China’s June exports rose 8.6% year-on-year in US dollar terms and 10.7% in RMB, exceeding analysts’ expectations and pointing to higher-than-expected GDP growth for the second quarter.
Shipments to Central Asia showed the biggest increase, reflecting China’s buildout of transport and other infrastructure through the Belt and Road Initiative.
Exports to Azerbaijan, Armenia, Kazakhstan and Kirgizstan rose year-on-year by more than 30%, as China expands rail and other transport facilities across the Eurasian continent. Some of the total may reflect indirect exports to Russia.
But exports were strong across the board, with especially strong performance in Taiwan, Indonesia, Vietnam and the Philippines. Exports to Brazil and Mexico, China’s two largest Latin American markets, rose by 17%.
During the past four years, China has doubled its exports to the Global South while exports to developed markets have risen marginally.
Part of China’s export growth to the Global South, though, consists of capital goods and components to manufacture for final sales in the United States.
China’s exports to the Global South rose from about US$60 billion a month to $140 billion a month. At the same time, US imports from the Global South rose from about $60 billion a month to about $90 billion a month.
Roughly $30 billion per month of China’s incremental $80 billion per month of exports to the Global South depends on US demand. Although America’s 25% tariff on most Chinese imports cut deeply into direct exports from China to the US, America is all the more dependent on Chinese supply chains via third countries.
Direct exports from China to the US jumped by 7.5% year-on-year, although the level remains well below the Covid peak.
America’s trade deficit in goods now stands at a record US$1.2 trillion per year, compared to $800 billion a year before Covid. The Biden administration stoked demand for consumer goods by increasing transfer payments to US citizens, while capital investment in manufacturing equipment in domestic US plants fell in real terms.
After inflation, nondefense orders for capital equipment (excluding aircraft) fell to $35 billion (in constant 1982 dollars) a month in 2024 from $38 billion in 2019, following a long-term trend of decline.
The excess demand created by Biden’s fiscal policy elicited a flood of imports, directly or indirectly from China.
That leaves America in a dilemma. Higher tariffs to discourage Chinese imports, as some advisers to former president Trump have proposed, would increase prices for American consumers.
And an across-the-board tariff favored by some prominent figures in the Trump campaign would raise the cost of capital goods, discouraging investment, and making America even more dependent on imports.
Follow David P Goldman on X at @davidpgoldman