A Shift in Trade as Consumer Spending Declines, China April 2020 Trade Data Shows

As the first country to suffer the impact of the coronavirus, China is leading the way in restarting its economy, and its performance offers some clues to what the U.S. and EU can expect for the rest of the year.

To some, China’s performance is a sign of resilience. Markets on Thursday rose to the announcement by China’s General Administration of Customs that exports in April had increased 3.5% compared to the same month a year ago.

However, the longer-term outlook is likely to be worse: Consumer spending is down across the globe. Imports in April by China, the world’s most important consumer market, declined 14.5% in April, and economists expect subsequent decreases in investment and spending over the rest of the year. China’s economy in the first quarter shrank 6.8%, its first contraction in decades.

At the same time, even under a pandemic lockdown, countries have to maintain essential baselines of economic activity, and humans still need to eat and heat their homes, and perhaps even stockpile raw materials and essential life supplies if necessary. Chinese imports of meat, pharmaceuticals, iron ore, crude oil, coal, natural gas and soybeans all increased.

And a closer look at the data suggests that the pandemic, which has killed over 250,000 people worldwide, has accentuated a permanent shift in the way the global economy operates, slashing Chinese exports to the West, and fueling increased trade with Asian countries, according to an analysis by Trade Data Monitor.

For decades, China has supplied the wealthy consumers of the U.S. and European Union with phones, computers, clothes and other essential durables. Now, as those blocs enter their worst recession since the 1930s, China is having to turn its sights to Asia.

Over the first four months of 2020, Chinese exports to its largest Asian trading partners, the ASEAN countries, increased 3.9% to $104.5 billion. At the same time, Chinese exports to the EU fell 6.6% to $101.5 billion, and shipments to the U.S. declined 15.9% to $99.1 billion.

As Asian economies emerge into prosperous consumer blocs, they may be able to sustain China’s manufacturing dynamo a while longer, explaining the overall 3.5% rise in exports. But it’s hard to avoid the conclusion that the pandemic will cause a sustained global reduction in consumer spending and demand, with effects sure to ripple throughout the global economy.

China, Selected Exports; Billions USD; Jan-Apr 2019, Jan-Apr 2020; Source: China Customs Statistics via Trade Data Monitor LLC; May 7, 2020; Garments and Clothing Accessories, Mobile phones, Plastic Products, Steel Products, Furniture and Parts, Shoes and boots, footwear, Bags and Containers, Toys, Motor Vehicles and Chassis, Medical devices

Overall, Chinese exports of clothing, plastics, furniture, shoes, toys, luggage, steel and cars all declined. Exports of the “mobile phone” category, for example, fell 10.5% in the first four months of 2020 to $30.8 billion. One outlier: masks. Exports of medical clothing and equipment surged.

In the first four months of 2020, total Chinese trade, imports and exports, fell 7.5% year-on-year to $1.3 trillion. Exports declined 9% to $678.3 billion, and imports fell 5.9% to $620.1 billion.

China Tech Sector Focuses on Asia Amid Pandemic

The COVID-19 pandemic is accelerating a “decoupling” between U.S. and Chinese high-tech sectors and supply chains, according to an analysis by Trade Data Monitor.

What March trade data suggests is that companies from the two rival economic superpowers are shipping more regionally, a sign they’re heading toward cutting countries out of their supply chains and producing more locally. That would reverse a process of tighter global integration and the building of long, intricate multiple-country just-in-time supply chains that began when China joined the World Trade Organization in 2001 just as the consumer tech boom exploded.

Chinese high-tech exports to the U.S., its biggest market, fell 21.7% in March, to $7.5 billion from $9.5 billion in the same month a year before, and high-tech shipments to the UK declined 29.9% to $917.6 million, year-on-year, according to Trade Data Monitor, the world’s premier source of trade statistics.

China High-Tech Exports to Top Partners (select commodities from HS 28, 29, 30, 32, 38, 39, 84, 85, 87, 88, 90, 93, 96); Billions USD; March 2018, 2019, 2020; 12, 10, 8, 6, 4, 2 Billions USD; United States, Japan, South Korea, Vietnam, Netherlands, Taiwan, Germany, Singapore; 2018, 2019, 2020; Source: China Customs Statistics via Trade Data Monitor LLC; May 2020

Meanwhile, shipments to Vietnam increased 26.7% to $2.8 billion, and those to Singapore rose 25.4% to $1.5 billion, suggesting that Chinese tech companies are shifting inventory and parts to countries where they can stock inventory, assemble parts for manufacture, and sell finished products to consumers.

