An unexpected contraction in China’s exports during August is the clearest signal yet that the worst of the trade war damage is still to come.
Shipments of Chinese goods are expected to weaken further as the U.S. implements new tariffs and as global demand remains soft. Compounding the pain is an expectation that the front-loading of orders — buying toys now, for example, to avoid the imposition of levies in December — will only exacerbate the downturn when that effect wears off.
Bloomberg Economics’ Chang Shu described the data as a “taste of what’s to come.”
It’s possible that another dose of government-encouraged borrowing and spending will at least support the imports side of China’s trade ledger, but it’s hard to escape the sense that the slowdown has a way to go yet.
“We’re looking more like we’re heading towards the bear-case scenario,” where 6% growth in China this year slows to 5.4% next year under a 25% U.S. tariff on all Chinese imports, said Eva Yi, senior economist at CICC. “More and more people are seeing this trade tension become a longer-term overhang rather than a short-term shock.”
All this plays into U.S. President Donald Trump’s hand for the time being. As China’s economy hits headwinds, America’s keeps adding jobs at a solid, albeit weaker, pace. “Both the strength and breadth of hiring suggest that economic conditions are weakening in the second half, but not to the point of rising recession risk” for the U.S., according to Carl Riccadonna and Yelena Shulyatyeva of Bloomberg Economics.