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.

Trade Data Tells the True Story of China’s Massive Trading Network

The trade war between Washington and Beijing has cast a spotlight on China’s export juggernaut, a result of one of the most remarkable economic transformations in recorded history. 

Under the administration of President Trump, the US has imposed, or plans to impose, tariffs on nearly all Chinese imports into the country – worth USD 539.7 billion in 2018 and accounting for 21.6% of all US imports.

The protectionist argument underlying these duties is that Chinese imports have destroyed the US manufacturing base by flooding the country with low-cost imports. Keep Chinese goods out, the argument goes, and factories will once again be humming with activity from Pittsburgh to Peoria. 

The debate over trade carries high stakes for politicians, corporations and workers. Smart trade policy can create millions of new jobs and raise standards of living. At the same time, free trade comes with a cost, as uncompetitive factories shut their doors, a fact that workers in rural China and the US have painfully discovered. Getting it wrong would be a catastrophe. Runaway tariffs fostered the first Great Depression in the 1930s and could trigger a second one, say analysts.

Finding the right balance is tricky—and essential. As policymakers and political leaders sort out the best approach, it’s essential to keep a close eye on the data, which tells a story unvarnished by opinion. 

“The narrative that China has gotten rich just by exporting to the US is incomplete,” says Don Brasher, president of Trade Data Monitor. “China has built markets all over the world.” The breadth of Chinese exports is one of the biggest lessons to draw from the data. In 2018, 117 countries imported at least a billion dollars’ worth of Chinese exports, and 38 nations imported at least USD 10 billion worth of Chinese goods, according to TDM data.

The first essential fact to draw from the numbers is the unprecedented scale and size of the Chinese export machine. 

In 2000, China was the world’s sixth largest exporter of goods, shipping out USD 249.2 billion worth of goods, according to Trade Data Monitor (TDM), the world’s top source of trade data. By 2018, it led the world with almost USD 2.5 trillion worth of exports, a feat rivaling the economic empires of imperial Britain and the post-World War II US. Of those exports, roughly 19% went to the US, with Japan, South Korea, Vietnam, Germany and India rounding out the list of biggest importers of Chinese goods. 

Chinese Exports, Billions of Dollars; 3000 Billion, 2500 Billion, 2000 Billion, 1500 Billion, 1000 Billion, 500 Billion, 0 Billion; 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018
That trend is likely to continue as China pursues its Belt and Road Initiative by funding more ports, rail lines and roads, an initiative that includes over 65 countries, four billion people, and over USD 20 trillion in gross domestic product. 

Another key to understanding the numbers is to look back farther than China’s joining the World Trade Organization in 2001, which politicians and analysts often focus on. Outsiders often neglect to consider the long arc of a country that boasts the second oldest continuous civilization in human history, trailing only ancient Egypt. 

China started its current wave of economic modernization in the 1980s, a few years after the death of Mao Zedong in 1976, almost immediately triggering annual GDP growth rates over 10%, fueled initially by the rapid growth of the textile industry in Hebei, Hunan, Jiangsu and Shandong. 

By the 1990s, China had become an important player in global trade talks and was looking to make deals. It found a willing customer in Washington, where the government was lobbied intensively by corporations chasing higher profit margins. It was US business interests, like Walmart, Nike and Apple, who pushed for the passing of the Uruguay Round of trade talks, concluding in 1994, and for China’s accession to the WTO in 2001. These consumer goods companies, typically owned by US and European shareholders, pursued a strategy of making their wares in China and exporting them to markets all over the world.

In the years following China’s accession to the WTO, roughly half of all its exports came from foreign-controlled companies and they penetrated markets all over the world. In Japan, for example, Chinese imports increased to 20% in 2006 from 16.5% in 2001, according to TDM data. In Australia, they increased to 14% from 9%. In the US, imports rose to 16% from 10%. 

China Exports by Region, January-August, 2019; Source: Trade Data Monitor; Asia (not ASEAN), NAFTA, Europe, ASEAN, North Africa & Middle East, South America & Caribbean, Former Soviet Union, Sub-Saharan Africa, Australia & New Zealand

That growth has leveled off, but China’s rise is a reminder that, in a world with multiple economic superpowers, cooperation in global trade is more important than ever.