Overall in March, Chinese exports of high-tech goods declined 8.1% to $54.5 billion from $59.3 billion the same month a year ago. The regional disparity, between US/EU and the rest of the world, suggests that China will seek to replace lost markets in the West by building on its dominance in Asia and Latin America.

Accurate and up-to-date data is crucial to understanding what’s happening to global trade as it undergoes historic shifts during the pandemic.

This year, there is no bigger factor driving change in the global economy than the coronavirus pandemic. U.S. GDP is expected to drop 38% in the first quarter, according to Morgan Stanley. Deutsche Bank is forecasting an 31.7% contraction in Chinese gross domestic product in the first quarter.

But there is a silver lining in the tech industry. While we’re all stuck at home, we’re watching Netflix, ordering pizza and sushi on Grubhub, and buying toilet paper on Amazon. Yes, demand is sure to wane as people lose income, but the tech industry is sure to maintain pockets of strength: Simply, it’s become essential to human life as we know it.

But how high-tech goods are made is due for a change.

According to TDM data, China still dominates long-term high-tech trade trends. In 2019, China’s total high-tech exports slipped 2.2% to $716.7 billion. The European Union was in second place, at $433.5 billion (up 5.6%), and the U.S. fourth, at $267.6 billion (up 0.6%).

Top High-Tech Exporters (select commodities from HS 28, 29, 30, 32, 38, 39, 84, 85, 87, 88, 90, 93, 96); Billions USD; 2014-2019; 800, 700, 600, 500, 400, 300, 200, 100 Billions USD; China, EU 28 External Trade, Hong Kong, United States, Taiwan, South Korea; 2014, 2015, 2016, 2017, 2018, 2019; Source: Trade Data Monitor LLC; May 2020

Now, as the pandemic follows a trade rift between Washington and Beijing, companies will want to insulate themselves from political and supply chain risk. In March, 44% of 25 large U.S. companies surveyed said decoupling would be impossible, down from 66% in October, according to a survey by China-based chambers of commerce cited in the Wall Street Journal.

Already, according to more detailed trade data, the EU and U.S. form a tightly woven supply chain. In 2019, the EU imported $225.3 billion of high-tech goods from the U.S., second only to China. Of that $23.1 billion was goods meant for processing and re-export. By comparison, the EU imported $304.2 billion of high-tech goods from China, of which only $3.6 billion worth was meant for processing.

Although measures of service trade are difficult to assess, service trade usually follows goods trade, so the two are closely related. For example, when a manufacturer imports parts to make a computer or phone, it must also contract the expertise to assemble them as a finished good.

One compelling feature of TDM’s database is its historical breadth. Consider this: In 2000, the U.S. was the world’s number one tech exporter, shipping out $142.2 billion. China was in fourth place at $29 billion. By 2010, the iPhone revolution had propelled China to top in the world, with $425 billion of exports.

Now, as the coronavirus pandemic changes the shape of the world’s economies and supply chains once again, trade data is there to tell the story of the next big historical shift.

Brazil’s Strong March Meat Exports to China Show Trading Power in Post-Coronavirus Economy

In the post-coronavirus global economy, Brazil has a big advantage: A powerful export sector, geared toward shipping meat, as well as commodities like soybeans and iron ore, to China.

Brazil’s exports in March increased 10.4% from the year before to $19.2 billion, according to Trade Data Monitor. Shipments to China, Brazil’s top trading partner, grew 12.5% to $5.9 billion, thanks in large part to a boom in exports of soybeans, up 44% in March to $3 billion.

Meat exports more than doubled, rising to $451.1 million from $224.5 million. China is a pork culture, but the swine flu has wiped out a generation of hogs, and it will take “three to five” years for to replenish stocks, a top Brazilian meat exporter told TDM. Until then, it will need not just pork, but also chicken and beef.

Q1 Brazilian Exports to China, Millions of Dollars; TOTAL; MEAT; 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0; 2015 2016 2017 2018 2019 2020; Source: Trade Data Monitor

Supplying China, the world’s most populous country at 1.4 billion people, and soon the globe’s richest nation, is the best an economy can hope for, and in 2019, Brazil was China’s top meat supplier, followed by Australia, Spain and Argentina.

