Chinese Export Growth Plunged in the Second Quarter

Tuesday, August 13, 2013

U.S. Exports of Manufactures Continued Slow Growth in the Second Quarter
While Chinese Export Growth Plunged From 19 Percent to 3 Percent: What Lies Ahead?

U.S. exports of manufactures were flat in the first quarter of 2013 compared with 2012, and grew by only 2 percent in the second quarter. Chinese export growth, in contrast, plunged from a very high 19 percent to a lowly 3 percent. The trade balances showed an even more striking contrast: the U.S. deficit was up by 2 percent in the first quarter and was flat in the second quarter, while the extraordinary growth of the Chinese surplus by 28 percent in the first quarter reversed to a 5 percent decline in the second quarter.

This report presents these quarterly trade figures and the results for the first half of the year, including detail on the nine largest high-tech industries, which account for more than half of total manufactured exports of both countries, and where China has pulled far ahead of the United States.

As for the question of what lies ahead, commentary is provided, but the main conclusion is that Chinese trade figures for the third and fourth quarters, as provided by this MAPI series, should be highly revealing.

U.S.-China Global Trade in Manufactures
From 2009 to 2012, Chinese global exports of manufactures soared by 71 percent to $1,948 billion, while U.S. exports grew much more slowly, by 39 percent, to $1,206 billion. The trade balances for the sector have likewise been far apart and moved in opposite directions: the Chinese surplus rose by 79 percent to $755 billion in 2012, while the U.S. deficit increased by 53 percent to $498 billion.

Trade in the first quarter indicated an acceleration of these divergent paths.1 U.S. global exports of manufactures were flat compared with 2012, and the deficit was up by 2 percent, while Chinese exports soared by 19 percent and the trade surplus skyrocketed by 28 percent.

Now we have the second quarter trade figures, which show a continued slow growth pattern for U.S. exports and the deficit, but a dramatic turn of events in Chinese exports and its trade surplus. Table 1 presents U.S. and Chinese trade in manufactures for the first and second quarters of 2013, and for the first half of the year as a whole.

The second quarter for the United States followed the pattern of the first quarter, with slow export growth of only 2 percent, while the trade deficit was flat, at $120 billion. The Chinese figures for the second quarter, however, show a dramatic decline in export growth, to 3 percent, by far its slowest growth since the 2009 global recession, and with imports still up by 10 percent, a turnaround in the trade surplus path from the extraordinary 28 percent growth in the first quarter to a decline of 5 percent in the second quarter, to $200 billion.

The swings in trade in manufactures are generally wider than the cyclical swings in the global and national economies, and the big question posed by Table 1 is whether these second quarter figures mark a definitive change of course for China, with at least a leveling off of the surging surplus of the past several years, or merely a quarterly offsetting reaction to the extremely high first quarter growth in exports and the surplus. Further commentary on this question is provided below, but first, more detail on U.S. and Chinese global exports for strategic high-technology industries and for the highly lopsided bilateral trade account.

U.S. and Chinese Exports of High-Technology Industries
The economic and strategic importance of the rapidly widening differences in U.S. and Chinese exports and trade balances for manufactures over the past several years, as well as of a possible peaking out of the Chinese surplus, center on the role of high-technology industries for technological innovation and military modernization. For the United States, 75 percent of research and development and 90 percent of new patents come from the manufacturing sector, and manufacturing companies are the backbone of defense industry. Chinese economic strategy in recent years has centered on rapid, export-led growth in high-technology industries and technology-intensive military modernization. Until now, it has been a highly successful strategy.

In this context, Table 2 presents second quarter exports in 2012 and 2013 for the nine largest high-technology sectors, which account for slightly more than half of total manufactured exports for both countries. Chinese exports of labor-intensive manufactures, principally textiles and apparel, are now down to only about 15 percent of total manufactures. For all nine sectors, Chinese exports in 2013 of $268.2 billion were 50 percent larger than the $178.8 billion of U.S. exports. The growth in exports from 2012 to 2013 was $13.8 billion for China and a much lower $6.3 billion for the United States.

The breakdown by sector is even more revealing. The only two sectors where U.S. exports are substantially larger than Chinese exports are road vehicles, reflecting the highly trade-oriented North American free trade market, and other transport equipment, largely Boeing. The overriding dominance of Chinese exports is in the information technology sectors—office and data processing equipment, telecommunications and sound recording, and electrical machinery and appliances. Chinese exports are two to four times larger than U.S. exports in each of these three sectors, and together Chinese exports of $184.8 billion are 3.5 times larger than the $52.6 billion of U.S. exports.

U.S.-China Bilateral Trade in Manufactures
U.S.-China bilateral trade in manufactures is extremely unbalanced. Over the past couple of years, through the first quarter of 2013, U.S. manufactured imports from China were more than six times larger than U.S. exports to China. The second quarter figures, however, show a significant decline in this ratio from 6.1 in the second quarter of 2012 to 5.2 in the second quarter of 2013. Although global U.S. exports were up by only 2 percent, exports to China rose by 19 percent, to $19.9 billion, while imports were up by 1 percent to $103.5 billion. A 5-1 ratio is still highly lopsided, but this is a welcome shift in the right direction.

What Lies Ahead?
There has been much discussion of a changing structural path for the Chinese economy, with higher growth for personal consumption and slower growth for investment and exports, all within lower overall GDP growth. In this context, the second quarter trade figures for manufactures indicate a possible strong turn in these directions. But one quarter’s trade figures do not a trend make, especially after the extraordinarily large surge in exports and the trade surplus in the first quarter. Leads and lags can be substantial for trade in manufactures.

What happens in the second half of the year will depend, to some extent, on actions by the Chinese government, including its exchange rate policy. There have been reports of providing stimulus to the flagging manufacturing sector, and particularly to export-oriented high-technology industries. As for a leveling off or decline in the trade surplus, there is also the question of whether imports of manufactures will continue to experience double-digit growth, higher than GDP growth.

The conclusion drawn here is that the second quarter trade figures are a hopeful sign that the soaring Chinese trade surplus in manufactures over the past several years, created largely at the expense of an equally soaring U.S. deficit, has reached a turning point. A more definitive appraisal, however, requires another couple of quarters of trade figures. The third quarter results will be reported in this MAPI series in November.

As for U.S. export competitiveness, in broadest terms, two-thirds of global exports of manufactures are by “The Big Five”—China, the EU, the United States, Japan, and South Korea, in that order. Each of the other four, however, has an annual trade surplus in manufactures of hundreds of billions of dollars, not to mention a large surplus on current account, while the United States, as “importer of last resort,” has very large offsetting deficits in manufactures with all four of them, plus a very large current account deficit. The United States clearly needs a credible strategy to restore export competitiveness in the technology-intensive manufacturing sector, and the second quarter figures perhaps provide more hopeful movement in that direction.

 

(PA-126 PowerPoint slides here for members only. Login required.)

  • 1. Ernest H. Preeg, U.S. Trade in Manufactures Flat in the First Quarter While Chinese Trade Continues to Soar, PA-121, MAPI, May 2013.