China's Exports Defy Trump's Trade War, Slowing Pace Ahead

Strategic Insights -

China's July trade data is due to be released this week, with economists expecting a 5 per cent year-on-year increase in exports and a bumper monthly trade surplus of $103.4 billion. The strength of China's exports, despite declining shipments to the US under Trump's tariffs, highlights the adaptability of global supply chains. However, there are signs that the pace of export growth could slow as new export orders and domestic demand decline. Analysts are warning that the risk of a downturn is increasing, with the absence of additional policy stimulus making it more likely.

Key Takeaways:

  • China's exports are expected to rise by 5 per cent year-on-year in July, driven by a consistent decline in factory gate prices.
  • The country's trade surplus is set to continue, with Goldman Sachs forecasting an annual trade surplus equal to 4.9 per cent of GDP in 2024.
  • Despite declining shipments to the US, China's trade deficit with the US has fallen sharply under Trump's 30 per cent tariffs.
  • The resilience of Chinese exports is attributed to the flexibility of global supply chains, allowing Chinese businesses to reroute trade.
  • Analysts are warning that the rate of export growth could slow due to declining new export orders and weak domestic demand.
  • The Bank of England is expected to cut interest rates on Thursday, with swaps markets suggesting a 85 per cent probability of a quarter-point cut.
  • The Monetary Policy Committee is likely to stick to its current guidance of a "gradual and careful" approach to cutting rates.
  • Michael Saunders, a former MPC member, warns that "monetary policy remains quite tight" and "trade policy uncertainty remains high, deterring investment and hiring".
  • US stocks are experiencing a mixed week, with the jobs data impacting the dollar and stocks.
  • Tech companies, such as Microsoft, are experiencing strong earnings and market valuations, although analysts warn that ongoing trade tensions could impact growth.
  • Analysts at UBS Global Wealth Management expect global tech earnings to grow 15 per cent this year.

Statistics:

  • China's exports are expected to rise by 5 per cent year-on-year in July.
  • The country's trade surplus is set to be $103.4 billion in July.
  • Goldman Sachs forecasts an annual trade surplus equal to 4.9 per cent of GDP in 2024.
  • China's trade deficit with the US has fallen sharply under Trump's 30 per cent tariffs.
  • Factory gate prices have been falling since October 2022.
  • New export orders have declined in the recent Purchasing Managers' indices.
  • The Monetary Policy Committee has a 85 per cent probability of a quarter-point interest rate cut on Thursday.
  • The benchmark interest rate is expected to be 4 per cent on Thursday.

Sources:

  • Goldman Sachs
  • BofA Global Research
  • Caixin media group
  • China's statistics office
  • UBS Global Wealth Management
  • Swaps markets
  • Bank of England
  • Oxford Economics
  • Reuters