As pork has gotten more expensive because of tighter supplies, China has imported more beef and chicken. In March, Brazil’s beef exports to China increased 116% to $250.4 million. Poultry shipments grew 31% to $108.1 million. And pork shipments rose 250% to $92 million. “We’re seeing a real change in tastes,” the Brazilian exporter told TDM. “And as China reopens, restaurants are welcoming people again, and buying meat.”

He’s not the only Brazilian who should feel optimistic about surviving the pandemic crisis. In the post-coronavirus fallout, trade in essential food commodities will be more resilient than consumer goods, or commodities such as steel, copper and iron ore used in automotive, construction and industrial production.

And Asia, with younger, more vibrant economies managed by more authoritarian regimes able to restrict population movements, are likely to ride out the coronavirus pandemic more easily that the older, more sluggish EU and US. The pandemic crisis is accelerating movement of global economic power toward Asia.

Ready to take advantage of this trend is Brazil, a sprawling nation of 212 million with expansive farmland, that has positioned itself as a key supplier of agricultural goods and commodities to China, and also Singapore, South Korea, Japan and India.

To be sure, there will be challenges. Brazilian exports to the U.S., its second biggest export market, declined 7.6% in March, to $1.97 billion, as shipments of industrial and aircraft parts tumbled sharply. Another canary in the coal mine might be Brazil oil exports, down 25% to $3.2 billion. But then oil markets were suffering from overproduction even before the pandemic.

Brazil’s March imports didn’t show any steep decline from the year before. They increased 10.6% to $14.5 billion, including high-tech goods, chemicals and fertilizers, with the only significant declines were in oil and automobiles. That’s expected to change in April: As in other countries, Brazilian consumer demand is expected to suffer as the virus hits.

And Brazilian meat exporters say they fear that EU and U.S. companies will severely cut meat imports. Exports of fresh beef to the U.S. have been restricted by sanitary measures.

But it might not matter: It is China, not the U.S. or EU, that is already Brazil’s biggest customer.

The Impact of the Coronavirus on Chinese Trade

As the U.S. started taking in the full impact of the novel coronavirus, or COVID-19, in March, it’s worth looking at how the virus affected Chinese trade.

The outbreak of the virus, and efforts to stop its spread, dented Chinese exports and imports, with a much bigger impact forecast for the rest of the year, according to an analysis of statistics from Trade Data Monitor and the Chinese government.

Chinese exports declined 17.2% in the first two months of 2020 compared to a year before, and imports fell 4%. The upshot: China notched a $7.09 billion trade deficit, its first shortfall in almost two years. (The country’s customs agency combined the first two months in a single data release to cushion the dip caused by the Lunar New Year, which is set at a different time each year.)

Analysts are predicting a short-term decline of at least 2% in global GDP, with a recovery as economic confidence returns once the impact of the virus is absorbed, and fears subside.

The dip comes after a recovery from a downturn caused by the trade war between the two economic superpowers. That outlook has improved as Washington and Beijing negotiate and sign new trade agreements.

Hubei province, where Wuhan, the center of the coronavirus outbreak, is located, is seen as an important commercial hub in the country. With almost 60 million inhabitants, it has nearly as many people France or the UK. The province exported $36 billion worth of merchandise goods in 2019, up 6% from the year before, to customers all over the world, led by the U.S., India, Vietnam and Brazil.

Hubei’s top exports were cellphones, other electronics and parts ($9.3 billion), industrial goods ($4.8 billion), organic chemicals ($1.9 billion), apparel ($1.4 billion), cars, trucks and associated parts ($1.3 billion), and furniture ($1.3 billion). Hubei’s factories are part of integrated supply chains that span the world, from Germany to Detroit.

Guangdong, China’s top exporting province, Henan, and Zhejiang have also been affected. In 2020, Guangdong, a coastal region of 113 million where Guangzhou is located, exported $629.2 billion, up 2.7% from the year before, the highest total of any of China’s 23 provinces.

The virus has infected over 80,000 people and killed over 3,000 in China’s mainland. The government has ordered plants to close and workers to avoid travel. Economic activity has suffered, with fewer people eating business lunches, driving rural roads and shopping.

