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The Trade Numerologist: China’s B Plans If U.S. Cuts Imports

07 February 2018 John Miller

The winds of global trade are shifting, and they are bound to impact China, the world’s biggest exporter.

A recent report by the Trump administration bemoaned China’s 2001 accession to the World Trade Organization, which busted open markets, especially in Europe and the U.S., which quickly became Beijing’s best customer.

“We’ve noticed recently that protectionist voices have been rising in the U.S.,” Gao Feng, a Chinese trade spokesman, told reporters recently.

A expansion of policies that limit imports and boost domestic production in key economies would be a big deal in China, which has exported its way to prosperity more than any other country on its road to industrialization.

Over the past 20 years, China has leapfrogged the U.S., Germany and Japan to become world’s top exporter, thanks to a comprehensive export strategy that involved devaluing its currency, subsidizing national champions and aggressively investing in energy and infrastructure.

Despite the Trumpian protectionist rhetoric on trade, the U.S. remains the biggest buyer of goods Made in China, especially electronics, followed by three Asian countries, Japan, South Korea and Vietnam. Nine of China’s ten biggest trading partners increased their shipments in 2017.

China’s top export partners, first 11 months of 2017

U.S. $390.2 billion (+11%)
Japan $124.2 billion (+5%)
South Korea $93.5 billion (+9.1%)
Vietnam $64.2 billion (+17.1%)
Germany $64 billion (+7.1%)
India $61.6 billion (+13.5%)
Netherlands $60.4 billion (+60.4%)
UK $52.1 billion (+2.2%)
Singapore $41.5 billion (-2.9%)
Russia $39.2 billion (+16.4%)

However, the tariff talk, along with the recent U.S. corporate tax cut, are motivating major U.S. companies to get ahead of the game by bringing home some production. Apple, for example, announced it would make a “contribution” of $350 billion to the U.S. economy over the next five years, suggesting it would build new plants at home.

That could make a huge difference, by slowing the massive expansion of Chinese electronics exports driven by Apple and other tech companies, likely the biggest mass export of a category of product the world has ever seen.

Chinese electronics exports increased to $532.5 billion in the first 11 months of 2017, from under $50 billion over the same time period at the turn of the century. By comparison, the entire gross domestic product of Belgium, a rich European country of 11 million people, is around $500 billion a year.

Chinese electronics exports, first 11 months, every 3 years, 1996-2017

1996: $17.9 billion
1999: $29.5 billion
2002: $58.7 billion
2005: $153.7 billion
2008: $317.6 billion
2011: $403.6 billion
2014: $511.5 billion
2017: $532.5 billion

So if the U.S. stops buying so many Chinese-made products, who might fill in the void, and what might they buy? Chinese manufacturers, trade, and logistics firms have found a host of big, new markets, especially in large economies that still have room for growth, like Kazakhstan, Brazil and Nigeria.

China’s fastest-growing trade partners, over $10 bn, first 11 months of 2017

Kazakhstan $10.5 billion (+43%)
Brazil $26.3 billion (+32%)
Nigeria $11 billion (+19%)
Poland $16.2 billion (+18%)
Vietnam $64.2 billion (+17%)
Russia $39.2 billion (+16.4%)
Netherlands $60.4 billion (+16.3%)
Canada $28.8 billion (+14.5%)
India $61.6 billion (+13.5%)
South Africa $13.5 billion (+12.6%)

Chinese central economic planners have also managed to stimulate new areas of growth. Despite setbacks, such as the cancellation of a high-speed rail project in Indonesia, China, and companies like Sifang, has been building up its home infrastructure, and also exporting rail-related goods, doing deals in Turkey, Zambia and Vietnam, and selling billions in multi-modal containers. China has also ramped up oil exports, to $31.3 billion in the first 11 months of 2017, from $25.3 billion over the same time period in 2015, and found more room for growth in increasing sales of staples like toys, tea and clothes.

China’s fastest-growing export categories over $1bn, first 11 months of 2017

Railway, tramway, containers $9.9 billion (+61%)
Fuel $31.3 billion (+32%)
Toys, games, sports gear $51.1 billion (+24%)
Base metals $2.9 billion (+23%)
Radioactive chemicals $13.5 billion (+18.1%)
Chemicals $14.5 billion (+16.3%)
Organic chemicals $44.2 billion (+15.4%)
Knitted, crocheted fabrics $15.1 billion (+14%)
Coffee, tea, spices $3.1 billion (+14%)
Furs, furskins $3.5 billion (+13%)

Meanwhile, Chinese officials are doing their best to push back against U.S. and European complaints about its trade policy. The country is “complying with WTO rules,” said foreign ministry spokeswoman Hua Chunying. She accused the Trump administration of imperiling the current trading order by investigating Chinese trade practices with an eye toward imposing new import tariffs.

"We are a defender, builder and contributor of the multilateral trade system," Hua told reporters. It is the U.S., she said, which poses “an unprecedented challenge to the multilateral trade system. Many WTO members have expressed their concerns over that."

What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.

The Trade Numerologist is IHS Markit’s unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit’s Global Trade Atlas database, the world’s most complete and accurate set of trade numbers.

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