Trade war es­ca­la­tion feared as China’s sur­plus with US grows

The Guardian - - FINANCIAL - Reuters Phillip In­man

China’s trade sur­plus with the US widened to a record last month, risk­ing fur­ther es­ca­la­tion of a bit­ter trade dis­pute with Wash­ing­ton. The dif­fer­ence be­tween China’s ex­ports and im­ports from the world’s largest econ­omy ex­panded to a monthly high of $29bn (£22bn), up from $24.6bn in May. China’s ex­ports to the US jumped by 13.6% in the first half from a year ear­lier, while its im­ports rose 11.8%.

Jonas Short, head of the Bei­jing of­fice at the in­vest­ment firm Ever­bright Sun Hung Kai, said the lat­est fig­ures “won’t help al­ready sour re­la­tions and es­ca­lat­ing ten­sions”.

Ear­lier this week, Pres­i­dent Don­ald Trump pro­posed a 10% tar­iff on $200bn of Chi­nese goods en­ter­ing the US, say­ing those al­ready in place on steel and alu­minium im­ports and $34bn of goods had failed to force sig­nif­i­cant re­forms by Bei­jing.

Trump’s ad­vis­ers are at­tempt­ing to open Chi­nese mar­kets to for­eign com­pa­nies and re­duce what they see as un­fair sub­si­dies that have given rise to a $340bn an­nual trade deficit.

An­a­lysts said the June fig­ures were a sign that ex­porters had rushed to beat the ini­tial tranche of tar­iffs, which came into ef­fect in the first week of this month. They said fig­ures for July and Au­gust were likely to show a de­cline in ex­ports to the US.

China’s com­merce min­istry con­firmed last month Chi­nese ex­porters were front­load­ing ex­ports to the US to get ahead of ex­pected tar­iffs – a sit­u­a­tion that could ex­ac­er­bate any slow­down in ship­ments to­wards the end of the year.

“Ex­port growth will cool in the com­ing months as US tar­iffs start to bite along­side a broader soft­en­ing in global de­mand,” said Ju­lian Evans-Pritchard, se­nior China econ­o­mist at Cap­i­tal Eco­nomics in Sin­ga­pore.

An­a­lysts also pointed out that Chi­nese ex­port growth slowed to 11.3% year on year last month, from 12.2% in May, il­lus­trat­ing that ex­porters, faced with the threat of fur­ther trade barriers, were be­com­ing more cir­cum­spect in send­ing goods abroad.

Wash­ing­ton has warned it may ul­ti­mately im­pose tar­iffs on more than $500bn worth of Chi­nese goods – nearly the to­tal amount of US im­ports from China last year. So far China has re­sponded in kind, adding tar­iffs to $34bn of goods from the US and threat­en­ing “firm and force­ful mea­sures” to match the threat of tar­iffs on $200bn worth of US ex­ports.

The dis­pute has jolted global fi­nan­cial mar­kets, rais­ing wor­ries that a full-scale trade war could de­rail the world econ­omy. In­ter­na­tional Mone­tary Fund boss, Chris­tine La­garde, has warned of “darker clouds loom­ing” for the global econ­omy amid sim­mer­ing trade ten­sions be­tween the US and China, urg­ing gov­ern­ments around the world to steer clear of pro­tec­tion­ism or face neg­a­tive con­se­quences.

Mar­kets largely shrugged off the fig­ures, with the FTSE 100 fin­ish­ing up 10.54 points at 7,661. Chi­nese stocks fell into bear mar­ket ter­ri­tory at the end of last month and the yuan has skid­ded, though there are signs China’s cen­tral bank is mov­ing to slow the cur­rency’s falls.

‘As tar­iffs bite, ex­port growth will cool in com­ing months’ Ju­lian Evans-Pritchard Cap­i­tal Eco­nomics


▲ A worker sort­ing canned peaches for ex­port at a fac­tory in Xi­ayi in China’s cen­tral He­nan prov­ince

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