China’s exports surged more than expected in July despite fresh U.S. duties and its closely watched surplus with the United States remained near record highs, as Washington finalised its new tariff list in a bitter dispute that some fear could derail global growth.
In the latest move by President Donald Trump to put pressure on Beijing to negotiate trade concessions, Washington is set to begin collecting 25 percent tariffs on another $16 billion in Chinese goods on Aug. 23. Both countries have already slapped tit-for-tat duties on $34 billion of each other’s goods.
China has repeatedly warned it will strike back, and has already begun enforcing or is getting ready to enforce its own retaliatory tariffs, saying the United States is threatening the global free trade order with its protectionism.
China’s headline numbers are the first readings of the overall trade picture for the world’s second-largest economy since U.S duties on $34 billion of Chinese imports came into effect on July 6.
China’s surplus with the United States shrank marginally to $28.09 billion last month from a record $28.97 billion in June. Washington has long criticised China’s trade surplus with the United States and has demanded Beijing cut it.
Still, disagreements between the two major economic powers run deeper than just the trade balance and tensions remain over market access, intellectual property, technology transfer and investment.
A weaker yuan, which marked its worst 4-month fall on record between April and July, may have taken the sting out of 25 percent tariffs on $34 billion exports to the United States. However, analysts still expect a less favourable trade balance for China in coming months given it’s early days in the tariff brawl.
“Looking ahead, we expect export growth to cool in the coming months, though this will primarily reflect softer global growth rather than US tariffs, the direct impact of which will continue to be mostly offset by the renminbi’s (yuan’s) recent depreciation,” Capital Economics’ Senior China Economist Julian Evans-Pritchard wrote in a note.
After a strong start to the year, growth in the world’s second-largest economy cooled slightly in the second quarter, partly hit by the government’s years-long efforts to tackle debt risks.
The worry is that the escalating Sino-U.S. trade war, rising corporate bankruptcies, and a steep decline in the value of the yuan versus the dollar could put a significant dent on the economy.
The government has responded by releasing more liquidity into the banking system, encouraging lending and promising a more “active” fiscal policy.
World financial markets have taken a battering in recent months as fears grow that Trump’s “America First” policies could derail a global economic revival.
Chinese state media, reflecting the government’s stance, has said China will not be cowed in the face of U.S. threats.
The latest commentary from state media on Wednesday took a softer line after resorting to personal attacks against Trump earlier in the week, saying China could get through the storm but refrained from directly mentioning the U.S. president.
All China’s main state newspapers published a lengthy commentary by the official Xinhua news agency, entitled “declaration”, on their front pages.
“Certain people go against the tide for their own private ends and go against morality; the barrier of tariffs wantonly rise, and the stick of hegemony is raised all around,” the commentary said.
“Although this may for a moment bring preening with delight, it will make it hard to resolve economic imbalances or out of kilter politics and other deep-rooted problems,” it said.
China has already retaliated against the United States with its own tariffs and proposed others if Washington goes ahead with all its threats.
It has not yet given a date for its previously announced retaliatory tariffs on $16 billion in U.S. goods, which will target commodities such as crude oil, natural gas, coal and some refined oil products.
The latest $16 billion list from the United States will hit semiconductors from China, even though many of the basic chips in these products originate from the United States, Taiwan or South Korea.
John Neuffer, president and CEO of the Semiconductor Industry Association, said in a statement they were disappointed and puzzled why semiconductors remain on the final tariff list.
“We have made the case to the Administration, in the strongest possible terms, that tariffs imposed on semiconductors imported from China will hurt America’s chipmakers, not China’s, and will do nothing to stop China’s problematic and discriminatory trade practices,” he said.