All over China, factories have suspended production, salespeople have curtailed meetings and travel, and ports and roads have been tied up as Beijing struggled to stop the virus from spreading.

But already, President Xi Jinping, worried about longer-term effects, has told regions less affected by the virus to fire up factories again.

But even if China resumes normal production, it faces a world where almost every country could be facing its own version of virus-related economic slowdown. Over 130,000 people outside of China have been infected, and over 4,500 people have died, forcing other countries to follow China’s lead and shut down neighourhoods, schools and factories.

That will cut into consumption, and imports. In 2020, Hubei imported $21.1 billion, up 13% from 2019. Much of that was industrial goods, raw materials and parts that are part of China’s roaring industrial supply chains.

As the virus spreads, economists are talking about so-called “rolling recessions” spreading from one part of the globe to another, slowing down supply chains in key areas at different times and forcing businesses to scramble for alternatives. China was the first to catch the cold.

How U.S.-China Trade Dispute Is Reshaping Global Trade Flows

Two years into the trade dispute between the U.S. and China, the winners and losers of this new wave of protectionism are emerging more clearly.

More specifically, the trade dispute is shifting trade flows away from the world’s two economic superpowers and toward new export powerhouses like Vietnam, Thailand, Mexico and Brazil, and hurting farmers and industrial goods makers in the U.S. and China.

Overall, the biggest casualty of the trade dispute appears to be the global economy, which suddenly can no longer benefit from the free-trade consensus that has reigned in ministries throughout the world since the end of World War Two.

The growth in world trade fell to only 1% last year, a decline from 4% in 2018 and 6% in 2017. That’s the fourth worst progression in the last 40 years. That should be no surprise. The U.S. and China are the world’s two great national consumer markets. With over $4 trillion a year in combined imports, they are juicy targets for companies around the world. As they’ve started saying no to each other with higher tariffs, that’s opened doors for companies in other countries to flood their markets with lower prices.

Among the biggest losers are the U.S. and Chinese sectors targeted by trade officials with duties and other restrictions. For example, Chinese imports of U.S. aircraft and aircraft parts fell to $7.1 billion from $14.9 billion between 2017 and 2019, according to Trade Data Monitor, the world’s premier source of trade data. One winner from the change in sourcing is France. Chinese imports of aircraft and aircraft parts from France increased to $7.1 billion from $6.2 billion in 2017.

Another sector that’s been badly hurt is U.S. agriculture. Over two years, imports of American soybeans to China fell to $6.6 billion in 2019 from $13.9 billion in 2017. China has replaced that with shipments from other countries, making winners out of farmers in Brazil. Shipments from the Latin American country increased to $23 billion in 2019 from $21 billion in 2017.

Soybeans are part of a wider trend. Overall, Chinese imports from the U.S. declined to $122.7 billion in 2019 from $150.4 billion in 2017. Shipments from Brazil increased to $79.7 billion from $58.4 billion.

In the other direction, U.S. imports from China declined to $452.2 billion in 2019 from $505.2 billion in 2017. That made winners out of the U.S.’s other top trading partners. Germany, Mexico, Canada, Japan, South Korea and Vietnam all increased their market share in the U.S. over that time. The biggest beneficiary was Vietnam, as Chinese firms move there to take advantage of lower labor costs. Remarkably, the U.S.’s former adversary is now its 7th biggest supplier of goods, up from 12th in 2017.

U.S. imports of goods from Vietnam ballooned to $66.7 billion in 2019 from $46.5 billion in 2017. The biggest increases were consumer goods, including apparel, cellphones and other communications gear. U.S. furniture imports from Vietnam, for example, increased to $7.7 billion from $4.7 billion.

Markets, and international institutions, are assuming that trade officials in Beijing and Washington will make headway this year in diluting trade tensions. The International Monetary Fund says growth in trade will improve to around 3% in 2020. That said, the U.S. still has tariffs on over $300 billion a year of Chinese imports.

And then are plenty of uncertainties, such as the Coronavirus outbreak and potential political instability around the 2020 election in the U.S. One thing that becomes clear in analyzing trade statistics is that these numbers can swing for reasons that have nothing to do with tariffs. For example, as African swine fever killed pigs in China, demand for soybeans fell, hurting prices and denting the surge in Brazilian soybean shipment. The market always has the final word.