Trade war may affect China’s exports more than imports from US, says ANZ Bank

August 8, 2018

HONG KONG - China-US trade tariffs seem to have had more impact on China’s exports than its imports from the US, according to research conducted by ANZ Bank. July marks the first month since China and the US started to impose additional 25% tariffs on each other’s products worth US$34 billion (from July 6).

ANZ says China’s export growth to the US slowed to 11.2% in July from 12.5% in June, even with the help of a low base. However, China’s imports from the US grew faster to 11.1% y/y in July from 9.6% prior.

“This seems to suggest that, so far, China’s imports from the US have been less affected by the additional tariffs than its exports to the US,” ANZ says.

“At the same time, China’s imports from ASEAN, EU and Australia jumped 30.2% y/y, 20.0% y/y and 33.7% y/y, which may suggest that China is trying to seek other import sources in the case of a trade war.

“However, China-US trade surplus stayed little changed at USD28.1 billion in July, suggesting no imminent resolution of the trade war.

“The USD28bn trade surplus changed little from the previous month and was equivalent to China’s total trade surplus in the month. This will help little to cool down the escalating trade tensions between the two countries.

“The US announced on August 7 that it will go ahead with imposing additional 25% tariffs on the remaining US$16 billion of Chinese products (part of the US$50 billion) on August 23. China is highly likely to follow suit later.

“Currency devaluation, which may have helped exports to some extent, has been largely market-driven in our view and this is not a preferred policy tool by Chinese policy-makers as part of their retaliation measures.

“Chinese authorities are still cautious of potential capital outflows which may intensify currency depreciation expectation.

“This can be proved by its latest decision to impose a 20% reserve requirement ratio on FX forward contracts from August 6 amid a rapid CNY depreciation and decline in the CNY CFETS index.”

ANZ says strong imports suggest solid domestic demand on the back of China’s policy boost, with this trend likely to continue in upcoming months.

“The much higher-than-expected import growth was mainly driven by surging commodity and mechanical and electrical products imports.

“Major commodity imports including iron ore, coal, crude oil imports, rose 4.3% y/y, 49% y/y, 3.7% y/y in volume in July. In value terms, they rose 19.7% y/y, 72.6% y/y, and 63.0% y/y respectively. LNG imports also surged 136% y/y in volume.

“Mechanical and electrical product imports rose 27% y/y in value in the month, compared with 5.0% in June.

“As the Government has made it clear it wants to accelerate infrastructure investment and drive domestic demand in H2, we expect imports to extend this strong momentum in upcoming months.” (ATI).