China’s Trade Shows Healthy Growth, Really?

China’s trade in goods climbed 8.9% year-on-year to CNY 9.11 trillion (USD 1.43 trillion) in the first four months of this year, partly due to the upturn in the global economy and solid domestic demand, official data showed on Tuesday.

Exports rose 6.4% year-on-year to CNY 4.81 trillion between January and April, while imports grew 11.7% to CNY 4.3 trillion, according to the General Administration of Customs.

The robust trade performance can be attributed to the steady recovery of the global economy, and sustained domestic demand, said Huang Songping, spokesman for the General Administration of Customs.

China’s trade grew in a more balanced manner, as the nation has been stepping up efforts to boost its imports, Huang was quoted as saying by China Central Television on Tuesday.

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The trade surplus stood at CNY 506.24 billion in the first four months, which narrowed by 24.1% from the same period a year ago, data showed.

“Looking ahead, China’s imports are likely to be further underpinned by further opening-up measures such as tariff reduction, and a slew of policies to stimulate domestic consumption,” said Cai Hao, head of macroeconomic study at the Research Institute of Hengfeng Bank.

After getting off to a strong start, China’s foreign trade volume is forecast to remain strong in 2018, according to a report recently released by the Ministry of Commerce.

The report said the expansion would be underpinned by the stable recovery of the world economy, and sustained demand in the domestic market as supply-side structural reform advances.

In spite of the positive outlook, the report pointed out several factors that weighed on trade are still present. These include a complex international political and economic environment, anti-globalization, and rising protectionism.

A World Trade Organization report also pointed out that there are signs that escalating trade tensions may already be affecting business confidence and investment decisions, which could compromise the current outlook.

“Sino-US trade talks will continue to have a significant impact on both bilateral and global trade, and good economic and trade relations between the world’s two largest economies are vital for continued economic growth and recovery”, Nie Wen, a macroeconomy analyst at HwaBao Trust, said in a research note.

China’s trade with economies participating in the Belt and Road Initiative was worth CNY 2.51 trillion in the first four months, an increase of 11.6% year-on-year, which was 2.7% points higher than the overall level.

In April, China’s trade registered growth climbed 7.2% year-on-year to CNY 2.36 trillion, with exports increasing 3.7% and imports growing 11.6%.

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Global trade is weakening regardless of trade war

Since the United States introduced tariffs on China, there have been various claims on the future of global trade. Some experts point out that global trade will continue to decline, whether or not trade wars break out.

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Some important global trade indicators are suddenly pointing downward. Chinese data for April may have looked fine, with exports up 3.7% on the year in yuan terms after falling 9.8% in March. Still, that rebound was likely thanks to the late Lunar New Year holiday in 2018: In seasonally adjusted terms, export volumes fell 2% on the month, Capital Economics estimates—the worst decline in nine months. Exports from Korea, another Asian trade bellwether, declined in April—the first drop since October 2016.

The droopy numbers have come in just as key industrial commodities are already coming under pressure. Copper prices are off over 6% this year, weighing on the share prices of miners like Freeport-McMoRan and Glencore. Dr. Copper’s weakness is a sobering sign for China and Asia in general: The region sucks up 70% of global demand for the metal.

Key manufacturing purchasing managers’ indexes have also started stuttering: U.S., eurozone, Chinese, Japanese and South Korean PMIs all appear to have peaked between December and February, although all—apart from Korea—are still expanding.

Slower global trade—particularly when paired with higher oil prices and rebounding inflation—bodes ill for industrial firms such as Caterpillar, Deere and Japan’s Komatsu. Caterpillar has already warned that its first quarter results were likely the “high watermark” for the year.

It might, though, help head off worse tensions between the U.S. and China. With the growth rate in Europe, China’s largest export market, suddenly looking much weaker, the cost of a big rift with the U.S. is rising. Chinese companies are also starting to struggle at home: Industrial profits grew just 3% in March, their worst showing since December 2016.

China is unlikely to budge on its determination to create national champions in tech. But it might start offering more meaningful concessions on tariffs, restricted sectors for investment, and other trade irritants if foreign demand for its goods wavers.

Given the extreme negotiating positions both sides have staked out, U.S. trade tensions with China may get worse in the near-term. But the gathering clouds over the global growth story might eventually help encourage cooler heads to prevail.

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Will Trade War Escalate? ( China's New Tariff Plan )

China is moving forward with its plan to counter President Donald Trump's new tariffs on steel and aluminum, levying duties, heightening fears of a potential trade war between the world's two largest economies.

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In a statement on Sunday, the Chinese government said it would impose the retaliatory tariffs on 128 products, according to an informal translation.
China will impose a 15 percent tariff increase on goods including American fruit and nuts and add a 25 percent tariff on pork, recycled aluminum and other goods, the government said.

The move to impose the duties comes just over a week after the Chinese Commerce ministry had announced it was considering tariffs on the goods. Just over a week later, those tariffs are taking effect.

