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.

Global Surveillance Economy Fuels Boom in High-Tech Communications Trade

As technology amplifies the capability of governments and companies to probe the lives of citizens and consumers, surveillance has become a global commodity, and a booming business for the world’s biggest maker and consumer of communications and audio-visual equipment: China.

In the first 10 months of 2019, China exported USD 320.1 billion worth of high-tech communications equipment (tariff codes 8517, 8504 and 8471), according to Trade Data Monitor (TDM), the world’s premier source of trade data. This global surveillance economy is clearly a big opportunity for China’s massive network of manufacturing hubs churning out phones, cameras, semiconductors, computers, microphones and other key tools for keeping track of people.

China has a massively dominant position. Hong Kong, an administrative part of China, ranked second with USD 85.8 billion in exports over that time. The Netherlands came in third with USD 53.2 billion worth of such goods, followed by the US at USD 51.6 billion and Mexico at USD 40.4 billion, according to TDM.

Top Exporters, High-Tech Communications Equipment (HS 8517, 8504, & 8471); Billions USD, 2009-2019*; China, Hong Kong, Netherlands, United States, EU 28 External Trade, Mexico; Billions USD 450, 400, 350, 300, 250, 200, 150, 100, 50, 0; 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019*; *projected; Source: Trade Data Monitor LLC, January 22, 2020

However, trade tensions with the US and the Trump administration’s wide-ranging tariffs have caused buyers in the US to look elsewhere. Imports of high-tech gear from Vietnam increased a whopping 105% to USD 14.3 billion in the first 10 months of 2019. Shipments from Taiwan grew 87% to USD 9 billion.

There’s no way to break down exactly how much of that gear will be used for surveillance, but it’s growing. In 2020, market analysts expect the market in global video surveillance equipment to surpass USD 20 billion with almost a billion surveillance cameras installed around the world. The installation around the world of 5G communications infrastructure, far more powerful than 4G, will further augment the capability of video oversight.

Domestically, China has become the world’s number one maker, exporter and exploiter of surveillance technology to enforce the law and manage its populations. Technology is changing the relationship between state and citizen. Hundreds of thousands of CCTV cameras can film citizens and recognize their faces. On the road, they’re able to read license plates and track the movement of citizens. Smartphones have put the capability of both business and government to track individual movement on steroids. When people surf the internet at home, every keystroke can be catalogued, measured and analysed. What comes out of all this is data that helps companies build a profile of people’s lives, sell them stuff, and police their activity. In Xinjiang the government is using artificial intelligence harnessed to widespread technological hardware to track population movements. Internationally, this has been highlighted in reporting on the measures taken by the central government of China to monitor the nation’s Uighur minority.

To be sure, it’s not just governments. Retail companies around the world collect data about names, genders, jobs, hobbies, income and relationships the better to push their wares on consumers. And in countries where the government has the legal framework and political motivation, surveillance has become a fact of government, as routine as taxing businesses, collecting gross domestic product data, and managing trade policy.

Around the world, the development of sophisticated artificial intelligence software allowed companies and governments to sort through and analyse data collected on computers, phones and tablets, and on surveillance cameras in public places. The capability of the financially and politically powerful to watch the masses has never been as great.

China’s biggest buyer of high-tech communications equipment during the first 10 months of 2019 was the US, importing USD 77 billion worth, followed by Hong Kong (USD 66.6 billion), the Netherlands (USD 20 billion) and Japan (USD 16.4 billion).

As legal systems sort out the best way of maintaining transparency about protecting people’s rights, the market is likely to keep growing. Police forces now command as much control of data on private citizens as any government in history, much of it surrendered voluntarily by internet users on social media sites like Facebook, Twitter and Instagram. Under normal rules, this can be harmless, but the system is vulnerable to abuse by wayward politicians and police forces out to punish enemies of all types.

The manipulation of private data by companies and political campaigns during recent elections has highlighted the need for new regulation and practices to protect privacy and human rights all over the world.

