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Greetings again from Singapore, where it has been disappointing – and more than a little scary – to see the certainties that underpin my international existence being revealed rather than being the fragile assumptions swept away by the global coronavirus pandemic.
For 28 years after my university degree, I moved from Boston to Hong Kong to Guangzhou, back to Hong Kong, then to London and Beijing. It never occurred to me that, in circumstances other than war, travel between these major cities could be outright prohibited or made impossible because of increasingly stringent travel regulations. quarantine.
It was of course international trade – containerized shipping, air cargo, China’s entry into the World Trade Organization – that gave birth to the global economy that supports “nowhere citizens” like me. But even the free movement of goods is now in doubt, as evidenced by the recent collapse of Chinese exports in January and February, which is the subject of today’s publication. Our chart of the day examines the decline in exports from Florida to China as the U.S. Democratic primary vote in the state continues today, while our political watch considers the speed with which the U.S.-China trade war that broke out dominated last year’s agenda was overshadowed by the coronavirus crisis.
A drop of only 17%?
On March 7, the China Customs Administration announced that exports from January to February had dropped 17.2% compared to the same period last year, which is more than the drop of 14%. predicted by 25 economists polled by Reuters.
The release was the first concrete evidence of the economic impact of the coronavirus, which left central Hubei province in mid-January. Due to the distortions resulting from the annual Chinese New Year holidays, which may fall in January or February, meaningful year-over-year comparisons of data must wait until the figures for the first two months are available at the start and at mid-March.
But while the double-digit fall generated alarmist headlines, my reaction was the opposite: “Only a drop of 17%?” In most years, the Chinese export sector is fully operational in January-February for, say, six weeks and remains inactive for two. This year, however, there may have been three weeks of normalcy – four peaks – before the scale of the problem in Hubei became clear on January 20 when general quarantines were applied in the 60 million province. inhabitants.
“The [trade impact] coronavirus should be more than the January to February combined number suggests, “said Larry Hu, chief economist of China at Macquarie. Hu believes that exporters could have drained their stocks to maintain deliveries even if they waited in vain for their labor to return in February.
Kent Kedl, of Control Risks in Shanghai, points out the possible “interaction” between Chinese exports from January-February and the US-China trade war, which was temporarily suspended after the signing of a “phase” agreement. un ”on January 15. As had happened many times during the 18-month consecutive negotiations between the two countries, it was just as likely that the interim agreement would collapse, so traders were well prepared for the worst.
“To reduce supply chain risk, some buyers stocked up before the first phase was signed, just in case things collapsed at the last minute and prices went up,” said Kedl. “It may have mitigated the effects of [the coronavirus] on China’s supply chain. “
Chen Long to the Beijing Plenum council suggests another possible explanation. Many export products were “already in the ports and were released in January”.
Ultimately, why Chinese exports fell only 17% year-on-year over the January-February period – rather than 25 or even 50% – may be a theoretical question given the problems that could still arise for exporters in the second world economy.
Chinese statisticians have tried to temper the terrible January-February trade and other economic data with assurances that the coup will prove “short-term and manageable”.
For the Chinese authorities, to say less would tarnish the infallible direction of President Xi Jinping’s “wartime”. However, we are all free to point out the obvious. The biggest export from China in recent times has been the coronavirus, and its economic effects are only beginning to be felt. The 17% drop in exports to date could turn out to be a ceiling rather than a floor.
In January and February, the coronavirus caused a supply-side shock in China. But there was no real change in foreign demand for Chinese products during this period.
It is only now, when the number of coronavirus cases in China is reaching a plateau and those in Europe and the United States are accelerating exponentially, that the supply shock becomes a shock of the demand that may well overshadow the one that hit China’s largest export markets in 2008 and 2009. So even if Chinese exporters are largely back at the end of this month – a big one – that will buy their goods with more countries in Europe, and more cities and states in the United States, using measures of “social distancing” which will paralyze their economies for months, if not for the rest of the year?
While the primary Democratic vote in Ohio was canceled today, the vote in Florida, Illinois and Arizona is expected to continue. Florida exports were hit hard by the trade war with China, down 34.4% in 2019, driven by a collapse in exports of copper and aluminum scrap.
Speaking of the “phase one” agreement that was signed in the White House with such fanfare on January 15, isn’t it strange that we all thought it was a big problem at the time?
We didn’t know that four days later, the Chinese Communist Party would finally recognize what it had spent weeks denying – a disease similar to pneumonia was actually spreading quickly in Hubei Province through human-to-human transmission. The rest, as they say, is history.
January-February data from China suggest that the outcome sought by US President Donald Trump – a new era of managed zero-sum trade – was beginning to take shape before all assumptions about this year were wiped out by the pandemic of coronavirus. While Chinese imports from the United States increased slightly (up 2.5% year on year), imports from the EU and Japan decreased by 11.4% and 9.3 respectively %.
In any event, it is clear that the phase 1 trade agreement that preoccupied us so much last year is no longer the engine of world trade.
It is currently hard to imagine Deputy Prime Minister Liu He leading a Chinese trade delegation to Washington for “phase two” talks later this year in the current political climate infected with coronaviruses, or the president. Xi himself arriving in the US capital for his long-standing late state visit after Trump’s trip to Beijing in November 2017. The coronavirus has changed everything; world trade is only the smallest.
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