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China Exports to the U.S. Drop Sharply in August as Growth Slows

The exports of China into the United States went down by a high margin of 33 percent in August and reached the lowest point in months. Meanwhile, the general exports of the country declined to its lowest rate in six months mainly because the U.S. imposed tariffs, made transshipment more difficult, and the benefits of the previously frontloaded exports faded.

The U.S. imports also declined by 16% year on year, according to customs data, which exerted further stress on the ongoing trade tensions.

Slower Growth in Exports

The total Chinese exports increased by 4.4 percent in August than it was in August last year in terms of U.S. dollar. This was the poorest growth since February and was below the 5% growth forecasted by the economists polled by Reuters.

The deceleration is partially due to a high base effect of the previous year when the Chinese exports increased at the quickest rate in almost 18 months.

Expert Insight

As the temporary relief offered by the U.S.-China trade truce would evaporation, and the U.S. is raising tariffs on the shipment that goes through a third-country, it can be expected that exports would continue to be impacted in the near future.

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Huang also observed that export on a seasonally adjusted basis showed little change between the months and hence the weak performance of the headline should be attributed to the stronger performance of the previous year.

Imports Struggle to Pick Up

Although the rate of increase in China imports was 1.3 percent in August, this was lower as compared to the expectations of the analysts who had predicted 3 percent. The imports have increased in three consecutive months since it recovered in June yet the recovery is low.

The depressed growth of imports has been attributed to:

  • A slowing the economy in real estate.
  • Workers job insecurity.
  • Muted consumer demand

Shifting Focus to Alternative Markets

As the U.S. tightens its trade policies, Chinese exporters have become more and more attracted to other markets including:

  • Southeast Asia
  • European Union nations
  • Africa
  • Latin America

Expert Opinion

The Chinese exporters have been aggressively venturing into other areas to counter low demand in the domestic market. This export of going abroad strategy has assisted in maintaining the number of exports by China this year,

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In August alone:

  • Exports to the EU rose 10.4%
  • Export to the ASEAN countries increased by 22.5 percent.
  • There was a boost in exports to Africa by almost 26%.

Between January and August, China had exports to the U.S. to the tune of 15.5% and imports decreased by 11% as well. Conversely, the exports to Europe, Asia, Africa, and the Latin America increased 7.7, 14.6, 24.6 and 6 percent respectively.

U.S. So Far the Single Largest Trading Partner of China

Although the U.S. economy is on a downward trend, it is still the largest single-country trading partner of China, consuming goods worth of 283 billion dollars of Chinese products in the period between January and August. During the same time, the exports to EU bloc were higher at 541 billion combined.

Tariff Truce yet Partial Amelioration.

In August, Beijing and Washington stated that they would use a 90-day tariff truce that renewed:

  • 55 percent tariffs of American imports of China.
  • 30% Chinese duties on U.S. goods

But there is stalemate in negotiations. A trip by the Chinese top trade negotiator, Li Chenggang, to visit Washington recently did not bear much fruit.

To further frustrate this, ex-U.S. President Donald Trump threatened to impose a 200 percent tariff on Chinese products in case Beijing does not increase its sales of rare-earth magnets to the U.S. Curiously, the exports of rare-earth magnets in China increased by 22.6 percent in August, to 5,791.8 metric tons.

Transshipments Establishment of control over the Transshipments

In order to avoid tariffs, most of the Chinese exporters have been bypassing shipments to third countries. Yet Washington is raising a closer examination on these transshipments.

Another challeng that the exporters of China may face is the decision to impose a 40 percent tariff in July on any goods decided to have been transshipped in the United States.

Poor Domestic Demand and Deflation Objections.

The domestic demand is slow in China. The focus of economists is whether Beijing will roll out more fiscal policies in the fourth quarter to aid growth or not.

Consumers, however, seem to be interested in the policies of policymakers to manage industrial surpluses instead of increasing the stimulus programs such as the cash-for-clunkers program which targeted to increase consumer spending.

Various local governments have suspended subsidies on car, appliances and smartphone because of budget constraint.

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Inflation and Money Policy Perspective.

Knocking on the Chinese economy is deflationary pressure:

  • Wholesale price inflation at Goldman Sachs is projected to be entrenched in the negative, indicating that year to year producer prices will fall by 2.9 percent in August.
  • Last month headline CPI inflation declined by 0.2 per cent year on year.

Expert Analysis

People bank of China will be reduced by 10-20 basis points in an attempt to stabilize the economy.

Nevertheless, most analysts concur that although the system is imperfect, the situation still is improving.<|human|>Most analysts, however, agree that as bad as the system is, the situation is improving nonetheless.

Beijing will publish most of their economic pointers next week:

  • Retail sales
  • Industrial output
  • Urban investment
  • Home prices
  • Urban unemployment rate

When the figures show further slowing, it is likely that the central bank will move with rapid policy panel action to counter this.

Conclusion

The situation with China where exports are slowing down and shipments declining to the U.S. point to the complicated nature of the problems of the Chinese economy - whether it is trade tensions and tariffs or low domestic demand and deflation. The U.S. is a very important partner as Chinese exporters are also moving towards other markets at the same time.

The way the city of Beijing will handle its trade policies and domestic stimulus actions in the months to come will become a major determinant of the economic prospects of China.

FAQs

1. What caused exports of China to the U.S. to fall so dramatically in August?

Chinese exports to the U.S. crashed down 33 percent on the previous year because of increased tariffs in the U.S., stricter regulations on transshipments, and low demand.

2. What are the beneficiary countries of the export diversification of China?

China is penetrating into countries of ASEAN, EU, Africa and Latin America with export growth as high as 26% in parts of the world.

3. Will Beijing have new policies to stimulate exports?

Economists predict possible reduction in rates and fiscal policy in the near future, however, to date, policymakers are wary of mass expenditure.

4. How significant is the export of rare-earths in U.S.China trade?

The manufacturing of the U.S. depends on rare-earth materials. This industry is a strategic flashpoint because the U.S is threatening 200 percent tariffs in case China is failing to fulfill its exports promise.