China braces for more pain from trade war

BEIJING: Further evidence of Donald Trump’s trade war with China is set to show up in economic data, although it will likely just be a taste of things to come.

From exporters of Wi-Fi equipment to households splurging on Maine lobsters and other American goods, China is beginning to adjust to the effect of the current tariffs from both nations, and the possibility of more.

The trade war arrives as the economy is already slowing, adding an external shock to a home-made one. President Xi Jinping may ultimately have to choose between softening his multi-year campaign to control debt levels, or letting growth slow below the target of 6.5%.

“There appear to be some risks to the 6.5% target, but the government is still committed to it,” said Chang Jian, chief China economist at Barclays Plc in Hong Kong. “As the trade tensions escalate and the data shows more signs of weakness, there will be more policy support and we should see some stabilisation.”

The impact is forecast to be moderate for now, with the median estimate of economists for output growth at 6.5% this year, in line with the goal. There might even be a temporary boost to second quarter data, as exporters may have attempted to sell more before the imposition of tariffs.

The world’s second largest economy may have expanded 6.7% in the second quarter, according to economists Bloomberg surveyed ahead of next week’s data. That’s just a little slower than the 6.8% gain in the first three months of the year. Exports probably grew a healthy 9.5% from a year earlier in June, before the two nations started to levy an additional 25% tariff on more than US$30bil in goods.

Adding duties on another US$200bil in imports from China could meaningfully increase the effect of the trade war. An early gauge of export orders at Chinese factories already tumbled into contraction last month, and a full-blown global trade war would shave 0.4 percentage point off world growth, according to Bloomberg Economics.

Trump’s push to ever-higher tariff threats is causing behaviour changes more than 8,000 miles from Washington. While the impact is modest still, and companies are wary of divulging their plans publicly, many are reckoning with the new reality.

A Shenzhen-based Wi-Fi equipment maker is looking to divert sales to South-East Asia to try to maintain its goal of 20% growth this year. The company shipped 40% of 200 million yuan (US$30mil) in total production to the US in 2017, according to Lyu Hui, the sales manager, who asked that the company’s name not be used.

In the same city, Shenzhen BCLH Science & Technology Co chose to forgo a price rise to cover the tariffs, and effectively cut US profits to near zero, in the hope that the trade war is short. The producer of chemical compounds used in electronics only ships 10% of its product to the US, but had wanted to expand there, according to Mr Ma, a sales manager who only gave his last name. — Bloomberg