China’s trade surplus with the US
China’s trade surplus with the US (SPY) has been hitting one record after another. In November, China’s (MCHI) trade surplus rose to $35.6 billion, which is a new record. While China’s exports to the US rose 9.8% YoY (year-over-year), the imports fell 25% YoY. For the first 11 months of 2018, China’s trade surplus rose ~17%—compared to the same period last year.
The increasing trade surplus has been happening despite the US (DIA) imposing three rounds of tariffs on Chinese imports. The tariffs cover $250 billion worth of imports.
However, investors should note that some of the export growth could be a result of front-loading exports due to tariff hikes. Since the markets (VTI) continue to expect an additional tariff rate hike to 25% from the current 10% on $200 billion worth of Chinese goods, some more front-loading could happen in the next few months.
Trade balance and truce
The lopsided trade balance was one of the first key points of contention. As a result, President Trump started levying tariffs on Chinese (FXI) products. On December 3, President Trump and President Jinping met on the sidelines of the G20 summit in Argentina. After the trade talks, the countries announced a 90-day truce on raising tariffs on Chinese products. While the markets rejoiced, there are uncertainties about whether anything concrete will come out of the truce.
President Trump’s reaction
Since reducing trade imbalances was part of President Trump’s key agenda, the current deficit with China might not please him. President Trump’s other barometer to benchmark his success has been the stock markets’ performance, which has also been failing lately. After the tariff truce, President Trump said that China will start to buy some goods immediately. China hasn’t confirmed the news. For the US (IVV), the rising trade deficit could prompt President Trump to increase his attacks on Twitter.