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 and Charleston, SC based supplier of import and export statistics from 111 countries.


Chinese Fertilizer Exports Boosted by Population Boom

The world’s population has more than tripled since 1950, to almost eight billion. By 2050, it’s expected to reach 9.7 billion. All those people need to eat, and farms must keep fueling higher yields. That’s heated up global trade in the stuff that helps plants grow — fertilizers.
By improving soil nutrition, fertilizers boost yields of key crops like wheat, corn, sugar and soybeans.
This global USD 160 billion market is expanding at 4% a year and is especially robust in Asia, which accounts for roughly half of global demand. 
The fastest-growing fertilizer exporter is China, according to an analysis by Geneva-based Trade Data Monitor (TDM). In the first six months of 2019, Chinese fertilizer exports increased 31% year-on-year to USD 3.4 billion. China has now leapfrogged Canada and is second in the world in fertilizer exports, behind only gas-rich Russia. 

Top Fertilizer Exporters, January-June 2019; Russia $3880.14 million, China $3439.47 million, Canada $3229.61 million, EU 28 External Trade $2282.64 million, United States $2254.2 million; Source: Trade Data Monitor  
The biggest buyers of fertilizers are farming powers. The world’s top importers are the US, Brazil, India, China and Australia, according to TDM data. Brazil ramped up imports 32% in the first six months of 2019, to USD 4.8 billion. Its main sources were Russia, Canada, the US and China. Recently elected president Jair Bolsonaro has been loosening restrictions on deforestation to benefit massive fertilizer-hungry soybean and sugar cane farms.
A quick refresher on where fertilizers come from: They can be made of nitrogen derived from natural gas, or out of potash or phosphate rock mined out of the ground. Nitrogen fertilizers can also come from manure, garbage and sewage. In Jamaica, bat guano is even used to produce nitrogen-based plant food.
Big natural gas producers like the US, Russia, Belarus and Qatar have become top producers and exporters of fertilizers, as have mining powers like Canada, Indonesia, and China, which is the world’s top phosphate producer. In Canada, potash is mined thousands of feet below the earth’s surface, out of sediment left behind hundreds of millions of years ago by the evaporation of gigantic lakes. 
China’s top customers are India, Australia, Brazil, Indonesia and Vietnam. The world’s top importer is the US, but it buys mainly from Canada and Russia. 

Top Markets, Fertilizers From China, January-July 2019; India $839.42 million, Brazil $398.38 million, Australia $351.18 million, Indonesia $252.98 million, Vietnam $207.59 million, Japan $194.13 million, Thailand $185.98 million, Myanmar $178.14 million, Iran $157.21 million, South Korea $145.2 million; Source: Trade Data Monitor  
Fertilizers, a complex agricultural chemical product, are one of the ways that Chinese industrial companies have been developing higher-margin commodities, in the same way its economy has moved from making toys to computers.
Exporting higher-value products and diversifying exports are key goals of China’s Belt and Road Initiative, Beijing’s attempt to consolidate its trading power by funding more ports, rail lines and roads. Billed as a 21st century Silk Road, the initiative includes more than 65 countries, four billion people, and USD 20 trillion in gross domestic product. 
Not only is China a top producer of phosphate, it has also invested heavily in final commercial fertilizers, ready to sell to farms. These are made from a mix of nitrogen, phosphates and potassium, much of it imported as part of global supply chains. Farms then use high-tech machines to apply these fertilizers as solids, gasses or liquids. This is where Beijing has been carving out a niche. It’s now the world’s number one exporter of mineral or chemical fertilizers with two of the three fertilizer elements.
To be sure, the agricultural-industrial complex and the fertilizer firms that nourish it face challenges from environmental regulators, as well as food trends that are moving people toward healthier organic options. In addition, changes in diets mean that the world’s per capita demand for food is stagnating, according to the Rome-based Food and Agricultural Organization. And it’s a tough industry to consolidate, with thousands of producers around the world and relatively high shipping costs. 
Still, the quest to improve agricultural yields with plant nutrition is not going away. And it’s not just traditional crops for human consumption. The plant-based meat and ethanol fuel industries are also boosting demand for fertilizers.
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 and Charleston, SC based supplier of import and export statistics from 111 countries.