John W. Miller is an award-winning journalist and filmmaker who covered trade, mining and global economics as a foreign correspondent for the Wall Street Journal. 

Trade Data Monitor (This email address is being protected from spambots. You need JavaScript enabled to view it.) is a Geneva, Switzerland and Charleston, USA based supplier of import and export statistics from 111 countries.

Brexit Is Changing Supply Chains, Trade Data Shows

When Britain joined the European Union in 1973, freer trade was the union’s primary purpose. After World War Two wrecked the continent, EU nations badly needed liberalized economies to rebuild and prosper.

As the UK leaves the EU on Jan. 31, partly as a populist reaction to Brussels expanding its powers beyond its original remit, trade is again a focus and worry of businesses, especially large industrial enterprises with complex supply chains, such as petrochemicals, industrial alcohols and plastics.

It could be the end of the 2020s before new trade terms are established, forcing companies to scramble to cope with contingencies and redraw complex supply chains.

The consequences of Brexit already include a shrinking of trade with the EU, and are likely to lead to higher costs and a redrawing of supply chains for key industries, according to a close analysis of import and export statistics from Trade Data Monitor, the world’s top source of trade data.

Britain exports to the EU decreased 7.2% to $159.9 billion in the first three quarters of 2019, while imports from the continent fell 4.6% to $268 billion over that time, according to TDM data assembled from customs agencies.

Industrial goods have been especially hard hit: UK exports of acyclic alcohols to the EU decreased 34.2%; ethylene polymers fell 15%; and total pharmaceutical shipments fell 21.8% over that time period, according to TDM data.

The issue is especially acute for companies whose supply chains span a tight network of North Sea ports and industrial hubs that include the ports of Antwerp and Rotterdam, and the Rhine/Ruhr area in Germany. The establishment of a globally powerful petrochemical hub harnessing North Sea oil, starring companies like BASF, Ineos and Solvay, is one of the great industrial victories of European integration in the past decades. And it’s what’s now been put at risk by Brexit.

Under the UK’s current agreement, it has until the end of 2020 to operate under current trade terms and negotiate a new deal. Trade negotiations are notoriously long, however, and require tricky negotiations with national lobby groups and parliaments. If the UK and EU don’t come to a new agreement, by the end of 2020, the countries will apply rates set by the World Trade Organizations.

In negotiations, trade data suggests that the EU will have the upper hand. The UK accounts for 15% of total EU exports outside the bloc, while over 40% of UK exports go to the EU. That gives EU negotiators more leverage.

Exports between UK and EU, January-September 2015-2019, Billions USD; 300, 250, 200, 150, 100, 50, 0; 2015, 2016, 2017, 2018, 2019; EU 28 External Trade (except UK) to United Kingdom; United Kingdom exports to EU 27 Brexit

However, in a recent interview, European commission president Ursula von der Leyen said she was “very worried” about how little time was available. She expressed a willingness to expand the transition period, something prime minister Boris Johnson’s government has said it would not do.

But the real issue in a post-Brexit world isn’t tariffs, which will be manageable. It’s regulations. If the cost of complying with both UK and EU regulations in a post-Brexit world becomes too high, companies are expected to reduce the number of cross-border shipments in their supply chains.

The issue for companies reconsidering their supply chains is the cost of registering chemical products with European authorities. Under so-called REACH regulations, companies must register any chemical sold into the EU. Once Britain leaves, companies will have to establish production in the EU or have their importer register the chemical.

At the same time, anything made in the UK for shipment to Europe would have to be registered with British authorities.

For example, chemical giant BASF has estimated that giving up current trade terms cold turkey would cost the petrochemical giant 75 million euros a year. BASF officials say that they’ll have to weigh the cost of registering each of the over 1,000 substances they ship to the EU with the British authorities. Registering a chemical typically costs over 50,000 euros a year. If sales are below that, it might not be worth making or selling in the UK, forcing costs up for British buyers.

Where might UK exports go instead?

With Brexit, the UK isn’t just losing easy market access to the EU. It’s also dropping out of over 50 trade deals the EU has signed with third countries. UK leaders have talked of a trade deal with the U.S., but that could muddy the waters with the EU, which has much tougher environmental standards for agriculture, chemicals and other industries.

