China’s exports to the US are set to fall this year for the first time since the height of the global financial crisis.
The figures come ahead of the inauguration as US president of Donald Trump, who has threatened to impose tariffs of up to 45 per cent on imports from China, a country he considers a “currency manipulator”, suggesting that China’s exports to the US could decline still further in the coming years.
This year’s decline marks a sharp turnround from the period between 2010 and 2015, when Chinese exports to the US rose at a compound annualised growth rate of 5.6 per cent, according to StanChart, outstripping nominal US gross domestic product growth of 3.7 per cent a year.
Although the renminbi has fallen 5.9 per cent against the dollar so far this year, Thomas Costerg, senior US economist at StanChart, does not believe it was a factor in the declining dollar value of China’s exports to the US, arguing that these exports tended to be priced in greenbacks, not redbacks.
Instead, he says a decline in exports of electronic goods was the “main culprit” behind the overall fall in trade.
Exports of Chinese mobile phones, tablets, laptops and related accessories to the US have fallen in value by 4.8 per cent this year. These categories accounted for 28 per cent of China’s total merchandise exports to the US in 2015, worth some $132bn, giving China a 40.8 per cent market share for such products, according to analysis by Mizuho Securities Asia.
This year’s fall appears to be driven by a declining American appetite for new electronic gadgets, with imports of mobile phones (from all countries) falling 4.9 per cent in unit terms in the first 10 months of the year, to 176m, according to figures from the US Department of Commerce and US International Trade Commission.
“We have seen a drop in phone sales recently in the US,” says Mr Costerg, who speculates this is linked to the product cycle, with few “must-buy” gadgets being launched.
“We have seen a huge increase in demand for phones, which seems to be coming to an end. It’s unlikely to accelerate [again]. I think the US market is saturated in terms of phones and tablets,” he adds, arguing that a recovery in US electronics imports may be reliant on a new mass-market product emerging, with drones one possibility cited by some commentators.
The decline in Chinese exports to the US has been far more pronounced in areas such as clothing and footwear, however.
Chinese footwear sales to the US have slumped 14.4 per cent year to date in 2016 (compared with January-October 2015), from $14.9bn to $12.7bn, far outstripping the 7 per cent decline in American boot and shoe imports in general.
As of 2015, China accounted for 62.5 per cent of US footwear imports, but its market share is being rapidly eroded by Vietnam, which has enjoyed a 12.4 per rise in YTD exports to $4.1bn in the 10 months to October, as the second chart illustrates. Third-placed Indonesia has retained its sales at $1.1bn in a declining market
A similar story is unfolding for apparel and clothing accessories, where China’s exports to the US are down 9 per cent to $27bn year to date, again a bigger fall than the 5.7 per cent decline in the overall market.
Here, too, China’s market share, some 36.4 per cent in 2015, is being eroded by Vietnam, which has seen a 2.3 per cent rise in exports year to date to $9.2bn, as well as Bangladesh, Indonesia and India, as the third chart indicates.
“It does surprise me that clothing and footwear are struggling. [Chinese exports] have been weak for the past two to three years, but they seem to be falling more quickly [now], and that’s not just the exchange rate,” says Mr Costerg.
He believes this is a long-term structural shift, with heightened competition from Vietnam and other low-wage Asian economies increasingly meaning Chinese goods are “crowded out”.
China has also been attempting to move up the value chain as part of its government’s strategy to lessen the country’s reliance on low value-added exports.
This may also be behind weakness in Chinese toy exports to the US, which have fallen 2.2 per cent year on year, according to StanChart. The Middle Kingdom accounted for 82.4 per cent of America’s toy imports in 2015, worth some $25.7bn, according to Mizuho.
However Gareth Leather, senior Asia economist at Capital Economics, believes China’s exports to the US will bounce back in dollar terms in the coming months.
He argues that the price of many finished goods has fallen in the past couple of years because weak commodity prices have lowered the cost of raw materials, such as steel.
But with most commodity prices now markedly above the lows they plummeted to early this year, “the dollar value [of Chinese exported goods] is going to rebound over the next few months as the base effect from falling commodity prices falls out,” Mr Leather says.
As for the longer-term outlook, he argues that Chinese exports to the US are likely to be bolstered by stronger US economic growth if Mr Trump pursues the expansionary fiscal policy he outlined on the campaign trail, suggesting that the president-elect may turn out be good news for China’s exporters, rather than bad.
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