China's Exports at its Lowest since July 2016

China on Monday saw exports drop to its lowest in two years as the domestic slowdown and a grueling trade war with the US took a toll on the world’s second-largest economy.

The country’s December exports unexpectedly declined 4.4 percent from the previous year, with demand in most of its key markets faltering. Imports surprisingly weakened as well, falling 7.6 percent in their largest tumble since July 2016.

Latest export and import figures from China’s General Administration of Customs failed to meet analysts’ average estimates of a 3 percent growth and a 5 percent increase respectively.

Today’s data reflect an end to export front-loading and the start of payback effects, while the global slowdown could also weigh on China’s exports, according to economists, referring to a rise in shipments to the US last year as companies ramped up shipments before broader and tougher duties were levied.

US importers front-loaded their purchases of Chinese products ahead of the initial January 1 deadline from Washington to raise tariffs on $200 billion worth of goods.

That extreme buying quieted down after the two countries agreed to a three-month trade truce in early December, and exports to the US decelerated to 3.5 percent during the month.

They also said export growth print suggests that the recent strength of the yuan might be short-lived; Beijing will perhaps be more eager to strike a trade deal with the US; and that policymakers will need to take more aggressive measures to stabilize GDP growth.

Net exports have already weighed on China’s economic expansion in the first three quarters of last year, after providing support in 2017.

Trade Surplus with US Hits Record High

China’s 2018 trade surplus added to policymakers’ anxiety. Data released on Monday also showed the country’s surplus with the US rose 17.2 percent from a year earlier to $323.32 billion in 2018, marking as the highest on record since 2006.

China’s huge and politically-sensitive trade surplus has long been a major problem with Washington, which has called Beijing for a sharp reduction.

US President Donald Trump’s administration levied import duties on hundreds of billions of dollar of Chinese goods in 2018 and has threatened additional action if China does not change its methods on matters ranging from industrial subsidies to intellectual property.

China has responded by imposing retaliatory tariffs on the US.

However, Beijing’s export had shown resilience to tariffs for most of 2018, possibly due to companies attempting to beat further US tariffs.

While the surplus with the US may have climbed, last year’s overall Chinese trade surplus was the lowest since 2013, although export was at its highest since 2011, according to records of a UK news agency.

Still, December’s disappointing data, along with many months of weakening factory orders, reinforced fears about a further slowdown in exports in the near term.

Chief economist Raymond Yeung stated that a trade recession is likely, in their view, seeing a period of export contraction similar to 2015-2016.

The global electronics cycle remains the key driver of Chinese exports, according to Yeung, and that the potential downturn in the sector poses the real risk to the country’s external outlook even if China and the US reach a resolution on their trade dispute.

A Dutch bank said the decline in electronic shipments could have partly influenced foreign companies to steer clear of China-made electronic components, adding that exports and imports of electronic parts and products will likely drop this year.

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