China hits a record trade surplus with the US as tensions mount
Trade tensions rise as China reports a record surplus with the US in June (Reuters: Aly Song)
China’s trade surplus with the US has surged to a record high, further escalating tensions between the world’s two biggest economies.
- China’s trade surplus with the US jumps 17pc to a record $29b in June
- Tensions rise with new tariff measures as China ratchets up the rhetoric
- Higher-than-expected exports drove the surplus while imports, especially of iron ore, were softer
China reported a surplus with the US of $US29 billion in June, a 17 per cent increase on May’s $US24.6 billion surplus.
It is the widest gap reported since official figures were first released by Chinese customs officials 20 years ago.
It comes at a sensitive time, with the US announcing it will raise a 10 per cent tariff on $US200 billion worth of Chinese imports by September.
China’s Ministry of Commerce hit back, describing the US investigation of intellectual property abuses as “slanderous, groundless and without legal basis.”
The Ministry said China would continue to “uphold free trade and the multilateral trading system”.
The figures cover imports and exports in the month before the US and China imposed mirrored 25 per cent tariffs on $34 billion of each others’ goods.
China’s broader trade surplus with the rest of the world jumped by more than 70 per cent to a six-month high of $US41.6 billion, driven by unexpectedly resilient exports and a significant slowdown in imports.
Iron ore imports fell almost 12 per cent in June, despite expectations of a solid increase.
They were down 1.6 per cent for the first half compared to 2017, hit by tougher environmental regulations imposed on steelmakers.
However, coal imports for electricity generation rebounded, up 18 per cent compared to a year ago.
LNG imports were a bit weaker over the month.
Imports of electrical and mechanical products also slowed markedly from recent annualised growth above 20 per cent, to less than half of that in June.
Surplus to narrow as tariffs bite
ANZ senior China economist Betty Wang said it was unlikely China would continue to enjoy a high trade surplus in the second half of the year, considering the impact of the ongoing trade tensions.
“Such a trend is unsustainable, in our view,” Ms Wang said.
Ms Wang said the surplus was likely to narrow as policymakers come under pressure to boost domestic demand, which in turn could drive import growth.
“The boost in domestic demand will help to offset the potential negative impact of the US-China trade tensions, which show few signs of ending soon.”
Capital Economics Julian Evans-Pritchard noted worrying implications in the softer-than-expected import figures.
“Despite the recent focus on the external risks facing China, it was import growth that fell short of expectations last month,” Mr Evans-Pritchard said.
“This suggests that domestic demand may have started to weaken again last month after receiving a temporary boost earlier in second quarter from the easing of winter pollution controls.
“Looking ahead, we think export growth will cool in the coming months as US tariffs start to bite alongside a broader softening in global demand.
“Meanwhile, import growth is set to slow further as domestic headwinds from property controls and weaker investment spending continue to intensify,” he said.