The move is expected to lead to escalating tensions between the two large trading nations, leading many to worry that American farmers will be casualties in a tit-for-tat trade war.

The U.S. shipped more than $1 billion of pork products to China last year, making it the No. 3 destination for exports after Japan and Mexico. The U.S. was China’s top supplier of apples, cherries, walnuts and almonds.
Beijing argued in the statement Sunday that it would be imposing the duties "in order to safeguard China's interests and balance the losses caused by" the steel and aluminum tariffs, which took effect late last month.

It will move forward with the retaliatory measures under the World Trade Organization’s safeguards agreement, which allows a country, after a period of consultation, to put in place tariffs to compensate for another country’s export restrictions.

While the Trump administration has said the steel and aluminum tariffs are necessary to protect national security, Beijing rejected that argument in its statement and said they ran afoul of WTO rules.

China's responses, meanwhile, are "legitimate measures ... to use the rules of the World Trade Organization and safeguard its interests," the statement said.

More tariffs between the two countries are possible in the near future. In March, Trump unveiled another set of tariffs, which specifically target some $60 billion in Chinese exports in response to what the White House has described as policies that force American tech companies to cough up intellectual property in order to access the Chinese market.

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How bad could a trade war be for the global economy?

Since the Trump Administration proposed the tariff policy against Chinese imports, there are all kinds of comments, good or bad.

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China’s response to US tariffs has been measured but the end game is uncertain.

Chinese response to the Trump’s announcement was at the dovish end of the spectrum of possible retaliatory actions. If we have seen the first shots in a global trade war, then there are many rounds of escalation still to come, probably taking years to play out. 

So, how huge the scale of the economic damage will be?

The IMF has published simulations on its global economic model, showing the impact of a 10 per cent extra US tariff on all imports of goods from the rest of the world. This cuts US GDP by about 1 percentage point in the long term, and it also reduces GDP in the rest of the world by 0.3 per cent. There is no transfer of output from one region to another: everyone loses.

The tariff increases are estimated to reduce global trade volumes by around 6 per cent, and real GDP is reduced by 1.4 per cent, with the US, China and Europe each suffering a drop-in output of 1.7-2.2 per cent. Since these trade and output losses are likely to be spread over several years, the size of this shock would seem manageable, and maybe a bit less than investors currently fears.

Other simulations are broadly similar. Goldman Sachs economists have published results that imply output losses of around 0.9 per cent over two years for the US and Europe in the case of a 10-percentage point increase in global tariffs, along with a 20 per cent drop in equity prices. China’s output loss is only 0.5 per cent. Inflation rises by a few tenths of a per cent, but then drops back to target as monetary policy tightens and unemployment rises.

There are two obvious ways in which the economic impact could be much worse:

1.    The huge growth in global value chains early in this century (i.e. trade in parts and components rather than finished products) could leave the trading system vulnerable to much greater temporary disruption if there are bankruptcies and dislocations in companies within the GVCs. Tariffs could be imposed every time components crisscross a frontier, greatly increasing the effective costs of production in GVCs.

2.    Uncertainty about future tariffs and their effects could lead to postponement of capital investment decisions, resulting in a much larger immediate hit to GDP than shown in the above simulations.

In summary, the available (though not very convincing) evidence suggests that the global output losses from a trade war might reach 1-3 percentage points over several years, with a left tail that could be much worse. But there are huge uncertainties, both economically and politically. If this strategic game gets stuck in a bad equilibrium, then markets might become disposed to assume the worst.

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Emerging-Market Investors Face a Week of Tumult from China to Peru

From China to Peru, emerging-market investors cope with a week of tumult as a trade war looms and faint sprouts of peace emerged on the Korean peninsula. Russia is in focus as traders gauge the impact of U.S. President Donald Trump’s decision to impose levies on steel and aluminum. To spice things up, Peru’s politicians may try again to impeach the president, months after their first attempt sent the sol plunging to a record low.

In China, the second week of the National People’s Congress may bring the announcement of a new head of the central bank, who will take on the task of keeping the economy growing while defusing debt risks and steering monetary policy. PBOC Governor Zhou Xiaochuan, who is due to retire soon, said last week that market access reforms should be accelerated, and that China "can be bolder in opening up."

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China also reports monthly retail sales, industrial production and fixed assets. India on Monday unveils inflation data that will dictate the trajectory of interest rates. The yield on 10-year Indian government bonds fell last week after three weeks of gains. Russia releases January trade data amid concern that the country could be among the most affected by the Trump tariffs. Shares of Russian metal companies tumbled in Moscow last week.

Peruvian President Pedro Pablo Kuczynski testifies before a congressional committee investigating the so-called Carwash bribery scandal on Friday, after which lawmakers may reopen an impeachment debate. The last time Kuczynski’s ouster looked likely, Peruvian bonds and the currency swooned.

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