Tracking global trade: signs of a US-China trade shift?

As supply chain pressures continue to ease, we take a closer look at how US-China trade dynamics have shifted in recent years.

07 Oct 2022 . 4 minutes

Global import and export activity continued to recover through final months of summer. World trade activity improved 0.7% in July and now remains some 10.3% above pre-covid levels, with advanced economies leading the way.

Monthly trade growth was slow in emerging markets, however – particularly in emerging Asia (excluding China), Africa, and the Middle east. And a closer look at export and import data suggests some big divergences globally (see below).

Export and import growth by region (% change from previous month)

Sources: CPB Netherlands, NatWest Markets

Export growth was positive and strong in advanced economies – led by US (+4.2%) and UK (+6.7%), while it weakened in emerging Asia ex-China (-5.7%), and China (-1.1%).

Import growth was most pronounced in Eastern Europe/CIS (+5.8%) and advanced Asia ex-Japan (+4.9%) – suggesting that the semiconductor production rebounded.

Supply chain pressures easing in August

We see supply chain pressures – especially product supplies and logistics costs – easing in the months ahead. Pressures eased considerably through August in the UK, US, China, and Japan, according to the NatWest Markets Regional Supply Chain Index (RSCI).

Regional supply pressures declined in August

Sources: National sources, NatWest Markets estimates. Note: Numbers indicate standard deviations away from the mean; Green shows improvement, while red means intensification of pressures.

Importantly, we’ve seen a consistent fall in the cost of shipping amidst easing global consumer demand. The rate at which costs have fallen on average is nothing to be sniffed at: from highs of 8.5X pre-covid levels in March 2022 to 3.8X at the end of September.

Should corporates be concerned about a structural shift in US-China trade?

A closer look at trade between US and China in recent years suggests structural changes in the relationship between the two may be starting to surface. What could this mean for corporates?

Many will recall the Trump-era trade tensions that, among other things, led the US to impose steep tariffs on China – and pushed China to reduce its imports of affected goods: agricultural products, manufactured goods, and energy.

Since the Phase 1 deal between the two countries was signed in 2020, which saw China commit to structural economic reforms in exchange for a reduction in tariffs, US agricultural exports to China have returned to their normal seasonal pattern. However, it is noteworthy that the other two categories – namely manufactured goods and energy – both peaked in 2021 and has since been weakening or stabilising (see below).

US exports to China by Phase 1 category (US$ billions)

Sources: Bloomberg, CEIC, NatWest Markets

In our view, this likely reflects a deeper structural shift in US-China trade pattern.

The peak in energy imports in not consistent with China’s gradual recovery in energy imports from the rest of the world. We think this may suggest China has started to import more energy from alternative destinations after the Russia-Ukraine conflict; we’ve already highlighted that China is fast becoming the world’s largest LNG importer.

Manufactured goods imports from the US have also shown signs of weakening. This might be partly due to the rising protectionism towards China, as the US limits technology-related products and equipment exports to China.

That said, we think tensions have moved from focusing on narrowing the trade balance towards the US limiting China’s ability to upgrade itself in global value chain through further integration into the global supply chain. For companies dependent on either jurisdiction, this should underscore the need to be alive to potential supply chain security and resilience implications longer term.

Get in touch

To learn more about the implications of global supply chain pressures for your financial strategy, speak with your NatWest representative or get in touch with us at NatWest Corporates by clicking here.

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