China’s trade sur­plus with U.S. hits record $34.1 bil­lion as ten­sions es­ca­late

The Washington Post - - ECONOMY & BUSINESS - BY ANNA FIFIELD Yang Liu in Bei­jing con­trib­uted to this re­port.

bei­jing — China’s trade sur­plus with the United States hit a record last month, de­fy­ing — for now, at least — Pres­i­dent Trump’s pre­dic­tions that tar­iffs would help re­dress the trade im­bal­ance.

Al­though econ­o­mists ex­pect the Amer­i­can tar­iffs to even­tu­ally have an im­pact, the trade sta­tis­tics re­in­force the widely held no­tion here that there will be no quick end to the trade war be­tween Washington and Bei­jing.

“It’s ob­vi­ous that the im­me­di­ate ef­fects of the trade war are the ex­act op­po­site of what the Trump ad­min­is­tra­tion had been plan­ning,” said Andrew Polk of Triv­ium China, a Bei­jing-based eco­nomics re­search firm.

“We ex­pect the dy­namic to change once we get a bit deeper into this, but for now China is try­ing to out­run the next round of tar­iffs,” he said.

China en­joyed a record high $34.1 bil­lion trade sur­plus with the United States in Septem­ber, tak­ing the sur­plus for the year to date to $225.8 bil­lion, ac­cord­ing to Chi­nese sta­tis­tics re­leased on Fri­day. That’s sig­nif­i­cantly higher than the $196 bil­lion recorded be­tween Jan­uary and Septem­ber last year.

The in­crease is the re­sult of both in­creas­ing ex­ports from China to the United States — up 14.5 per­cent from the same month last year — and a de­cline in the goods China is buy­ing from the coun­try.

More than the tar­iffs, the wors­en­ing trade im­bal­ance is also a re­flec­tion of the two coun­tries’ economies, ex­perts said. The U.S. econ­omy is strength­en­ing, with unem­ploy­ment low and growth in­creas­ing, while the Chi­nese econ­omy is slow­ing, sap­ping Chi­nese con­sumers’ abil­ity to buy im­ported goods.

The di­rect and in­di­rect ef­fects of the on­go­ing trade fric­tions are “gen­er­ally con­trol­lable,” Cus­toms De­part­ment spokesman Li Kui­wen said Fri­day. But global trade would con­tinue to face chal­lenges as the U.S.-China trade fric­tions “have been es­ca­lat­ing and other un­sta­ble fac­tors still ex­ist caused by a num­ber of eco­nomic un­cer­tain­ties world­wide,” he said.

The sec­ond round of tar­iffs the Trump ad­min­is­tra­tion im­posed on China came into ef­fect on Sept. 24, so the in­crease in ex­ports last month might have been the re­sult of Chi­nese com­pa­nies rush­ing to sell their prod­ucts be­fore the ad­di­tional du­ties were added.

Af­ter im­pos­ing tar­iffs on $50 bil­lion in Chi­nese goods over the sum­mer, the Trump ad­min­is­tra­tion last month added 10 per­cent tar­iffs to an­other $200 bil­lion of Chi­nese prod­ucts, in­clud­ing house­hold items such as fur­ni­ture and toys as well as in­dus­trial equip­ment. The tar­iffs are set to rise to 25 per­cent in Jan­uary if the trade dis­pute is not re­solved by then, and Trump has vowed to im­pose tar­iffs on the re­main­ing $267 bil­lion of Chi­nese im­ports.

China re­tal­i­ated last month by im­pos­ing tar­iffs rang­ing from 5 to 10 per­cent on $60 bil­lion of Amer­i­can goods, putting them into ef­fect on the same day as the Amer­i­can mea­sures.

But it was still too early to see the ef­fects of the tar­iffs, said Ju­lian Evans-Pritchard, China econ­o­mist at Cap­i­tal Eco­nomics, a con­sul­tancy.

“The way the U.S. has struc­tured the tar­iffs en­cour­ages front­load­ing be­cause firms that know they’re go­ing to hit with tar­iffs would rather pay 10 per­cent than 25 per­cent,” he said.

Plus, the 10 per­cent tar­iffs were al­most en­tirely off­set by the fall in the Chi­nese cur­rency, which has de­pre­ci­ated by more than 8 per­cent since June. This makes Chi­nese prod­ucts cheaper over­seas.

Trump should take no­tice of the sta­tis­tics, said Huo Jian­guo, a trade ex­pert at the Cen­ter for China and Glob­al­iza­tion in Bei­jing.

“He won’t be happy with these fig­ures but it proves that tar­iffs don’t help curb ex­ports,” Huo said. “Both sides need to find a way to talk and make some other ar­range­ments.”

Trump and Chi­nese Pres­i­dent Xi Jin­ping have agreed to meet next month at the G-20 sum­mit in Buenos Aires, in hopes of re­solv­ing their in­ten­si­fy­ing trade con­flict. These would be the first di­rect talks since Au­gust, but with both sides dig­ging in their heels, there are few hopes the lead­ers can se­cure a ma­jor break­through.

Trump said Thurs­day that his tar­iff strat­egy was work­ing. “It’s had a big im­pact,” Trump said in a “Fox & Friends” in­ter­view. “Their econ­omy has gone down very sub­stan­tially and I have a lot more to do if I want to do it.”

But China has been stand­ing firm, re­peat­edly say­ing that the only so­lu­tion was through ne­go­ti­a­tion and com­pro­mise.

Trump’s strat­egy amounted to “bul­ly­ing,” said Yu Xiang, di­rec­tor of the di­vi­sion of Amer­i­can eco­nomic stud­ies at the China In­sti­tutes of Con­tem­po­rary In­ter­na­tional Re­la­tions.

“Bul­ly­ing might be ef­fec­tive for small eco­nomic en­ti­ties, but it will not be ef­fec­tive against a big eco­nomic power,” Yu wrote in a col­umn pub­lished Fri­day in the state-run China Daily. “The fight won’t end in the blink of an eye, con­sid­er­ing it is be­tween the world’s two big­gest economies.”

In­deed, an­a­lysts ex­pect the trade im­bal­ance to con­tinue to widen over the next few months be­fore the next round of Amer­i­can tar­iffs kick in, in no small part be­cause the di­ver­gence in con­sumer de­mand in the two coun­tries.

“China’s trade sur­plus will keep ris­ing be­cause the do­mes­tic econ­omy is cool­ing down,” said Andy Xie, a Shang­hai-based in­de­pen­dent econ­o­mist. “If China wants the sur­plus to come down, they have to em­bark on struc­tural re­forms.”

“Both sides need to find a way to talk.” Huo Jian­guo, trade ex­pert

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