The Trade Numerologist: Lessons from US-China trade war
This weekend, Beijing showed why, unlike some other countries, it's likely to have the upper hand in negotiating trade terms with the US.
And an analysis of two product categories - soybeans and turbines -- also illustrates how each side has a different strategic goal in the burgeoning trade war between the world's two biggest economies: For China, scaring the US off its protectionist path with a flexing of economic muscle. For the US, making it harder for China to become a technology superpower, and taking away its ability to dictate prices in select markets.
On Sunday, Beijing retaliated against new 25% tariffs on $50 billion of Chinese products by imposing the same duty on an equal amount worth of American goods. In addition, a previous deal to have Chinese businesses buy as much as $70 billion worth of US goods was now off the table.
The reasons that Chinese officials can play this kind of hardball include the sheer volume of its exports, the dependence of some US producers on Chinese markets, and the hunger that US consumers still have for Chinese-made consumer goods.
To boot, China's threat represents a much bigger slice of the pie: $50 billion is 10% of Chinese annual exports to the US, but 33% of US exports to China.
In fact, despite all the Trump administration's saber-rattling, and, now, actual imposition of tariffs, Chinese exports to US rose 10.7% during the first four months of year, according to the most recent data from IHS Markit's Global Trade Atlas.
Chinese exports to US, first four months
· 2014: $137 billion
· 2015: $147.4 billion
· 2016: $136 billion
· 2017: $145.8 billion
· 2018: $161.4 billion
Meanwhile, US exports to China rose 10.5%. It seems that no matter what they do, US policymakers are unable to bring down their trade deficit with China.
US exports to China, first four months of year
· 2014: $40 billion
· 2015: $37.4 billion
· 2016: $33.9 billion
· 2017: $39.2 billion
· 2018: $43. 3 billion
The new Chinese tariffs include levies on soybeans, cars and crude oil, as well as electric cars, orange juice, salmon and cigars, while the US duties are mainly on industrial products such as washing machines, turbines and semiconductors.
Low-cost consumer goods such as shoes, shirts, toys and watches that Americans love were, mostly, left off the table. US policymakers are wary of causing inflation, and upsetting their constituents' pocketbooks.
The US has triggered a "trade war," a Chinese government spokesman said. In a statement Friday, President Trump said the "trade war was started many years ago" by China and other nations.
The case of soybeans illustrates why the US will have a difficult time getting the upper hand on China in a trade war. The US, along with Brazil, is one of the world's top soybean exporters. However, instead of diversifying, over the past few years, US farmers have come to rely, dramatically, on China.
Top buyers of US soybeans, first four months of 2018
· China $2.6 billion
· Mexico $470.1 million
· Egypt $434.7 million
· Japan $358.5 million
· Netherlands $345.5 million
· Indonesia $325.2 million
· Taiwan $240.7 million
· Thailand $184.9 million
· Spain $114.2 million
· Bangladesh $110.6 million
And even the mere threat of tariffs has been enough of a psychological barrier to buyers. US soybean exports to China fell 24% by tons during the first four months of the year.
US soybean exports to China, first four months:
· 2015: 8 million tons
· 2016: 8.3 million tons
· 2017: 8.9 million tons
· 2018: 6.7 million tons
That's a big deal. China is, by far, the biggest market for US soybeans exports, according for 43% of all shipments. Soybean futures prices have been plummeting, angering US farmers, some of whom are lobbying the Trump administration to drop tariffs. And it's only going to help US competitors like Brazil, which last year was China's biggest supplier of soybeans.
China's top soybean providers, 2017
· Brazil $21 billion
· US $14 billion
· Argentina $2.7 billion
· Uruguay $1 billion
· Canada $886.3 million
· Russia $159.6 million
The US's first raft of tariffs is on 818 products, whose combined 2017 value was over $30 billion. An additional 284 products, worth around $20 billion, will now be reviewed.
That's only around 6% of the $505.9 billion worth of goods the US imported from China last year. US trade representative Robert Lighthizer called the tariffs "defensive" and said they were necessary because "China's government is aggressively working to undermine America's high-tech industries and our economic leadership through unfair trade practices and industrial policies."
Still, what US business leaders and policymakers hope to get out of the tariffs amount to more than just chipping away at China's market shares. The US hopes to hamper China's "Made in China 2025" program of becoming a technology leader.
The new tariffs, for example, include duties on turbines, a sector in which China is only the tenth biggest seller in the US.
US imports of turbojets, gas turbines, 2018
· France $5.4 billion
· Canada $3.6 billion
· Japan $2.1 billion
· Germany $1.9 billion
· Singapore $1.9 billion
· UK $1.7 billion
· Mexico $1.2 billion
· Poland $947.1 million
· Italy $753.4 million
· China $580.2 million
Why go after a sector in which China is only the 10th biggest supplier? In many industrial markets, including steel, aluminum and parts for airplanes, the quibble American business leaders and policymakers have is not that Chinese companies are "flooding" US markets. In many cases, they're not.
Instead, it's that they consistently undercut prices. Taking the so-called China price off the table, they hope, will firm up prices, as well as cut off the access Chinese firms yearn for in order to build up their portfolio of technology blueprints, inventory and manufacturing strategies.
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.
What topic would you like the Trade Numerologist to cover? Email email@example.com with comments and questions.
- Crude Oil Trade: More samba for China as Brazil increases international shipments
- Crude Oil Trade: Keeping up with Venezuela, June’s recovery in crude oil liftings
- Oil Prices: Correction after the storm in the US Gulf
- VLCC Rates: Is the impact of Additional War Risk Premiums (AWRP) over as seasonality proves stronger?
- The US–China Trade War and its increasing impact on trade compliance
- Crude Oil Trade: Flows from the US to South Korea, trade partners by choice
- Dry Bulk Trade: Bad news for China is good news for Iron ore market?
- Crude Oil Trade: Mexico exporting less to the US, but for how long?