China's Trade Strategy: Averting Tariffs with Global Market Surge

Strategic Insights -

China's trade surplus widened to $785.8 billion through August, driven by a surge in exports to regions outside the United States, despite a sharp 15% drop in exports to America. Beijing's strategy involves cultivating economic ties and infrastructure in the developing world, allowing it to redirect trade away from the US and maintain economic growth.

Key Takeaways:

  • China's trade surplus with the world is on track to exceed $1 trillion, with exports exceeding imports by a scale seldom seen except during the two world wars.
  • China's export surplus with countries in Southeast Asia, Africa, Latin America, and Europe has climbed rapidly, driven by sales of electric vehicles and solar panels.
  • China has managed to avert up to 145% tariffs threatened by President Trump, but goods from Chinese manufacturers are still subject to a minimum tax of 30% in addition to other duties.
  • China has invested in building infrastructure across the developing world for over a decade, establishing economic ties and exerting influence in regions crucial to its trade strategy.
  • China's export surge is masking weakness in other parts of its economy, including a persistent real estate downturn, lower consumer spending, and high joblessness among young people.
  • China is dealing with a stubborn deflationary spiral, spurred by overproduction in key industries and price wars.
  • Policymakers have taken steps to shore up the domestic economy, but results are mixed, raising pressure to cave to US demands.
  • China's ability to tightly control the media and the internet has allowed it to prevent unfettered conversation about the toll inflicted by the trade war.

Statistics:

  • China's trade surplus widened to $785.8 billion through August, a 28% increase from $612.6 billion in the same period last year.
  • China's exports to the US are down about 15% so far this year.
  • China's trade surplus with countries across Southeast Asia, Africa, Latin America, and Europe has climbed rapidly, with a significant increase in sales of electric vehicles and solar panels.
  • China produces about 80% of the world's rare earth magnets and refines almost 100% of the critical minerals that make the magnets more resistant to heat.
  • China buys roughly 60% of the world's soybeans, making it an essential customer for America's soybean farmers.

Sources:

  • This article appeared in print on page B4 in The New York Times.
  • "Rare earths: China agrees to resume shipments to US" (The New York Times, June 2022).
  • "China's rare earth monopoly" (The Financial Times, April 2022).