Chinese exports witnessed the biggest fall in three years in the month of February. The exports plunged by 20.7 percent in comparison to February last year. The news of the exports fall has taken a heavy toll on stock markets which plunged sharply. The fall in exports is substantially greater than 4.8 percent drop estimated in Reuters poll of economists. The imports of the country also fell by 5.2 percent. The high tariff by the American government is the major reason behind the sharp fall in Chinese exports. “Tariffs are weighing on shipments to the US,”said Julian Evans-Pritchard, Senior China Economist at Capital Economics.
The Chinese economy is heavily dependent on exports, and with countries across the world imposing high tariffs on imports, the global trade war is bound to hurt China. Donald Trump has vowed to balance the trade relations between two countries, which he claims are significantly skewed in the favor of China.
The US has a trade deficit of almost 700 billion dollars of which China accounts for almost half. Imposing import tariffs will help with re-balancing the trade relations of the US with countries like China, Japan, Germany, Mexico etc. Trump is vehemently opposed to the current trade relations between America and China because they are heavily skewed in favor of China. In 2016, China was the largest goods trading partner with $578.2 billion in total (two way) goods trade during 2016. Goods exports totaled $115.6 billion; Goods imports totaled $462.6 billion. The U.S. goods trade deficit with China was $347.0 billion in 2016. Trump was opposed to the fact that the Asian economy deliberately keeps the value of its currency low, therefore, making its exports more competitive in the international market. The American manufacturers were losing to Chinese because the labor was cheap there, and goods produced in America have become noncompetitive.
Washington slapped a tariff of 25 percent on Chinese imports worth 50 billion to which China retaliated by imposing a 25 percent tariff on $50 billion worth of US goods. Trump reacted to this and asked his trade representative Robert Lighthizer to prepare a list of $200 billion worth goods imported from China on which tariff of 10 percent was imposed. The major problem for China is that its economy is investment and export driven. Private investment accounts for about 60 per cent of overall investment in China and it is going down exponentially. As trade war escalates and export comes down, both pillars of economy will shake.
The trade war between US and china has hurt the exports and imports of China. The American economy could withstand with Chinese tariff but Chinese economy which is dependent on exports is not as much resilient to trade war. The Chinese economy will slow down by almost 1 percent due to tariffs imposed by America.
The trend in the last few months gives a clear indication that the Chinese growth story is over. For almost 4 decades, the Chinese economy registered near a double-digit growth but now it is not able to sustain the same. The country has posted quarterly growth of 6.5 percent in the September quarter. This is the lowest quarterly growth in the decade and China has never been in such a bad condition since the global economic slowdown of 2008-09.
