In yet another piece of unwelcome news that suggests the trade war is biting and that the engine of global growth continues to decelerate, China’s exports contracted 1% in August, while imports shrank 5.6%.
Consensus was looking for exports to expand 2.2%, so this is a notable downside miss and also suggests exporters did not resort to front-loading ahead of more tariffs.
This would appear to underscore the case for more stimulus on the heels of Friday’s RRR cut.
Shipments to the US plunged 16% YoY.
This came despite the PBoC allowing the yuan to breach 7 on the way to its worst month on record.
Of course, 15% tariffs on more than $110 billion in Chinese goods went into effect on September 1, and the rate on $250 billion in product will ratchet higher to 30% on October 1, unless the White House decides to hold off on that latter escalation in the interest of creating a more favorable environment for talks between Liu He, Bob Lighthizer and Steve Mnuchin early next month.
On the surface anyway, those new tariffs should weigh further on exports, and because Beijing clearly isn’t inclined to let the yuan go into a nosedive to completely offset the new levies, the duties will presumably have some bite. (Estimates vary, but CNY likely needs to depreciate at least to 7.35 to cushion the blow from the latest escalations.)
Over the past two weeks, analysts have variously suggested that the odds of a comprehensive trade deal being struck between now and the US election are slim.
“Our game-theoretic analysis reinforces our view that the US-China trade war is unlikely to get resolved in the foreseeable future”, BofA said Friday. “Removing tariffs and the FX manipulator designation will likely require significant concessions [and] the election cycle may affect the administration’s negotiating objectives and tactics”, Barclays remarked, weighing in as part of a public policy review presentation earlier this month.
Expect more easing out of Beijing, with a cut to the MLF (and thereby LPR) rate likely imminent.