China’s exports to the US were up by more than 15% in October, which analysts believe is a result of American businesses rushing to import goods ahead of the implementation of an increased tariff rate in January.
Exports from China grew 15.6% year-on-year, higher than the consensus of 11.7%, according to ING economic and financial analysts. “We believe this growth is due to exporters’ concern that the 10% tariffs on US$200bn of exported goods to the US will rise to 25% on 1 January 2019, which has led them to front-load exports,” they note.
“We expect this front-loading behaviour to continue for the rest of 2018, as we don’t think the Xi-Trump meeting at the G20 will yield positive results. At the same time, China’s fiscal stimulus could boost import growth in 2019.”
Accelerated export activities in November and December are likely to mean export growth data will continue to be stronger than in previous holiday seasons.
“We think President Xi’s meeting with President Trump at the end of November will not achieve positive results, and as such the increase of the current tariff rate from 10% to 25% on $200bn of US imported goods from China is highly probable,” the analysts note. “We’re hoping the meeting doesn’t damage the trade relationship even further, as Trump once said that if trade talks fail, he could raise tariffs on all Chinese imported goods.
“Though US demand will continue to be strong, import tariffs on Chinese goods could have a dampening effect. We expect that some of these exports will be diverted to Europe. Whether they can also be diverted to other Asian economies depends on the extent to which those economies are themselves affected by the trade war.”
However, the analysts say export growth would slow under higher tariff rates and “as a result we are not particularly optimistic on China’s export growth in 2019, especially in 2H19.”
The imposition of tariffs has so far not directly impacted apparel, but the sector would be unlikely to escape if the tariffs were expanded in scope to include Chinese imports not yet sanctioned.
The issue has most recently been discussed at the Apparel Importers Trade & Transportation Conference in New York last week: