A global recovery led by the U.S. provided a shot in the arm for Chinese exporters last year, boosting China’s economy. Rising American demand, in particular, pushed up Chinese shipments, expanding China’s trade surplus in goods with the U.S. by 10% to $275.8 billion in 2017, according to Chinese customs data released Friday.
That figure, a record for the nearly five decades for which such data exist, marks the U.S.’s largest trade deficit with any trading partner. By comparison, China’s overall foreign trade surplus contracted 17% as higher prices of oil, iron ore and other commodities raised the value of inbound shipments from countries like Russia, Australia and Saudi Arabia.
Mr. Trump savaged China as a predatory trader during his campaign for the presidency, though he has toned down his rhetoric since. In an interview with The Wall Street Journal on Thursday, before the latest trade figures were published, Mr. Trump suggested he would have resorted to stricter measures to correct the trade imbalance with China if it weren’t for Beijing’s help in pressuring North Korea over its nuclear weapons development.
“We’ve been much tougher on China, but not nearly as tough as I would be, but they are helping us a lot with North Korea,” Mr. Trump said.
In closed-door meetings with American officials and business executives, Chinese officials have threatened tit-for-tat for any U.S. penalties and urged American companies with large operations in China to warn Washington against taking such actions. “We have contingency plans in place,” a Chinese official involved in policy-making said, without giving details.
One likely target is imports of U.S. soybeans. China’s hefty demand for soybeans, used to feed hogs in large-scale farms, has benefited U.S. farmers and companies including Cargill Inc. and Archer Daniels Midland Co. , and executives with American soybean exporters have said they’ve been warned that shipments could suffer in a trade spat with the U.S.
What's Does it Mean?
- Trump will howl. Whether he starts a global trade war over this is another matter. NAFTA negotiations were a disaster, but Trump still has done nothing yet.
- The US has a huge buyer for US Treasuries.
I had a laugh last week regarding reports that China may slow or halt its purchases of US treasuries. China will do no such thing. To be more specific, I see a buyer of approximately $275.8 billion in US treasuries.
For the most part, those who think China will cut back its net purchases simply do not understand trade math.
There may be some small differences between the trade deficit and Chinese purchases of treasuries, the most likely possibility is if China needs to prop up the Renminbi to halt capital flight.
China may also try to buy US companies instead. But I suspect Congress would kill most of those proposals.
For further discussion, please see Clueless Bloomberg Headline: China Weighs Halting US Bond Purchases.
Mike "Mish" Shedlock