China’s trade surplus with US drops slightly in July to US$28 billion, as tariffs start to bite

Exports to America fall 2.5 per cent from June, while imports decline by 1.5 per cent, according to customs figures

PUBLISHED : Wednesday, 08 August, 2018, 5:48pm
UPDATED : Monday, 15 October, 2018, 12:18pm

China’s trade surplus with the United States fell by about 3 per cent in July from the previous month, as the tariffs imposed by the two countries on each other’s imports took their first bite.

China’s exports to the US in the month fell 2.5 per cent from June to US$41.5 billion, while its imports of US goods fell by 1.5 per cent month on month to US$13.4 billion, according to figures released by General Administration of Customs on Wednesday.

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As a result, China’s trade surplus with the US dropped to US$28.08 billion in July, from US$28.97 billion in June.

On a year-on-year basis, the growth of China’s exports to the US slowed to 11 per cent last month from 12.5 per cent in June, while import growth accelerated to 11 per cent from 9 per cent.

The figures may indicate a shift in bilateral trade after Washington in March slapped tariffs of 25 per cent on steel imports and 10 per cent on aluminium imports from China, and after the two countries imposed 25 per cent tariffs on US$34 billion worth of each others’ imports on July 6.

The US also announced a 25 per cent tariff on a further US$16 billion of Chinese goods that will take effect on August 23, while China is expected to respond with sanctions on an equal amount of US imports.

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The July trade figures “are the first hint that the tariffs are going to bite, but it’s not the full effect yet,” said Iris Pang, Hong Kong-based Greater China economist at ING Wholesale Banking.

“So I would expect the August, September and October data to give a better indication.”

One reason to expect the tariffs would have a bigger impact on the trade surplus in the coming months was that many of the export products that posted monthly declines in July were not on the first list of goods to be sanctioned, Pang said.

For instance, China’s exports of rare earth minerals fell to 4,529 tonnes in July from 5,455 tonnes in June. Rare earths are not on the US$34 billion list but are on the longer list of US$200 billion worth of Chinese goods that Washington intends to hit with a levy of 25 per cent later this year.

China is the world’s leading miner of rare earth minerals and provided almost 60 per cent of the US$234.4 million worth of them the US imported last year, according to data from the US International Trade Commission.

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Chinese exports in July were also boosted by signs that some firms front-loaded their shipments of toys and clothing in the month ahead of the Christmas season to avoid the impact of tariffs that had not yet been implemented.

One product on China’s tariff list that did take a hit last month was soybeans, huge quantities of which China has traditionally imported from the US. Imports fell 8 per cent month on month and 20 per cent year on year to 8 million tonnes.

China’s overall trade results were resilient in July, with total exports up 12.2 per cent from last year at US$215.5 billion and imports up 27.3 per cent at US$187.5 billion.

“Shipments to the US did weaken slightly, which hints at some impact from the tariffs,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note.

“Equally, though, this may reflect a broader softening in economic momentum among developed economies given that exports to the EU edged down, too. In any case, this was offset by stronger exports to emerging markets, which were most likely buoyed by the weaker renminbi.”

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Most analysts, however, still expect China’s exports and imports to fall in the coming months due to the US tariffs and weakening domestic demand.

“With external challenges rising, we believe the government will focus more on domestic demand to stabilise economic growth,” Lu Ting, chief China economist from Nomura, said in a note.

“Beijing has shifted significantly to an easing bias and already ratcheted up its fiscal stimulus. We believe authorities will be restrained in trying to resolve the trade conflict with the US and are looking for ways to support export growth given exports still comprise a sizeable portion of the economy.”