Donald Trump's trade war hits Chinese exports

Cornelia Mascio
Gennaio 14, 2019

Softening demand in China is already being felt around the world, with slowing sales of goods ranging from iPhones to automobiles prompting profit warnings from the likes of Apple and Jaguar Land Rover.

The Customs office is expected to release trade numbers for December later in the day.

Exports in December unexpectedly fell 4.4 per cent from a year earlier, with demand in most of its major markets weakening.

The unexpected downturn for the biggest global exporter of manufactured products came as eurozone industrial output also tumbled in November, with the largest drop in factory activity since February 2016. That reflects the impact of Beijing's retaliatory tariffs and encouragement to importers to buy more from non-U.S. suppliers.

"The export growth print also suggests that the recent strength of the yuan might be short-lived; Beijing will perhaps be more eager to strike a trade deal with the U.S.; and that policymakers will need to take more aggressive measures to stabilise GDP growth". Although there are early signs of a breakthrough between Washington and Beijing, global economic growth has already taken a knock.

The trade slowdown sent Chinese stocks lower on Monday.

Despite the levies, exports to the USA grew 11.3% previous year while imports rose 0.7%, expanding the surplus to $323.3 billion from $275.8 billion in 2017, customs data show.

The world's largest trading nation got off to a strong start in 2018, but pressure on the economy started to build later in the year as a trade dispute with the United States escalated and global demand began to cool.

The deceleration of exports adds to pressure on Beijing to resolve its costly tariff battle with Washington over Chinese technology ambitions.

As many market watchers predicted, that boost has faded in the last few months.

However, customs' data for December also showed that exports to the U.S. dropped 3.5 percent compared with December of the previous year, possibly due to USA tariffs on an array of Chinese goods.

But December's gloomy data, along with several months of falling factory orders, suggest a further weakening in its exports in the near term. "We expect both to remain weak in the coming quarters", Capital Economics said in a note.

"The global electronics cycle remains the key driver of Chinese exports". China has retaliated with tariffs of its own.

China traditionally imports vast quantities of American soybeans in the second half of the year, long making it the most valuable import from the US.

Even if Washington and Beijing reach a trade deal in their current round of talks, it would be no panacea for China's slowing economy, analysts say.

Rapidly falling exports could point to rising unemployment, said Nomura economist Lu Ting.

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