China economy

US economy buoys Chinese trade surplus but ‘trade war unlikely’

Merchandise shipments to the US continue to rise in July, outpacing growth in other major markets

PUBLISHED : Tuesday, 08 August, 2017, 11:25am
UPDATED : Friday, 23 March, 2018, 1:07pm

China’s trade surplus with the United States continued to rise last month, buoyed by the US economic recovery.

Despite Washington’s threats of an investigation into the trade imbalance, China’s merchandise shipments to the US, its second-biggest export market, jumped to US$37.3 billion in July, up 8.9 per cent from a year earlier and resulting in a trade surplus of US$25.2 billion, the General Administration of Customs said on Tuesday.

US-bound exports grew at 12.1 per cent in the first seven months, well above the 9.5 per cent for the European Union, 6.2 per cent for Japan and 9 per cent for Asean countries. The January-July surplus with the US totaled US$143.5 billion, a year-on-year increase of 6.3 per cent.

Overall, China’s July exports rose 7.2 per cent from a year earlier, while imports grew 11 per cent, both well below analysts’ forecasts. That left the country with a trade surplus of US$46.74 billion for the month, customs said.

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Analysts polled by Reuters had expected July shipments from the world’s largest exporter to have risen 10.9 per cent, easing slightly from 11.3 per cent growth in June.

Imports had been expected to have climbed 16.6 per cent, after rising 17.2 per cent in June.

Analysts were expecting China’s trade surplus to have widened to US$46.08 billion in July from June’s US$42.77 billion.

Customs attributed the strong growth to the recovery in external demand, adding that Beijing was not the only beneficiary.

But the increases have hit a nerve in Washington, especially with the failure of the two countries to work out a way to reverse the trend.

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US President Donald Trump promised on the campaign trail last year to remedy the trade imbalance, threatening to brand China a currency manipulator and slap 45 per cent tariffs on imports of Chinese products.

Washington is now reportedly considering a plan to use a section of its Trade Act to investigate Chinese products and intellectual property rights infringements, a tool used in the 1980s to hit back at Japan.

ANZ chief greater China economist Raymond Yeung said tensions between China and the US would remain high, but a trade war was unlikely.

Yeung said Trump would likely look for an overall decline in the US trade deficit, rather than single-month data.

It was also hard to find a quick solution to the decades-old imbalance and structural mismatch. “To take Apple, the flagship American company, for instance, a vast majority of its products are still made in China,” he said.

Trump’s threats have yielded some minor concessions, with Beijing allowing imports of US beef and natural gas, and easing restrictions on foreign rating services.

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But after bilateral trade talks last month, vice-finance minister Zhu Guangyao said the key to cutting the trade imbalance was for the US to relax exports of hi-tech products for civilian use.

Zhou Shijian, a senior fellow at the Centre for China-US Relations at Tsinghua University, said there were many ways Washington could reduce the trade imbalance if it really wanted to do so.

“The biggest advantage of the United States is its technology. But it has tied its own hands by putting export restrictions on China,” Zhou said.

He said trade was just one of a range of bilateral issues and Washington’s tougher talk could be a tactic to wring cooperation from China on North Korea.

On Saturday, China backed a United Nations Security Council resolution to impose new sanctions on North Korea, its neighbour and long-term ally.

“North Korea will be the primary target, but China will be the next to be hurt [by sanctions],” Zhou said.

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More than 80 per cent of North Korea’s exports go to China and the new sanctions will cut Pyongyang’s foreign exchange revenue by a third, or US$1 billion.

Derek Scissors, a resident scholar of the American Enterprise Institute, a Washington based think tank, said the US appeared to be more serious about North Korea.

“It seems the present Chinese strategy is to say everything is fine and hope that no major US policy changes will be made this year,” Scissors said.

On Sunday night, Foreign Minister Wang Yi said the focus of bilateral ties was preparation for Trump’s trip to China later this year, Xinhua reported.

Additional reporting by Reuters