THE NEW YORK TIMES: China’s exports surged again in July, but not to America

China’s exports surged even more than expected in July, as Chinese companies raced to ship goods to Southeast Asia and other regions, often for onward shipment to the United States, before President Donald Trump could raise tariffs on imports.

China’s overall exports were up 7.2 per cent in July from the same month last year, while imports were up 4.1 per cent. Its exports to Southeast Asia and Africa, key regions for reshipment to the United States, rose more than twice as fast as its overall exports. China’s exports to the European Union, its main alternative to the American market, were also up very strongly.

By contrast, China’s exports directly to the United States were down by more than a fifth in July, as buyers in the United States appeared wary of paying Trump’s extra 30 per cent tariffs.

China’s economy relies heavily on exports, in part because a steep fall in apartment prices in recent years has ruined the personal finances of millions of households, leaving them unable to afford the vast quantities of goods pouring out of China’s factories.

China’s trade surplus reached almost $1 trillion last year, with its surplus in manufactured goods equal to a tenth of the country’s entire economic output.

Ever since senior American and Chinese officials reached a truce on tariffs in Geneva in mid-May, the United States has been charging an extra 30 per cent tariff on imports from China. That is in addition to existing tariffs, notably the 25 per cent tariff that Trump had imposed on roughly a third of American imports from China in his first term.

For the past several decades, China has been selling as much as $4 worth of goods to the United States for each $1 of American goods that it buys.

As the overall volume of trade between the two countries jumped following China’s entry into the World Trade Organisation in late 2001, this ratio meant that the American trade deficit with China soared.

Tariffs have begun to reduce the imbalance. The United States announced Tuesday that its overall trade deficit had narrowed in June to $60.2 billion, the smallest in nearly two years.

The American trade deficit with China in particular, once the largest American deficit with any country, shrank to its narrowest in decades in June. But China’s data for July showed that it was still selling three times as much to the United States as it purchased.

Chinese companies have responded partly by selling more to the European Union. Exports to the 27-nation bloc were up 12 per cent last month. China has also been exporting more to developing countries that use Chinese components to assemble goods for the American and European markets.

Trump has sharply increased tariffs on imports in an attempt to revitalise American manufacturing, increase national self-reliance and reduce dependence on China. But many countries, including China, shipped extra goods to the United States ahead of the tariffs.

The big question now for China is the extent to which the Trump administration follows through on plans to curb transshipment — exporting goods to the United States by way of other countries, where they are relabelled.

Trump has begun imposing 40 per cent tariffs on transshipped goods, and a senior administration official said last week that the United States plans to release new rules “in a few weeks” to broaden the rules for what qualifies as transshipment.

Ever since the trade war during Trump’s first administration, Chinese companies have been moving the final stage in their production processes to countries like Vietnam, Malaysia and Mexico.

As Trump has raised tariffs on goods coming straight from China, these indirect shipments have soared. China’s exports to Southeast Asia, for example, climbed 12.9 per cent in the first half of this year compared to the same period last year and then accelerated further in July, when they were up 16.6 per cent. These exports have nearly tripled since the start of Trump’s first term.

Some of China’s exports to the region do stay there instead of being re-exported. But Indonesia and other Southeast Asian countries have been wary of being swamped by Chinese goods, and have very sharply increased their own tariffs and other taxes in the past two years on Chinese goods that are not re-exported.

China’s exports to Africa leaped 42.4 per cent in July from a year ago. But some African countries, particularly South Africa, have expressed concern lately that their manufacturing industries are being smothered by Chinese competition.

This article originally appeared in The New York Times.

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