China: A trading powerhouse
China’s exports continue to grow strongly. In October, exports (denominated in US dollars) were up 11.4% from a year earlier, faster than the 9.9% growth recorded in September. This was the fastest export growth in more than a year and a half. Imports were up 4.7%, which means that China’s trade surplus continues to expand. Interestingly, the bilateral surplus with the United States is up more than 46% since US President Trump took office. Although economists know that bilateral trade imbalances are meaningless, the current US administration has made a big fuss about the size of that imbalance and promised to reduce the US deficit with China. Instead, the opposite happened. In any event, the strength of China’s exports comes at a time when global demand remains relatively weak. Thus, China’s export strength signifies the continuing competitiveness of Chinese industries. Notably, China’s exports have been especially supported by strong global demand for medical equipment as well as technologies related to remote working and shopping. Thus, Chinese industries have benefitted from pandemic-related trends. That said, the surge in infections in Europe and the United States suggests the possibility of a further slowdown in demand. This, in turn, could have a negative impact on Chinese exports.
China’s export strength was largely related to demand in the United States. Exports to the United States were up 22.5% in October versus a year earlier while exports to the European Union were down 7.0%. Exports to Southeast Asia were up 7.0%. Interestingly, Chinese imports from the United States were up 33.0%. This was likely related to China’s pledge to boost imports from the United States as part of the so-called “phase-one” trade deal signed in January. Strong Chinese demand for US goods will set the stage for whatever policy shifts President-elect Biden intends to implement. If he chooses to ease trade restrictions, the fact that Chinese demand is already strong could allay the concerns of those critical of trade with China.
Also, Chinese imports from Europe were up strongly. Specifically, Chinese imports from Germany were up 24% in October versus a year earlier and imports from Italy were up 21%. This is a boon to the European economy which is otherwise facing significant headwinds from the resurgence of the virus. Moreover, this happened at the same time that European Union (EU) exports to the United States and United Kingdom were down. The result is that China has now surpassed the United States as the European Union’s leading trading partner. Thus, at a time when the European continent is suffering from the effects of new lockdowns and weak demand in the United States and United Kingdom, China is providing a much-needed boost. It stems from the fact that China’s economy is growing more rapidly than any other major economy having successfully suppressed the virus.