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Good morning from London where once crowded office buildings and Tube stations continue to be nearly empty as many Londoners hunker down for a winter spent working from home.
The number of people passing through Bank station, a hub in the City of London, is just 13 per cent of pre-pandemic levels according to official statistics. Visits to bars and restaurants in the main financial district are a fifth of what they usually are, according to Google Mobility data.
With the UK economy badly hit — the hardest of the G7 countries — it’s not surprising that its share of global goods imports fell to its lowest level since records began in 1960, according to an FT analysis of IMF trade data.
But at the opposite end of the spectrum, China has become more important than ever as a destination for goods made by both developed and emerging economies, which is the subject of today’s main note.
Our Chart of the day looks at the eurozone’s deflationary drift while Tall tales of trade serves up a culinary trade faux pas. Trade Secrets will be taking a break at the start of next week as our reporters gear up for US election coverage — but we’ll see you again on Tuesday.
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Which countries are exporting more?
The IMF expects the world economy to shrink 4.4 per cent this year, the sharpest contraction in recent history, but China is forecast to expand 1.9 per cent thanks to a robust recovery that has not been hampered by a strong resurgence of coronavirus as in many other countries.
As my colleague in Hong Kong noted recently, Asia’s largest economy is becoming an increasingly important market for businesses around the world. Globally, the share of exports shipped to China rose to above 11 per cent in the three months to June, an FT analysis of IMF data show — the highest level since the series began in the 1980s.
So how is this playing out, country by country? Let’s start with Japan. Overall, Japanese goods exports fell 19 per cent in the six months to September, with contractions of 30 per cent or more for exports to the US, Canada and the UK. But Japan’s exports to China rose 3.5 per cent, driven by the strong performance of electric machinery, cars and metals. Chinese demand has provided a much-needed bright spot.
It is a similar picture for Australia, whose share of exports to China rose for the first time above 41 per cent in the six months to August. Australia is the fifth-largest exporter to China and one of the advanced economies to be most reliant on China as a market for its goods, particularly raw materials.
One thing to note: earlier this month Canberra investigated unconfirmed reports that China had ordered its state-owned enterprises to stop buying Australian coal. It is unclear to what degree any such ban would reflect efforts by China to prop up its own domestic coal industry or a wider simmering political dispute. Watch this space.
“The countries most supported by China’s recovery are in Asia, but commodity exporters have benefited too,” said Adrian Thomas, vice-president for global emerging markets at Citigroup. “Growth in a number of emerging markets has been revised upwards. We think this is partly due to better-than-expected export growth in many emerging markets.”
But it’s not just commodities producers or emerging markets that are benefiting. In Italy, goods exports to China were up an astonishing 33 per cent in September compared with the same month last year.
Across the EU, exports fell 12 per cent in the first eight months of the year compared with 2019, driven by sharp drops in exports to the UK and India. In contrast, EU exports to China (and South Korea, for that matter) remained largely stable.
As a result, for the first time, EU countries are exporting more than 10 per cent of the value of their goods to China. Raw materials and machinery remained the most important categories but food and beverage exports have grown significantly.
Thanks to rising demand from China, the eurozone’s export-led manufacturing sector continued to recover in the autumn, while services activities were hampered by the resurgence of the virus, according to the closely watched IHS purchasing managers’ indices.
It was a similar pattern for the US. Between January and August, overall goods exports were down 16 per cent year on year, with drops of at least 17 per cent for items destined for Canada and Mexico. However China-led demand was stable.
The trend is not the result of commitments in the January agreement between Washington and Beijing, says Chad Bown, a senior fellow at the Peterson Institute for International Economics. Instead, it points to Chinese businesses stockpiling high-tech products in anticipation of sanctions, strong US medical sales and rising imports of pork to China given local shortages.
Meanwhile, the Chinese export engine continues to roll on. The FT has already reported how China has increased its share of global exports thanks to a strong performance in the export of coronavirus-related products.
“Chinese exports have surprisingly outperformed this year . . . part of this market share gain is driven by the Covid-19 pandemic, as it increases global demand for medical goods and electronics,” says Françoise Huang, senior economist for Asia Pacific at Euler Hermes.
A large part of the jump in demand for kit such as personal computers, monitors, mobile phones and headphones was fulfilled by Asian suppliers. The World Trade Organization estimates that 44 per cent of global exports of personal protective equipment originated in China.
The European Central Bank will make its latest monetary policy decision on Thursday; the chart below shows the challenge policymakers are facing. As Martin Arnold writes, new figures scheduled for release this week are expected to show the eurozone sank into its third consecutive month of deflation — something it has done only twice before. The fear is that Europe is becoming bogged down in a Japanese-style cycle of weak growth, negative interest rates and sub-zero inflation.
Tall tales of trade
Oh dear. In an attempt to look good, the UK’s Department for International Trade evoked much-loved cookery show The Great British Bake Off as it boasted about the country’s recent trade deal with Japan. “The bakers used a lot of soy sauce in the first challenge on #GBBO, so it’s a good thing it will be made cheaper thanks to our trade deal with Japan,” it said in a tweet on Tuesday evening.
But a few hours later, a follow-up (italics ours): “To clarify: thanks to the UK-Japan trade deal, soya sauce will be cheaper than it otherwise would be under WTO terms, on which we would be trading with Japan from 1 Jan if we had not secured the UK-Japan trade deal.” Much egg on face — now that’s something the crew in the cake tent will be familiar with.
(PS — If you’re really keen for a deeper dive into soy sauce tariffs, the BBC has obliged).
The US is allowing a growing number of chip companies to supply Huawei with components as long as these are not used for its 5G business, people briefed by Washington said, in a potential lifeline for the Chinese group.
The US has rejected the front-running candidate to head the World Trade Organization, defying the body’s other 160 member nations and leaving the outcome of the race uncertain.
State planning limits on China’s production of rare earth elements, enforced to limit environmental damage from rare earth mines and also keep prices high, are undermining the country’s dominance of the strategic sector, according to Chinese industry executives and analysts.
The best trade stories from Nikkei Asia
Taiwan’s second-largest contract chipmaker United Microelectronics has agreed to pay a $60m fine to settle an industrial espionage lawsuit with the US Department of Justice.
Hanoi can thank President Donald Trump’s “Buy American” rhetoric for an export boom, as more companies leaving China have ended up in Vietnam instead of moving back home.