China – the World's Trade Locomotive


China has overtaken the United States to become the world’s largest goods trading nation. Indeed, since the beginning of the international financial crisis, increases in China's foreign trade have been larger than those of the United States, EU and Japan combined.

Even last year, well after recovery from the trough of the “Great Recession,” China’s trade growth was bigger than that of any other economic center. In particular China’s increase in imports remained larger than the combined total of the United States, EU and Japan – a key issue for other economies.

This change in global trade has major implications for other countries’ trade strategies and for ongoing trade negotiations such as the Regional Comprehensive Economic Partnership Agreement (RCEP) and the Trans-Pacific Partnership (TPP).

The scale of the changes in global trade that have taken place since the beginning of the international financial crisis is shown in Figure 1. This illustrates the increases in the total trade of China, the United States, the EU and Japan between 2007, the last year before the crisis, and the end of 2013.

China’s total merchandise trade in 2013 was US $1,986 billion larger than in 2007 –  China’s exports having increased by US $992 billion and imports by US $994 billion. In comparison, the increase in the U.S. goods trade was US $741 billion, the EU US $1,024 billion, and Japan US $214 billion.

Therefore, not only was the expansion of China’s trade almost twice that of any other major economic center, but larger than the combined US $1,979 billion of the United States, the EU and Japan.

Taking just a bilateral comparison with the United States, which is important for ongoing trade negotiations, in 2007 China’s US $2.2 trillion total merchandise trade was only 69 percent of that of the United States. By 2013 China’s merchandise trade, at US $4.2 trillion, was seven percent bigger than the United States’ US $3.9 trillion. In six years China’s trade increased by almost US $2.0 trillion, compared to a U.S. increase of US $0.7 trillion – almost three times that of the United States.

The change was even more dramatic for imports. In 2013 China’s goods imports were US $993 billion above their 2007 level, whereas U.S. imports were up by only US $311 billion, the EU’s by US $329 billion, and Japan’s by US $212 billion. China’s imports thus rose by more than three fold those of the United States – and by more than those of the United States, EU and Japan combined. China was, therefore, by a huge margin, the most rapidly expanding market for other countries’ exports.

Nor has this import situation altered since the Great Recession. Figure 2 shows that OECD data confirm that last year China’s imports rose by US $132 billion, compared to a rise of US $30 billion for the EU – and falls of US $8 billion for the U.S. and US $53 billion for Japan. China’s imports rose four fold those of the EU, while the United States and Japan were declining import markets.

Such trends clearly have major implications for world commerce and ongoing trade negotiations.

First, the recent attempt by the United States to re-raise the question of the RMB exchange rate was clearly unfounded. On April 8, under a self-explanatory headline “U.S. Warns China after Renminbi Depreciation,” the Financial Times carried an off-the-record briefing by a “senior [U.S.] Treasury official.” It reported a 2.5 percent depreciation of the RMB since its peak earlier this year –  a relatively small adjustment, clearly primarily aimed at preventing speculators having a continuous one way bet, and leaving the RMB 33.5 percent above its 2005 level. Despite this, the unnamed U.S. official declared “serious concerns” if the RMB did not show “adjustment”  – apparently code for allowing its exchange rate to go up. But the trade data show clearly China has been the world’s most dynamic market for other countries’ exports, while last year the United States made no contribution.

That China is the world’s most rapidly expanding market for other countries’ exports, while U.S. import markets have not regained pre-crisis levels, clearly affects China’s promotion of an Asian RCEP, including India, Japan, South Korea, Australia, and ASEAN, and the United States promoting a TPP excluding China.

Regrettably, current U.S. policy has moved away from supporting a multilateral opening of the world economy. Instead, as Philip Stephens of the Financial Times noted:

“China has been the big winner from the open global economy… each of the proposed new [U.S.] agreements would leave China on the sidelines. The exclusion of the world’s second-biggest economy is more than a coincidence.”

The United States recognizes that a relapse into national scale protectionism, of the post-1929 type, would have disastrous consequences, including for itself, but it has been losing to China in an open and competitive world economy. A way of attempting to limit China is, therefore, to create large trade blocs including the United States rather than a truly multilateral global economy.

But this faces many difficulties. First, the United States dares not risk serious disintegration of world trade –  therefore protectionism must be limited in scope. Second, the United States is not a dynamic import market.

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