Even without a trade deal, UK shipments to the U.S. are increasing. UK exports to the U.S. increased 9% to $59.3 billion in the first ten months of 2019. Exports of organic chemicals leapt 23% to $4.2 billion. UK exports to China, Israel, Taiwan and the Philippines also increased.

But clearly, the best market is still the EU, still the world’s richest and biggest bloc of middle and upper-class consumers. A year ago, for example, London-based Ineos said it would build a new £2.6bn petrochemical plant in the port of Antwerp. For industrial companies, the EU will always be too big to just write off.

Trade Data Monitor is the world’s premier source of trade data.

Hong Kong Feels Impact of US Trade War, Supply Chain Changes

Hong Kong, a beacon for free trade for 200 years, is catching a cold from the ill winds afflicting global trade around the world.

Much of the focus on the densely packed territory of 7.4 million this year has centred around pro-democracy protests and opponents of a plan to extradite criminal suspects to mainland China. The unrest is expected to continue into 2020, with no clear resolution in sight, although senior Beijing officials have been careful to signal that they’re not intent on harming trade. 

Hong Kong is suffering from declines in tourism, trade and economic activity. It’s expecting its first budget deficit since 2004. Financial Secretary Paul Chan has predicted a recession, saying the economy will shrink 1.3% in 2019 compared to the year before.

But an analysis of trade data suggests that a bigger problem for Hong Kong is that the US - China trade war is eroding its status as the world’s most important transhipment point. Anything made in China is tainted for U.S. buyers, trade lawyers say, forcing manufacturers to route their supply chains through alternate markets such as Vietnam, Malaysia and Taiwan.

Even after a new trade deal concluded in mid-December, the U.S. still has tariffs on over USD 350 billion of a wide range of Chinese goods, including steel, aluminium, batteries and solar panels. Beijing has retaliated with tariffs on soybeans, automobiles and aircraft parts. Relations have been improving between Washington and Beijing, but the threat of more duties always looms, forcing manufactures to look at alternative supply chains, often bypassing Hong Kong.

Well over half of Hong Kong’s exports to the US are affected by US import tariffs. Chinese exports to the U.S. are down over 10% this year. The upshot: Chinese exports to Hong Kong shrank 8.9% to $225 billion in the first ten months of 2019, according to figures from Trade Data Monitor, the world’s top source of trade statistics.

Chinese Exports to Hong Kong, January-October, Billions of Dollars; 2014, 2015, 2016, 2017, 2018, 2019; 300.0 Billion, 250.0 Billion, 200.0 Billion, 150.0 Billion, 100.0 Billion, 50.0 Billion, 0.0

Instead of going through Hong Kong, goods heading to markets in the US and Europe are instead transiting via other countries. Chinese exports to Vietnam, for example, were up 15.5% to USD 78.4 billion in the first ten months of 2019, according to TDM data. Exports to Malaysia and Taiwan were also up over 10% over that time.

For two centuries, Hong Kong has had a clear role as the place where Chinese goods go for final transformation before being shipped onwards. The United Kingdom first took over the island in 1841 and didn’t give it back to China until 1997. Over that time, Hong Kong built up one of the world’s great manufacturing bases, aided by a policy that eliminated almost all tariffs. It has few natural resources and must import almost all of what it consumes.

For decades, Hong Kong was mainland China’s bridge to the capitalist world, a place where Chinese business and political leaders could negotiate with Western companies. Now that China has its own capitalist infrastructure, it doesn’t need Hong Kong like it did in previous decades.

So what hope is there for Hong Kong?

Closer integration with China will bring some benefits. As China’s economy keeps expanding, its own consumers will buy more from Hong Kong. They’re already buying more from the island. In the first ten months of 2019, Chinese imports from Hong Kong increased 17.8% to USD 7.3 billion.

