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China export pain mounts as tariffs bite

Image: Jim Allen/FreightWaves

China’s exports to the U.S. contracted heavily again last month as the ongoing trade impasse between the world’s two largest economies continued.

China’s export growth in greenback terms improved to a negative 0.9% year-over-year (y/y) in October, after a y/y decline of 3.2% in September.

Export growth to the U.S. rose to -16.2% y/y in October from -21.9% in September, due mainly to a low base in October 2018, noted Japanese financial services group Nomura.

Export growth to the U.S. last month was still below the monthly average growth of negative 15.1% in the third quarter, which the analyst suggested was due to “strong drag” from existing higher U.S. tariffs.

“Despite the upticks in October, we see strong headwinds for China’s export growth in coming months, given existing punitive U.S. tariffs, slowing global manufacturing and the tech downswing,” said Nomura.

Mixed messages from the White House

President Trump continues to give mixed signals on the likelihood of a trade deal with China as a December 15 deadline for another round of tariffs approaches. 

But even if a deal is reached, Port of Los Angeles Executive Gene Seroka cautioned the port’s Board of Harbor Commissioners last week that it may take months or years for trans-Pacific trade volumes to snap back.

As previously reported in FreightWaves, the United Nations believes that U.S. consumers are being hurt just as much by the ongoing trade war as Chinese exporters. The same goes for U.S. exporters to China, particularly in the agricultural sphere.

Last month growth in Chinese imports from the U.S. remained sluggish, despite an uptick to -14.3% y/y from -15.7% in September.

China’s surplus with the U.S. widens

As a result, China’s trade surplus with the U.S. widened slightly to $26.4 billion in October from $25.9 billion in September,

“Import growth is likely to pick up in coming months, mainly due to a fading of unfavorable base effects for oil price inflation,” said Nomura. “Import growth could also receive a boost if China significantly ramps up its purchase of American agricultural products.”

China’s overall trade surplus widened to $42.8 billion in October from $39.7 billion in September after import growth also improved slightly, climbing to -6.4% in October from -8.5% in September.

Cargo origin shift away from China

Although President Trump has called for the repatriation of manufacturing from China, Nomura said many producers were instead opting for low-cost options elsewhere in Asia to maintain profit levels.

Between January and September, Vietnam’s exports to the U.S. climbed 34.8%, according to IHS Markit. This compared to an increase on the trade of just 5.8% across 2018.

By contrast, U.S. imports from mainland China contracted 13.4% y/y in the first nine months of the year, said the consultancy in a note.

Rolf Habben Jansen, chief executive officer (CEO) of Hapag-Lloyd, told FreightWaves that as a result of the U.S.-China trade war, volumes from China to the U.S. had “definitely come down” but the carrier had also seen “markets like Vietnam, Indonesia and especially India to the U.S. develop very well.”

The United Nations reached much the same conclusion in a report by trade analyst Alessandro Nicita in a paper commissioned by the Switzerland-based U.N. Conference on Trade and Development (UNCTAD).

The trade war winners

It found that Taiwan was the largest beneficiary of the trade diversion effects of United States tariffs on China, accounting for additional exports to the United States of almost US$4.2 billion in the first half of 2019, mostly due to an increase in exports of office machinery and communication equipment.

Mexico’s increase in exports to the United States due to tariffs on China are quantified to be about US$3.5 billion, mostly in the agri-food, transport equipment and electrical machinery sectors.

The European Union benefited by trade diversion effects of about US$2.7 billion, largely due to increases in exports in the machinery sectors, while Vietnam benefited by about US$2.6 billion, mostly due to increases in exports of communication equipment and furniture.

“Trade diversion effects in favor of the Republic of Korea, Canada and India were smaller but still substantial — between US$900 million and US$1.5 billion,” said the report.

“The remainder of the trade diversion effects was largely to the advantage of other Southeast Asian countries (US$1.7 billion).”

More FreightWaves and American Shipper articles by Mike