World Trade Slowed at End of 2018

Date: Tuesday, February 26, 2019
Source: The Wall Street Journal

Imports to and exports from China plummeted, signaling impact of U.S. tariffs

World trade fell at the end of last year as imports to and exports from China plummeted, a sign that higher tariffs and the threat of more to come are cooling global economic growth.

The figures showed that late last year, U.S. efforts to revamp its trade relationships were increasingly disrupting the global trading system and the cross-border production lines that businesses have built over recent decades.

Data released on Monday by the CPB Netherlands Bureau for Economic Policy Analysis indicated that the total volume of goods moving across borders increased 3.3% in 2018, a slowdown from the 4.7% rise recorded in 2017.

But flows in the final three months of the year were 0.9% down from the previous quarter, and China’s trade with the rest of the world accounted for most of the drop.

Falling OffA sharp drop in Chinese imports took a toll on global trade growth last year.

The figures come as President Trump delayed an increase in tariffs on Chinese goods set to take effect March 1, citing “substantial progress” on issues including intellectual property and technology transfer after a weekend of talks.

The Trump administration has initiated most of the tariffs that roiled international trading relationships last year, including duties on solar panels, washing machines, steel and aluminum tariffs. All told, the U.S. placed tariffs on about $250 billion of Chinese imports.

China’s imports fell 13% in December compared with the same month in 2017, while exports were down 5.6%. Trade flows in and out of the U.S. and the eurozone were largely flat in the final quarter of 2018 compared with the previous quarter.

“The effects of the trade war are kicking in,” said Raoul Leering, head of international trade analysis at ING Bank. “The tariffs are doing their job.”

Since the shutdown of the U.S. government delayed the publication of December trade figures, economists at the CPB assumed there was no change in U.S. trade flows between November and December.

Moreover, there are few signs of a strong rebound this year. A January survey of 13,500 manufacturing companies in more than 40 countries by data firm IHS Markit found orders for new export work decreased for the fifth straight month and by the largest amount since May 2016. A measure of likely trade flows for the first quarter of this year from the World Trade Organization fell to its lowest level since early 2010.

Businesses have responded in a number of ways to the prospect that the movement of goods across borders will become more costly. Some have advanced their purchases to avoid those higher costs, a practice known as front-running that can temporarily boost trade flows. Others have held back on spending to expand or upgrade capacity, while delaying new export orders.

China’s Shandong Lu Yi Co. saw strong demand in 2018 for its wooden wine racks, Christmas reindeer and building blocks for children, said manager Xie Anfen. Orders came in from American clients, such as supermarkets and other retailers worried that buying later would be more expensive, even though proposed tariffs don’t cover the company’s products, Ms. Xie said.

The company is waiting to see if a resolution to the trade fight will provide new demand.

“We won’t expand production or investment until the trade disputes are solved,” Ms. Xie said. “If the trade war escalates, we will have to cut spending or even shed jobs to keep the company afloat.”

That hesitancy among Chinese exporters has had an impact in Europe. Over recent decades, Germany’s tool and equipment makers have found strong demand from China and other developing economies that have boosted their own industries, partly to supply export markets in the U.S. and elsewhere.

But according to the German Machine Tool Builders’ Association, Chinese orders for German machine tools fell 24% between January and September compared with the year-earlier period. By comparison, Chinese orders jumped 11% in 2017.

That is in line with other economic data and surveys from around the world suggesting trade uncertainty has sapped business confidence and weakened business investment. In the U.S., a widely watched measure of how much businesses are investing fell for the fourth time in five months at the end of 2018.

U.S. businesses and consumers, fueled by tax cuts and higher federal government spending, boosted imports for most of last year. Imports of industrial supplies and consumer goods climbed to meet a surge of demand from American consumers, but tailed off in the final months of the year.

But there were also signs throughout 2018 that the U.S. wouldn’t escape a growing bout of international economic weakness. U.S. exports peaked in May and have trended lower since. Food exports, hit by retaliatory tariffs that targeted America’s agricultural heartland as well as the effects of a strong dollar, faced an especially sharp decline.

Across major economies, British businesses have faced the greatest uncertainty about future barriers to trade, with the terms of the U.K.’s departure from the European Union yet to be settled. The U.K. economy slowed in 2018 as business investment fell, while the volume of imports and exports was down from the previous year.That weakness should serve as a warning to others about the costs of prolonged trade uncertainty, Bank of England Gov. Mark Carney said in a speech this month. “Contrary to what you might have heard, it isn’t easy to win a trade war.”


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