From the President's Desk

The China Trade War

By Alan Beaulieu on October 24, 2019

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Alan Beaulieu

With a reputation as an accurate, straightforward economist, Alan Beaulieu has been delivering award-winning workshops and economic analysis seminars across the world to thousands of business executives for the last 30 years.

The US and China engaged in another round of trade talks that produced little in the way of ending the trade war. The US claimed there was a Phase I deal in place; the Chinese said there was no deal and more talks were necessary. Some US manufacturers and exporters of US goods to China are feeling pain from this trade war, but as a nation, China is feeling more pain in it. China’s pain can be easily seen in the industrial sector and in exports, and early indications of ongoing problems in China’s economy can be gleaned via a close look at retail sales of consumer goods.

There is pain in the industrial sector of China's economy. Industrial Production in China has slowed to 5.6% on a 12-month year-over-year basis (12/12), the slowest rate of growth in over 22 years. We expect the 12/12 rate-of-change to continue lower in Phase C, Slowing Growth. Automobile Production for the last 12 months came in 13.9% below last year at this time, with August posting a tentative rise off a July record low. The Auto Production 12MMT is the lowest in three years, with more decline indicated as we head into 2020. Profits in China are also showing the strain. Industrial Profits for the last 12 months are 12.8% below this time last year, and they have sunk to the lowest level in over six years. Automobile Production Profits are a steeper 22.1% below this time last year (12/12 basis), with the 12MMT at the lowest level in over five years. Expect the difficulties to extend into 2020.

Exports from China are also feeling the impact of tariffs and decreasing global demand. China’s Exports of Manufactured Goods to the world are at record-high levels, but the rate of rise is decelerating and the last quarter came in a slim 0.2% above this time last year. In addition, the 2019 seasonal rise is milder than normal, highlighting the weakness in this segment of the Chinese economy. China’s Exports to the US continue to decline while our Exports to China have increased. China’s Exports to the US are 6.5% below this time last year, and the 12MMT, at $496.4 billion, is declining off a November 2018 record high. US Exports to China are 20.1% below the year-ago level, but the 12MMT, at $106.8 billion, notched higher in August off a tentative July 2019 seven-year low.  

Retail Sales in China are a solid 6.5% ahead of this time last year (12/12), likely in response to aggressive stimulus, but the 3/12 is edging lower off a July peak. Ongoing 3/12 decline will signal that Retail Sales are moving into a period of slowing growth and that a significant part of the economy is feeling the ill effects of the global situation. Thus far, the consumer base has been able to ignore the global dynamics, but it appears that may no longer be possible.

Expect China’s economy to slow further as we move through at least the first half of 2020.

There may be another shift developing but it is only seen anecdotally. There may be an anti-American bias in play. Two recent examples highlight the situation. One involves a US firm with a global manufacturing footprint. They recently had a large order cancelled for apparently non-tariff reasons. Another involves a US firm that ships equipment into China and maintains that equipment via technicians in China. Previously treated no differently than other specialists, these technicians are now finding themselves waiting for hours in the lobby before they can access the equipment.

We do not appear to be on the brink of resolving these trade issues, and China will continue to feel the pain. However, we will feel some in the US as well. China appears perfectly willing to continue experiencing pain if it helps them with the long game.


Alan Beaulieu

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