Why China’s trade surplus with the US hit a record high despite Trump’s tariffs
Share this on

Why China’s trade surplus with the US hit a record high despite Trump’s tariffs

DESPITE a hardline tariff offensive from US President Donald Trump, China’s trade surplus with the United States hit a record high last year, making it the highest in over a decade.

According to government trade data, China’s surplus hit US$323.3 billion in 2018. That’s a 17 percent increase from the previous year and the highest on record, according to Reuters.

Although the numbers are staggering, these figures likely don’t paint the full picture. China’s figures routinely show a smaller imbalance than US ones as China calculates the numbers using different methods, sometimes excluding goods that end up in the US via other countries.

SEE ALSO: US-China trade war alarms wealthy Singapore

Countering this trade imbalance was central to Trump’s reason for imposing his tariff hikes on Chinese goods. But as the data shows, this hasn’t had the immediate impact the US had hoped for, and here’s why…

2017-05-12T052736Z_1930401098_RC19C9411690_RTRMADP_3_USA-CHINA-TRADE-e1495159372744

Chinese President Xi Jinping shakes hands with US President Donald Trump as he is accompanied by China’s first lady Peng Liyuan during a dinner at the start of a summit between President Trump and President Xi at Trump’s Mar-a-Lago estate in West Palm Beach, Florida, US, April 6, 2017. Source: Reuters/Carlos Barria

Conditions in the market aligned to undercut Trump’s measures last year. According to Liyan Qi and Xiao Xiao of The Wall Street Journal, a buoyant American economy helped lower the impact.

This fuelled US demand for imports, much of which was from China. This was paired with a slowing Chinese economy, which reduced demand for goods in China.

The weakening Chinese currency ensured Chinese goods remained at highly competitive prices, especially to the US dollar that had a strong year in 2018.

SEE ALSO: World economy braces for global trade slowdown in 2019

Rather than having a slowing effect in Chinese exports to the US, Trump’s decision for incremental tariff hikes, along with his very vocal threats of higher tariffs actually spurred trade. Chinese exporters were racing to fill orders before the measures took effect.

The latest data shows “how the tariffs affected the trading behaviour of exporters who accelerated their shipments,” Liu Yaxin, an analyst at China Merchants Securities, told the Journal.

But this is merely a frontloading effect of the trade measures and they won’t be carried over into 2019.

000_1C76P1

This photo taken on January 12, 2019 shows workers making caps for export in a textile workshop in Lianyungang, in China’s eastern Jiangsu province. China’s global trade volume rose last year but its surplus fell again as its imports outpaced its exports, official data released on January 14 showed amid a bruising trade war with the United States. Source: STR / AFP

Just because the trade war didn’t bite in 2018, it doesn’t mean it won’t – in fact, it’s already started.

World stock markets slumped on Tuesday after the same Chinese trade data also showed demand in China and across the world was weaker.

China’s exports fell 4.4 percent in December from a year earlier, while imports dropped 7.6 percent, reflecting sluggish demand at home and abroad.

SEE ALSO: Trade: G20 statements show US, China are on different pages

The figures support the theory that the world is facing a global economic slowdown.

The World Trade Organisation’s (WTO) chief economist, Robert Koopman, told Bloomberg in December that all indicators point to a slowdown.

“When you look at those leading indicators, they continue to weaken. It’s almost like a death from a thousand cuts,” Koopman said in an interview.

“There’s not any one big change in those leading indicators but, boy, they are starting to add up.”

Topics covered: