberg) -- China’s export growth accelerated in October as companies rushed to make shipments before President Donald Trump’s plans to increase tariff rates kick in.

Exports in dollar terms rose 15.6 percent in October from a year earlier, exceeding economists’ estimates for 11.7 percent. Imports surged 21.4 percent, topping forecasts for 14.5 percent. The trade surplus widened to $34 billion.

China’s exports have grown robustly all year, propped up by strong global demand and the difficult of quickly shifting supply chains even as trade tensions with Washington deepen. Bloomberg’s Global Trade Tracker shows nine of 10 gauges are holding up, with just Hong Kong air cargo flashing a red light.

But the sugar hit may not last. A record 18.3 percent decline in Japan’s core machine orders in September provided evidence Thursday that trade tensions and cooling global demand are already taking a toll on some activity in the region. And the continuing drop in car sales in China indicates the domestic economy is weakening too.

More on fifth straight monthly drop in car sales

“Continued strong export growth in October reflected accelerated deliveries of export orders ahead of the U.S. tariff hike," said Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore. "Export momentum will likely slow sharply in early 2019."

Presidents Donald Trump and Xi Jinping are expected to meet at the upcoming Group of 20 summit, with some indication that the two sides are looking to reduce tensions. Still, there’s no certainty for business yet that Trump’s plan to hike tariffs on $200 billion in imports to 25 percent in January from 10 percent now will be abandoned or delayed.

Former U.S. Treasury Secretary Hank Paulson warned Wednesday of the risk of an "economic iron curtain" dividing the world if the two nations fail to resolve their strategic differences.

"We do not expect the sideline meeting of Xi and Trump during the G-20 would be positive," said Iris Pang, Greater China economist with ING Bank NV in Hong Kong. "We just hope that the meeting won’t create further damage to the trade relationship."

What our economists say:

"The risk is high, however, for a sharp drop in exports in 2019. The trade surplus will likely narrow in the coming year, given the boost to imports from import tariff cuts and policy promotion. Net exports will become a bigger drag on the economy."
Chang Shu, Chief Asia Economist at Bloomberg Economics

Exports to the U.S. grew by 13.2 percent to $42.7 billion in October, down from a record high in the previous month. Imports from the U.S. fell 1.8 percent, the second contraction in a row, leaving China’s trade surplus with America at $31.8 billion for the month.

There’s a high correlation between exports and imports in China’s overall trade, so the robust shipments probably had some impact on how much China bought from overseas.

The healthy import figures suggest the spillovers into other countries from China’s slowdown remain moderate, said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. With China’s economy expected to continue expanding faster than its trading partners, imports are likely to continue outpacing exports, causing its current account surplus to "virtually disappear" this year," said Kuijs.

Still, sentiment among China’s manufacturers about foreign demand is more downbeat than the trade data is showing, said Katrina Ell, an economist with Moody’s Analytics in Sydney. Should Trump’s higher tariffs be implemented in January, the "impact will hit China’s exports with a thud," she said.

--With assistance from Yinan Zhao.

To contact the reporters on this story: Natalie Lung in Hong Kong at flung6@bloomberg.net;Kevin Hamlin in Beijing at khamlin@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, James Mayger

©2018 Bloomberg L.P.

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