US-China trade deal may be close, but global trade recovery likely to lag behind, TS Lombard says
- Research firm TS Lombard foresees a ‘sharp downturn’ in Chinese export growth in April
- ‘Downside risks’ to global trade remain
Global trade could remain subdued even if the US and China reach a deal to end their trade war later this month, according to the research firm TS Lombard.
In its latest report on emerging markets, the firm said it expects a decline in emerging markets export growth to get even steeper in April despite a strong recovery in Chinese exports in March.
“The model suggests that there will be a sharp downturn in China’s export growth in April followed by a smaller decline in May, while exports may contract at a slower pace in June,” Jon Harrison, managing director for emerging markets macro strategy at TS Lombard, said in the report. “A US-China trade deal appears likely in the coming month, but there will continue to be a lagged impact on world trade.”
After a double-digit drop in February, Chinese exports grew at 14.2 per cent in March, well ahead of forecasts, according to the General Administration of Customs. Imports, however, continued to shrink, following declines in January and February.
The timing of the Lunar New Year holiday in 2018 meant that exports were slower to recover in the prior year, leading to a more favourable comparison.
The US has placed tariffs on nearly half of all goods imported from China as the Trump administration seeks to force Beijing to change years of what it says are unfair trade practices and overcome a trade deficit that soared to US$419.2 billion last year.
Treasury Secretary Steven Mnuchin told Fox Business on Monday that the two sides are making progress on a potential deal, but “we still have more work to do”. American and Chinese officials are meeting in Beijing this week and a Chinese delegation is expected to travel to Washington later this month.
Last week, Standard Chartered and the Hong Kong Productivity Council said that sentiment among small and medium-sized businesses rose sharply headed into the second quarter as hopes have risen that an agreement can be reached between the world’s two largest economies.
At the same time, TS Lombard pointed to declining export growth in Thailand as an example of how the trade war is more broadly affecting Asian economies.
Thai exports dropped 4.9 per cent in March. Excluding a one-off item in February, exports have fallen for five straight months in Thailand, according to TS Lombard.
Trade war disruptions and slowing global growth continue to dampen manufacturing shipments from Thailand, particularly for electronics, the firm said.
“Falling exports of electronic products is a common trend in regional trade data, one that is caused by US-China trade tensions, the electronics downcycle and slowing global growth,” according to TS Lombard.
The firm said it expects exports to remain weak in the second quarter in Thailand, but rebound in the second half of the year as a US-China trade deal is finalised and stimulus efforts by Beijing begin to filter into the Chinese economy.
In its report, TS Lombard said it believes the regionalisation of global trade, in light of the trade war, will lead to a strengthening of links between Asian countries and the “emergence of a trading bloc centred on China”.
“We conclude that downside risks to trade remain and that data for April are the key releases to watch, in particular those for China, which will be the first month in 2019 free of distortion from the Lunar New Year,” Harrison said.
