The Trump Effect May Finally Be Weighing on China’s Exports

Date: Wednesday, May 2, 2018
Source: Bloomberg

China’s exporters may be finding it harder to avoid the effect of trade disputes with the U.S., according to the freshest manufacturing purchasing managers index data.

While the official manufacturing gauge and a private counterpart both held up last month, their sub-indexes tracking new export orders both declined. The Caixin Media Co. and Markit Economics Ltd. reading for booked shipments dropped to the weakest level since June 2016.

“It’s particularly striking that export orders are contracting, possibly an indication that tariff talk has turned buyers cautious,” Bloomberg economists Tom Orlik and Fielding Chen wrote in a note Wednesday. “Policy makers appear to be taking no chances, with the latest signals showing a slight tilt toward supporting growth -- including a cut in the reserve requirement ratio and allowing the yuan to creep lower."

While monthly readings for the survey-based indicators are subject to seasonal fluctuations, an exports downturn poses an unwelcome challenge for policy makers dealing with the trade spat while pushing ahead with a campaign to curb debt risk. With the global recovery still intact, exports posted a 14 percent increase from a year earlier in the first quarter. Trade data for April are due for release Tuesday.

“Although output rose at a slightly quicker rate, new order growth slowed amid a renewed fall in new export work,” Zhengsheng Zhong, Caixin’s director of macroeconomic analysis in Beijing, wrote with Markit economists in a report released with the PMI data Wednesday. “Softer demand conditions weighed on optimism toward the year ahead.”

The April PMI data also signaled improving conditions for smaller companies. Caixin’s gauge, which is geared more to smaller companies, climbed to 51.1 from 51. The statistics bureau’s sub-index of small companies rose a second month even as the headline reading dropped.

For Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore, the reports suggest smaller firms are expediting their shipments before proposed U.S. tariffs kick in.

Smaller companies, which are more flexible in adjusting delivery cycles, front-loaded more than their bigger counterparts amid the escalating trade dispute, which led to stronger readings, Xie said, adding that the momentum may be due for a reversal in coming months.

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