Chinese goods exports to US contracted sharply in May; US and China agree to temporary trade war truce

China and the United States held two days of trade talks in London this week. The talks appeared productive, with US president Donald Trump heralding the results as a “done deal” with the Chinese. However, the announced details have been very vague. The US and China, which agreed in May to suspend their astronomical bilateral tariff rates for 90 days, now appear to be willing to continue the suspension beyond mid-August. Both sides are under considerable pressure to resolve their differences due to the economic interdependencies of the two countries. Chinese growth in past 12-months has relied increasingly on exports as its main economic driver, and many branches of Chinese industry depend on US technology. The US, in turn, needs rare earth metals from China (e.g. samarium and dysprosium) that are crucial in advanced technological applications. China has significantly tightened it export controls on rare earths this year.

The trade war has clobbered China’s US exports. China Customs reports that the value of goods exports to the US contracted by 35 % y-o-y in May. Higher exports to other countries offset some of the loss, however, and the total value of exports increased by 5 % y-o-y. Exports to ASEAN countries (up by 15 % y-o-y in May) and the EU (up by 12 %) remained strong, but highest growth was posted for exports to Africa (up 30 %). Customs figures do not indicate the ultimate destination of Chinese exports. It may well be that many goods, particularly those shipped to ASEAN countries, eventually make their way to the US market. The contraction in imports continued in May, with the value of Chinese goods imports falling by 3 % y-o-y in dollar terms. While imports from ASEAN countries and North America declined, imports from the EU remained at about the same level as a year earlier.

While Chinese goods exports to the US have contracted sharply, China’s exports to other countries have increased

Sources: China Customs, CEIC and BOFIT

Goods trade figures itemised by country and product classification are only available as of April. The April figures show China’s goods exports to the US contracted sharply in all broad product categories (HS1), with the exception of the vehicles category (includes all vehicles for travel on land, air or water). Import levels from the US showed greater variation. While many product categories for China’s imports from the US declined, imports were up in the foodstuffs, pulp & paper, footwear, machinery & equipment, and optical equipment categories.

After setting an 25 % additional tariff on steel and aluminium in March, the US increased its tariff rate to 50 % on June 4. The increased steel tariffs have created fears of dumping of Chinese steel on European markets. The export volume of Chinese steel and iron products experienced strong on-year growth in April and May, rising by about 10 % (even if growth was still down from a 20 % pace a year earlier). China’s main export markets for steel are countries in Southeast Asia, Southern Asia, the Middle East, Africa and Latin America. China Customs reports that the EU was the world’s ninth largest exporter of steel products, roughly matching the steel product export volume to Pakistan. The value of China’s exports of steel products to the EU fell sharply in March, but recovered to positive growth in April. When both months are added together, exports showed a couple percent contraction from a year earlier. It is possible that the impact of steel tariffs eventually shows up in trade flow figures after some delay.