China’s exports and imports shrank more than expected in September, as existing US tariffs and the ongoing slowdown in global trade combined to undercut demand.
Exports decreased 3.2% in dollar terms from a year earlier while imports declined 8.5%, leaving a trade surplus of $39.65bn (R586bn), the customs administration said Monday. Economists had forecast that exports would drop 2.8% while imports would shrink by 6%.
The weak trade performance underlines the importance of the “Phase One” agreement struck between the US and China last week, as China’s economy suffers from slowing demand both at home and abroad. The slump in imports in particular bodes ill for the domestic economy, and output is expected to have grown at the slowest pace in the third quarter in almost thirty years according to estimates ahead of data due Friday.
“The key driver definitely is the slowing global economy,” said Larry Hu, head of China economics at Macquarie Securities in Hong Kong. “The mini deal is good for sure because it is preventing things from getting even worse. But it’s not about making things much better.”
September exports to the US dropped almost 22% and imports declined almost 16% year-on-year, for a surplus of about $26bn.
“This is obviously the damage done by the trade war,” said Iris Pang, an economist at ING bank NV in Hong Kong. Exports to Vietnam jumped, “which I believe could be goods rerouting to Vietnam for some simple processing then to US to avoid tariffs.”
What Bloomberg’s economists say
Looking forward, the ‘phase one’ trade deal does not yet boost China’s trade outlook in a meaningful way. The key element for China is that the tariff hike due this week won’t take place, relieving some downside risks. Even so, the status quo is still painful - tariffs between 15%-25% still cover $360 billion of Chinese shipments to the US.
- Chang Shu, chief Asia economist and David Qu, economist
The tentative agreement pauses US tariff increases in exchange for increased Chinese purchases of agricultural goods. If that sticks, a boost to confidence may be ahead, though it’s not clear if another round of tariffs due for December will be implemented or not.
The official Chinese response to the “phase one” trade deal with the US reached Friday was wary but welcoming, underlining that Beijing has few options but to play along with President Donald Trump if it wants to relieve some of the pressure on its slowing economy.
Before the deal announced over the weekend, Oxford Economics forecast that the worst is still to come for US-China trade, which has already fallen 20%.
“Bilateral trade has already been hit hard and is likely to decline considerably further, especially if tariffs are extended to more goods as threatened,” according to the report before the data from economist Adam Slater.
“The decline was not entirely due to the trade tension,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group in Hong Kong. “The tech cycle has not been supportive. I don’t think the phase one deal will change the trade outlook materially.”