As the trade dispute between China and the US re-escalates, the March trade data showed the trade deficit widened somewhat to -USD50.0bn from -USD49.4bn in February, driven by slightly higher import growth (+1.1% mom) vis-à-vis exports (+1.0% mom). The trade balance has been highly volatile over the past year, ranging from a peak of USD59.9bn in December to a low of USD43.5bn last May. This volatility has been driven by trade tariff distortions, which have led to a front-loading of imports and exports as companies try to get ahead of the tariffs. However, smoothing through the volatility, the 12 month sum of the trade deficit widened from USD57.4bn in March last year to USD61.6bn this year, and being relatively stable at these levels in recent months. While the trade deficit is wider than before tariff implementation (which started in earnest in July), one notable effect of the tariffs is a fall in the share of imports from China, suggesting they are having some impact on the behaviour of importers.
While there is a strong seasonal pattern in imports from China, with the share typically peaking at c.23% ahead of the Christmas period and hitting a trough around the Lunar New Year, the share of imports from China fell to just 15% in March – an eight year low. Which countries have benefited from the fall in China’s market share? If we compare Q1 2019 with Q1 2018 (to avoid seasonal distortions), the share of Chinese imports has fallen 2.8pp, while the biggest gainers in market share in the same period have been other Asian countries (+1.1pp) and the European Union (+1.0pp). Should President Trump follow through tomorrow and raise the tariff rate on USD200bn of Chinese imports to 25% from 10%, the declining import share from China looks set to persist. (Bill Diviney)