China’s Global Trade Surplus Expected to Go Negative, US Not the Beneficiary

From 2001 to 2007 China’s trade surplus with the rest of the world exploded higher. From 2007 to 2011 that surplus went back to where it started. However, China’s Shrinking Trade Surplus Unlikely to Impress Trump, because the US has not been a part of it.

Official data set to be released Aug. 6, economists say, likely will show China’s current account, which measures its transactions with the rest of the world, was in deficit for the six months ending in June, essentially meaning it imported more than it exported. Macquarie Capital Ltd.’s economist Larry Hu estimates the deficit was $24 billion, largely occurring in the first quarter. It would be the first half-yearly deficit since the country joined the global trading system in 2001.

For the year overall, economists still expect China to run a current-account surplus, to the tune of $100 billion, as weakening growth leads to reduced Chinese purchases from abroad. But that surplus would represent less than 1% of China’s gross economic product, its smallest surplus since 1995.

“It’s a sea change,” says Mr. Hu, a Hong Kong-based economist with Macquarie. “China can use the narrowing current-account surplus as evidence that it doesn’t have a mercantilist policy of keeping the yuan artificially cheap to gain a leg up on global trade.”

The trend, at least for now, is unlikely to impress President Trump, who focuses on the U.S.’s ever-widening trade deficit with China and is waging a trade battle aimed at narrowing that.

China runs big deficits with commodity producers such as Russia, Saudi Arabia and Brazil, and with countries like South Korea and Japan, where China purchases electronic components like displays and memory chips to put together smartphones. Its surplus with the U.S., on the other hand, continues to widen, fueled by strong American demand and most recently, Chinese exporters accelerating deliveries to avoid U.S. tariffs.

China’s merchandise surplus with the U.S. almost doubled to $276 billion in 2017 from the height of the global financial crisis in 2009, according to Chinese statistics. The U.S. represents two thirds of China’s trade surplus with the entire world. (U.S. data show that its goods deficit with China was $375 billion last year. The discrepancy is because U.S. data include Chinese products shipped via Hong Kong, while the Chinese data don’t.)

Make Trade Math Great Again

Part of the problem is the US trade deficit with China is overstated. For example, an iPhone counts as a $240 import but China only gets $8.46 of it.

For details, please see Make Trade Math Great Again, iPhone Example: Globalization in Reverse.

Trade Math Gone Haywire

In Trump Reverses Course, Promises “Great Trade Deal” With UK I posted this amusing chart.

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Meanwhile, Trump’s trade war has not accomplished anything good. Even Republicans are complaining. For discussion, please see Republican “Nightmare”: Midterm Risk Rising.

Mike “Mish” Shedlock