And lately, Hong Kong has been making its own way in the global trading system. It now has separate free-trade agreements with mainland China, New Zealand, Australia, the European Union’s free trade area, Chile, Macao, Georgia, the Maldives, and the Association of Southeast Asia Nations, or ASEAN.

China Chases Trade Growth in Eastern Europe and the Balkans

China and Europe have long been twin pillars of global trade. Renaissance London, Bruges and Rome imported porcelain, silk and tea. The original Silk Road connecting ancient China and South Eastern Europe and the Middle East dates to before Christ.

Beijing’s ongoing struggles to forge fresh terms of trade with a more protectionist US administration have overshadowed its relationship with the EU – still the world’s largest economic bloc – and its neighbours. 

Chinese development in the 21st century has focused mostly on shipping and selling to well-off consumers in France, Germany, and other Western European nations. But the fastest-growing segment of trade with Europe has been with Poland, Slovakia and other members of the former Soviet bloc. Market reforms in the 1990s and 2000s have sparked robust economic growth in those countries.

With the promise of further growth in mind, in 2012, China launched the so-called 16+1 initiative, or China-CEEC (Central and Eastern European Countries) summit, as a principal way of growing its Belt and Road Initiative, a modern Silk Road aimed at boosting global economic integration. 

The deal established regular meetings between Beijing, 11 EU members, and five Balkan nations. What made these markets so exciting for Chinese trade officials is that they’ve been increasing in size and value from a low baseline, meaning there’s plenty more room for growth. The then premier, Wen Jiabao, announced the launch of a USD 10 billion credit line.

The total list of countries included in the deal includes Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia. Greece, geographically close, was later added to the mix, making it the 17+1 and offering China an opportunity for multilateralism, as well as a solid forum to organize bilateral deals.

Since 2012, China has invested USD 15.4 billion in ports, roads and other infrastructure. It’s helped build a highway in Serbia, reinforced rail links with Europe, and bought a Polish engineering company. “Since 2012, 70 percent of announced deals have been in non-EU member states even though they make up only 5 of the 16 participants and only 6 percent of the group’s collective GDP,” the Centre for Strategic and International Studies wrote recently.

Imports into those countries from China increased to USD 90.1 billion in 2018 from USD 12.4 billion in 2008, according to Trade Data Monitor, the world’s top source of trade data. In 2018, the biggest importer of Chinese goods in that group was Poland (USD 31.2 billion), followed by the Czech Republic (USD 25.3 billion), and Hungary (USD 7.6 billion). Eastern Europe’s imports have included a mix of consumer and industrial goods. Poland’s top category of imports is electrical equipment, such as telephone line gear, followed by circuit boards and other computer equipment, and then toys and clothes.

To be sure, the initiative has come with some hiccups.  

There have been delays. Although China has completed projects in Serbia, in Romania, for example, the construction of proposed new power plants is behind schedule because of complicated negotiations between the Romanian government and Chinese construction firms. For Brussels, the arrangement has been perceived as something of a threat to EU oversight. In 2016, the European Commission demanded that any treaty signed with the group be “in line with EU law, rules and policies, and that the overall outcome is beneficial for the EU as a whole”, a stance repeated by the European Parliament in 2018. Growth in Eastern European exports to China have lagged behind increase in imports. Exports rose to USD 12.8 billion in 2018, from USD 9.5 billion in 2012.

But there’s no denying the potential of a market of such size and fast-growing consumer income. And success can’t only be measured in business terms. In the five years after 2012, the number of Chinese tourists to the 16+1 region increased to 930,000 from 280,000.

China - Eastern Europe - Balkans Total Trade, Billions of Dollars; 120, 100, 80, 60, 40, 20, 0; 2013, 2014, 2015, 2016, 2017, 2018; Source: Trade Data Monitor

John W. Miller is an award-winning journalist and filmmaker who covered trade, mining and global economics as a foreign correspondent for the Wall Street Journal. 
 
Trade Data Monitor (This email address is being protected from spambots. You need JavaScript enabled to view it.) is a Geneva, Switzerland and Charleston, USA based supplier of import and export statistics from 111 countries.