The good news in China’s latest trade surplus

Thought of the day

by Chief Investment Office 08 May 2018

A rise in China's bilateral trade surplus with the US, which expanded by USD 22.2 billion for April, may add to consternation in Washington. The data comes a week after US negotiators in Beijing demanded a USD 200bn reduction of the trade surplus within the next two years.

While the data could further heighten US-Chinese tensions, we don’t expect the situation to devolve into a damaging trade war:

  • The data shows global trade momentum remains strong, and therefore harder to disrupt. China’s US dollar-denominated exports in April rebounded to +12.7% y/y, aided by seasonal and base effects. There were also broader year-on-year gains across major markets, with the US (+9.7%), Europe (+10.9%), Japan (+9.6%), Korea (+21.1%) and ASEAN (+17.7%) all improving.
  • An acceleration in imports to +21.5%y/y points to still firm domestic demand in China. This was underlined by a surge in commodity imports, like copper and crude oil, in both value and volume terms.
  • President Trump's track record so far has been strong rhetoric, and diluted execution. Steel tariffs, for example, were followed by exemptions for allies. Plus, with China’s Vice-Premier Liu He in Washington next week for a second round of high level negotiations, both sides appear engaged in seeking compromise.

So while we continue to monitor the risk of tit-for-tat tariffs or signs of weakening economic confidence, we maintain our overweight for global equities. Policy in China should remain balanced between deleveraging against stability, and we reiterate our preference for China within our Asia portfolios.

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