China September Trade Data: Trump’s Tariffs Are Hurting

  • Today, China released its September trade data. China’s September exports and imports were weaker than expected. Notably, President Trump’s tariffs have hit China’s exports. The weakener domestic economy is also impacting China’s imports.
  • Trade deal optimism lifted US stock markets on October 11. Apple, Microsoft, Alibaba, and JD.com closed with gains. The iShares China Large-Cap ETF also gained 1.4%.

China September trade data

China, the world’s second-largest economy, released its September trade data today. Notably, China is among the most followed economic indicators. Chinese export data tells us about the global economy’s health. Similarly, China’s import data provide insights into its domestic economy. Over the last year, China’s trade data has received even more attention due to its trade war with the US.

China’s slowdown

China’s September export and import trade data were worse than expected. In US dollar terms, China’s September exports fell 3.2% YoY (year-over-year), while its imports fell 8.5% during this period. China’s September trade data were worse than August. In August, Chinese exports fell 1.0% YoY, while imports fell 5.6%.

Notably, Chinese imports have been especially soft this year. The country’s imports have fallen YoY in eight out of nine months as of September. Chinese imports rose on a yearly basis in April. Tepid imports point to a slowing Chinese economy. China’s economic growth fell to multiyear lows in the second quarter. Looking at the available data points, China’s slowdown deepened more in the third quarter.

Trump’s tariffs and China September trade data

President Trump’s tariffs impact China’s exports sector. Reuters reported that in the first nine months of 2019, China’s exports to the US fell 10.7% YoY. That said, US exports to China have fallen too. In the first nine months of 2019, US exports to China fell 26.4% compared to the same period in 2018. While the percentage decline is higher for US exports to China, we should see it in the context of the massive trade imbalance between the two countries. The US trade deficit with China improved despite fewer US exports to China. In September, the US-China trade deficit was $25.88 billion compared to $26.96 billion in August.

Trump’s tariffs and US companies

President Trump’s tariffs impact China, which was reflected in the country’s September trade data. Several US companies including Apple (AAPL) and Microsoft (MSFT) want to diversify their purchases from China. However, it isn’t a win-win situation for the US either. Surveys have shown that trade uncertainty is taking a toll on some US economic sectors including the employment sector. Also, not every US company leaving or diversifying its supply lines from China will bring operations back to the US.

Mini trade deal

On October 11, reports of a mini trade deal between the US and China lifted US equity markets. President Trump tweeted, “We will finish out the large Phase One part of the deal, then head directly into Phase Two. The Phase One Deal can be finalized & signed soon!” The US won’t go ahead with the tariff hike that was scheduled on October 15. However, there wasn’t any clarity on the upcoming December tariff hikes. Optimism about the US-China trade talks lifted US equity markets on October 11. Apple and Microsoft gained 2.7% and 0.42%, respectively. Among Chinese stocks, Alibaba (BABA) and JD.com (JD) gained 4.1% and 3.9%, respectively. The iShares China Large-Cap ETF (FXI) rose 1.4% on October 11. FXI has risen 6.8% for the year. Previously, reports that the US would curb investments in Chinese stocks fueled a crash in Chinese stocks like Alibaba and JD.com.

Meanwhile, after the first phase of the US-China trade deal, markets will focus on more contentious issues. Similar issues acted as deal-breakers in previous talks. We might see more flexibility since the US and Chinese economies are slowing down. As China’s September trade data shows, both countries have enough incentives to agree to a trade deal.