American Rescue Plan: China’s exports set for US$60 billion boost from ‘rampant US demand’

Chinese exports are likely to increase by US$60 billion over 2021-22 as Americans snap up computers, household equipment and clothing flush with US$1,400 stimulus cheques
The American Rescue Plan could increase China’s gross domestic product (GDP) by 0.5 per cent over the next year, according to the Organisation for Economic Co-operation and Development

China trade

Bloomberg

Published: 9:55am, 25 Mar, 2021

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David Ni is expecting a great year for his Chinese car-wheels business, thanks to the US$1.9 trillion boost President Joe Biden just gave to the US economy.

Americans flush with US$1,400 stimulus cheques mean “demand in the US is rampant,” said Ni, whose Jiangsu Siborui Import and Export, headquartered in Nanjing, buys high-end aluminium alloy car wheels from Chinese producers and sells them to retailers in the United States.

“Citizens get cash and they jump into shopping,” he said, predicting his sales will surge by more than 30 per cent this year.

The US fiscal boost will bring huge spillovers for the global economy, especially China, the world’s biggest exporter. Around US$360 billion of the stimulus package will be spent on imports, according to Allianz SE, with Chinese exports likely to increase by US$60 billion over 2021-22 as Americans snap up computers, household equipment and clothing.

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But it also means rising prices for Chinese-made goods that have already started to tick up and a possible worsening in tensions with the US over trade imbalances.

While US neighbours Canada and Mexico will see the biggest impact relative to the size of their economies, the stimulus package could increase China’s gross domestic product (GDP) by 0.5 per cent over the next year, according to the Organisation for Economic Co-operation and Development. Bloomberg Economics estimates that a 1 per cent boost to US demand adds around 0.08 per cent to China’s GDP.

That means the economy could expand 9 per cent this year, according to UBS, which upgraded its forecast for China’s export growth in 2021 to 16 per cent, compared with 3.6 per cent last year.

The export boost would give businesses room to spend on expanding capacity, allowing China to maintain its high levels of investment even as state spending on infrastructure slows, according to chief China economist Wang Tao. The government’s official GDP growth target for this year is “above 6 per cent.”

There is already concerns in the US that the stimulus and expected economic rebound this year could lead to faster inflation there, with US Treasury yields surging in recent weeks.

An increase in imports from China combined with the recent rebound in Chinese factory prices mean American consumers could soon be paying more for their goods too.

Ni said Chinese wheel producers are raising prices because of shipping costs near record highs and the recent rise in metal costs.

Southeast Asia manufacturing has not yet recovered – the orders will fall on Chinese exporters. Consumer prices in the US are unavoidably rising

David Ni

“Southeast Asia manufacturing has not yet recovered – the orders will fall on Chinese exporters,” he said. “Consumer prices in the US are unavoidably rising.”

The trade boom could also mean more effort from the US to curb imports in the longer term to ease the trade imbalance with China, a source of tension in Washington for years.

“Given America’s history, it is easy to envisage that protectionist sentiment, including on currencies, could be exacerbated,” Mark Sobel, a former career US Treasury official, wrote in a commentary last week.

“Even if the widening current account deficit is largely made in the US, history shows that won’t stop American finger pointing.”

03:36

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Stronger export growth will also slow Beijing’s efforts to rebalance the economy to make it more reliant on domestic consumption and less on industrial production.

The government has been saying it wants to do this for several years, but little progress has been made and the process was actually set back last year when consumer spending collapsed.

“I don’t feel that the relatively weak domestic consumption is bothering the policymakers that much. It’s similar to last year,” said Chen Long, an economist at Beijing-based consultancy Plenum. “I don’t think there’s discussion about rebalancing at all.”