China Should Take the Opportunity to Diversify its Market

Trade Trends Show China Should Take the Opportunity to Diversify its Market

Dong Yan, Ma Yingying and Xu Tingting

   The China-US trade row has been drawing a lot of attention. A detailed review ofthe bilateral trade situation between China and the US from January throughApril is a good reference for the future trend. 

     Bilateral trade between China and the USin the first four months of this year has seen an obvious drop. According todata from the General Administration of Customs, bilateral trade in the sameperiod totaled $161 billion, a 15.7 percent drop compared to the previous year.China exported 9.7 percent less year-on-year for a total of $121 billion - thebiggest drop in export numbers among all trade partners. Imports from the USduring the same period slumped 30.4 percent.

One reason behind these numbers is that companies on both sides have made purchases and shipped orders in advance to dodge the possible tariffs from the trade frictions. When the rush to trade fades, the numbers start to fall.

     Another fact to be noted is that China's trade surplus against the US did not significantly narrow as the US had expected. The numbers show that the amount China imported from the US fell more quickly than the amount it exported to the US. Therefore, China's trade surplus has expanded 4.0 percent from a year ago.

      The trade friction has made an important impact on both countries. For China, the global economic uncertainty brought by the trade friction put pressure on China's trade environment. 

       Chinese exports in the first quarter only mildly increased. China imported less not only from the US but also from other economies in the upstream industrial chain. Meanwhile, China's imports from countries with abundant resources and energy such as Canada, Brazil, Australia, New Zealand and Russia rose.

The trade structure has been affected as there has been impact on some export industries in China. Exports of a total of 20 types of commodities (excluding artwork and special trade goods) from China to the US have shown dips. Products such as electromechanical equipment, transportation equipment, base metal, minerals and timber products took the biggest hit. 

          The trade friction had a negative influence on the US as well. 

      The trade diversion effect is gradually taking place. The US has exported more products to the EU, Canada and Mexico while lowering its dependence on the Chinese market. A total of 6.5 percent of US exports went to the Chinese market in the first quarter of this year. The number was 8.02 percent in the same period last year. 

Fewer Chinese products have been exported to the US as well. In the first quarter of this year, the US reduced furniture, refrigerator and tire imports from China and substituted them with goods from Vietnam, South Korea, Mexico and Chinese Taiwan. 

     Also, as uncertainties loomed amid tariff hikes, some related US industries were afflicted, such as plants, minerals and precious metal in the first quarter.

   　The trade friction has significantly lifted the price of intermediate products and finished products for the US side. The supply chain networks have experienced dramatic changes. US tariffs imposed on other countries and the tariffs imposed on the US by other countries pushed the Producer Price Index up by 1 percentage point. Considering the fixed costs of supply chains, reconstructing the global value chain will bring huge costs to US and Chinese companies.

         China-US trade frictions could drag on, and China has to prepare for it. One option is to improve economic relations with the Belt and Road Initiative (BRI) countries. The export and import volume in the first quarter between China and the BRI countries increased 7.8 percent, 4.1 percentage points higher than China's overall foreign trade increase. China needs to take this opportunity to diversify its market.

（The article has been published on BIZ Comment of Global Times, May 24.

Dong Yan is a director ofthe Research Section of International Trade with the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. 

Ma Yingying is a Postdocal fellow at the Chinese Academy of Social Sciences. 

Xu Tingting is an undergraduate student at the University of Chinese Academy of Social Sciences.）

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