China Import Slump Casts Gloom Over World Buffeted by Trade War
The weak trade performance underlines the importance of the “Phase One” agreement struck between the U.S. and China last week.
(Bloomberg) -- China is buying less from the rest of the world, pushing its trade surplus higher and dragging on global economic growth.
Imports in the world’s second-largest economy dropped 8.5% in September for a ninth decline in the past 10 readings, while exports decreased 3.2% in dollar terms from a year earlier. That left a trade surplus of $39.65 billion for the month, with the total for the first nine months jumping 36% to $298 billion.
While the rounds of tariffs leveled at Chinese exports from the Trump administration have taken a toll, the import slump is the bigger drain on global economic growth. For both sentiment in China and companies doing business there, it underscores how crucial it is that the U.S. and China hold together the “Phase One” trade deal struck last week.
“Weak Chinese demand for imports, even more than President Trump’s trade war, have contributed to the slowdown in global trade,” said Brad Setser, a former U.S. Treasury official and now a senior fellow at the Council on Foreign Relations in Washington. “A rising surplus on the back of falling imports is unambiguously bad for the world,” he tweeted earlier.
The slump in imports bodes ill for the domestic economy too. Output is expected to have grown at the slowest pace in the third quarter in almost thirty years, according to estimates ahead of GDP data due Friday.
That’s bad news for the global economy and the IMF’s new boss, Kristalina Georgieva. She sees a “serious risk” the global slowdown will spread and on Tuesday the IMF is likely to cut its 2019 global growth forecast from 3.2%, already the weakest since 2009.
While it’s the trade war that might dominate headlines, China’s economic weakness is in large part caused by policies to curb debt and financial sector risks. Existing U.S. tariffs and the ongoing slowdown in global trade have combined to further undercut demand.
September exports to the U.S. dropped almost 22% and imports declined almost 16% year-on-year, for a surplus of about $26 billion with the world’s biggest economy.
“This is obviously the damage done by the trade war,” said Iris Pang, an economist at ING bank NV in Hong Kong. Exports to Vietnam jumped, “which I believe could be goods rerouting to Vietnam for some simple processing then to U.S. to avoid tariffs,” she said.
It’s the consistent under-performance of China’s imports relative to exports that’s hurting the world, making China a net drag on global demand. That may in part be because the trade war has increased uncertainty and costs for the the global supply chain, prompting domestic companies to source parts and components from producers at home, says Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong.
Setser says it’s hard to square the import weakness with the reported data on China’s overall economic growth. “Weaker imports than exports suggest either underlying weakness in China’s own economy, or the emergence of an unusually large gap between Chinese activity and China’s demand for the rest of the world’s goods,” he said.
The official Chinese response to the “phase one” trade deal with the U.S. reached Friday was wary but welcoming, underlining that Beijing has few options but to play along with President Donald Trump if it wants to relieve pressure on its slowing economy.
The tentative trade agreement pauses U.S. tariff increases in exchange for increased Chinese purchases of agricultural goods. If that sticks, a boost to confidence may be ahead, though it’s not clear if another round of tariffs due for December will be implemented or not.
What Bloomberg’s Economists Say..
“Looking forward, the ‘phase one’ trade deal does not yet boost China’s trade outlook in a meaningful way. The key element for China is that the tariff hike due this week won’t take place, relieving some downside risks. Even so, the status quo is still painful -- tariffs between 15%-25% still cover $360 billion of Chinese shipments to the U.S.”
-- Chang Shu, chief Asia economist and David Qu, economist
For the full note click here
As for the global economy, it may take more than the truce to turn the outlook around for the better.
“China’s slowdown is the major cause of slower global growth, not the trade war or Trump,” said Michael Every, head of financial markets research at Rabobank in Hong Kong. “Somehow this all keeps getting overlooked because it doesn’t fit with a Trump-as-root-of-all-problems narrative.”
To contact Bloomberg News staff for this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net;Tomoko Sato in Tokyo at tsato3@bloomberg.net;Miao Han in Beijing at mhan22@bloomberg.net
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Malcolm Scott
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With assistance from Bloomberg