China’s trade shows economic recovery tested by global slowdown

An unexpected fall in China’s exports and an equally unforeseen rise in imports show that the world’s second-largest economy continues a tentative recovery while global demand weakens and trade tensions re-escalate.

Exports dropped 2.7% in April versus a forecast 3% increase, while imports expanded by 4% compared to a projected slip, the customs administration said Wednesday.

Those misses highlight that the global slowdown is weighing down on China’s growth, instead of the other way around, at least for now. Months of policy stimulus has fuelled a pickup in the Asian economy, although the re-escalating trade threats may throttle those green shoots.

“The lacklustre exports show that the global economy probably hasn’t bottomed yet, while the imports signal recovering domestic demand,” said Peiqian Liu, Asia strategist at Natwest Markets PLC in Singapore.

“The noise and uncertainties in the trade war will continue to weigh on China’s trade.”

China’s shipments to the US, Japan and South Korea slumped from a year earlier last month, and those to the largest European economies also slowed from a surge in March. The trade surplus with the US in the first four months of 2019 expanded 10.5% from the same period in 2018 to about $84bn, as trade flows both ways declined.

While early data from Japan and the euro area show signs of stabilisation, President Donald Trump’s abrupt Sunday announcements that he planned to raise tariffs on $200bn of Chinese imports to 25% from 10% is throwing that outlook back into uncertainty.

He also threatened to impose duties “shortly” on all other goods not already tariffed. A Chinese delegation led by Vice Premier Liu He will visit Washington for negotiations Thursday and Friday.

In an all-out trade-war scenario, annual gross-domestic product may shrink by as much as 0.6 percent in the U.S. and by 1.5 percent in China, according to the International Monetary Fund.

The tensions between the U.S. and China are “a threat for the global economy”, according to IMF Managing Director Christine Lagarde. JPMorgan Chase & Co. CEO Jamie Dimon also noted that global growth would be hit if the talks go “really south”, but still put the odds of the US and China reaching a trade deal at 80 percent.

What Bloomberg’s economists say

“The contraction in China’s April trade data is worrying even after taking into account the seasonal-driven large upswings in March. It is even more concerning in light of the latest flare-up of trade tensions between China and the US” – Chief Asia economist Chang Shu wrote in a note

The flaring trade tensions will threaten China’s outlook, which had been brightened by strong data in March following fiscal stimulus and credit easing since last year. The imported volume of crude oil, copper and coal increased from a year earlier in April.

Still, the import data may have been flattered by rising oil and iron ore prices. A tax cut announced earlier this year may also have prompted importers to delay shipments until after April 1, from when they can pay lower value-added taxes, according to Lu Ting, chief China economist at Nomura Holdings Inc. in Hong Kong.

“There is real risk of double dip in growth, and Beijing cannot afford to stop easing yet,” Lu wrote in a note. “With the rapid escalation of the trade conflict with the US, we believe Beijing will likely step up easing measures again.”