AI is Still Driving Trade
Despite an increase in protectionism and tariffs, global trade has persisted at a steady pace thanks to a boom in sales of new technologies related to artificial intelligence. The war in the Middle East and subsequent energy crisis have only made economies more focused on restructuring in an environmentally friendly way.
That’s why the world’s top trade power, China, has continued to ramp up exports. In May, Beijing’s General Administration of Customs said on Tuesday, exports increased 19.4% year-on-year to $376.8 billion.
“The war is boosting demand for green exports, such as electric vehicles, batteries, solar products, and AI-related technology goods, which are linked to China’s structural focus,” Sheana Yue, a senior economist at Oxford Economics, wrote in a note. “China, relatively insulated from energy-related cost shocks, retains advantages in scale, supply-chain depth and industrial capacity.” Overall, Exports of high-tech goods increased 51.1% to $112.1 billion.
Inflation is Starting to Show up in Trade Data
However, trade data is starting to show another trend that could ruin the party: inflation. Consider this: The number of integrated circuits exported by China increased 2.1% to 30.7 billion. The value of these shipments rose 111% to $35.5 billion, representing, roughly, a doubling of prices over 12 months.
Exports of “automatic data processing equipment and parts thereof”, for which there is no data on quantities, rose 66.1% to $26.9 billion.
There were price increases across other categories, too. Exports of “unwrought aluminum and aluminum products”, for example, increased 15.6% by quantity but 38.4% by value. Exports of rare earths declined 6.4% by quantity but increased 237% by value. (The total value of rare earths exports, we should point out, amounted only to a paltry $63 million.) The number of mobile phones exported dropped 3.5% to 53.4 million. By value, they increased 44.3% to $9.9 billion.
Exports to the U.S. Are Back Up
A year ago, the world was in the throes of a U.S.-China trade war. Washington’s tariffs on Chinese imports were over 100%. Twelve months later, the relations have thawed, including a visit by President Trump to Beijing, and commerce between the world’s two trade powerhouses. Exports to the U.S. increased 35.6% year-on-year to $39 billion. Imports from the U.S. rose 20.2% to $13 billion.
Trade with Europe, which had been booming, has stabilized. Exports to the EU increased 7.6% to $53.2 billion, while shipments from the EU shrank 1.3% to $22.6 billion.
Those numbers are dwarfed by China’s trade with its Asian neighbors. Exports to ASEAN nations rose 24.7% to $72.6 billion, while imports increased 27.9% to $40.1 billion. Exports to Canada declined 2.6% to $4.6 billion. Imports from Canada increased 98.6% to $7.2 billion.
Energy Markets Are Adapting
The crisis in the Middle East, and the impasse in the Strait of Hormuz has disrupted energy trade. Chinese imports of crude petroleum oil fell 29% to 33.1 million tons while imports of natural gas increased 111.3% to 10.1 million tons. China is the world’s biggest energy importer. The looming shortages of fossil fuels will only help stimulate China’s lucrative electric vehicle trade. Exports of motor vehicles increased 39.3% to $16.7 billion. By number they increased 42.5% to 987,588. “Support should continue from stronger demand for sustainable energy products amid the oil supply squeeze,” HSBC said in a note.
China is Buying…Asian Tech
Imports increased 27.5% to $271.3 billion, but analysts cautioned that this doesn’t mean China will start buying as much from the world as the world buys from it. In a word, China is also building out its AI capabilities. “China’s import growth remains mainly a tech story rather than an energy story,” ING wrote in a blog post. That’s why imports from South Korea, ING pointed out, rose 83.4% to $26.7 billion. Imports of high-tech goods, however, rose 46.9% to $96.6 billion.
Purchases of agricultural products, by comparison, increased only 4% to $20.7 billion, and imports of pharmaceuticals fell 9.3% to $4 billion.
But it almost doesn’t matter how much Chinese imports are growing; they are unlikely to outpace the country’s export juggernaut. In May, Beijing’s trade surplus increased to $105.4 billion from $84.8 billion the month before.