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Editorial: A Bolt from the Blue

Port Wings, 30 Sept 2020:

Ironically, the COVID-19 that originated from China and caused severe economic damage to the world in general and the U.S. in particular

is not a jolt to China’s economy, but a bolt from the blue, triggering an increase in American business purchases from China, to the benefit of Chinese manufacturers.

The media prediction about the Chinese manufacturers just a few months ago poised to collapse due to lack of overseas buyers has fallen flat. It didn’t happen. Chinese factories are booming. Chinese goods are flooding into U.S. ports.

Trade talks between the two countries continue. Officials held a six-month “checkup” on the Phase 1 trade deal. Both sides cited progress, yet China was more than 50% behind June purchase targets.

There are some positive signs for exports. According to Argus Media, China began ramping up purchases of U.S. crude oil in May and imported over 800,000 barrels per day in July — a plus for tanker demand. China should also buy more U.S. grain in the second half.

But the real story is goods flowing in the other direction, from China to America. “In July, U.S. containerized exports were 30% below their average in the past three years, while imports are surging.”

The Caixin China General Manufacturing Purchasing Managers Index jumped sharply in July, to an all-time high. If U.S. Customs data is any indication, that record could be broken — maritime import filings are trending more than 20% higher this month than in July.

Through the latest available data, show how China has fueled U.S. import gains. Customs filings for Chinese goods were up 208%, with total U.S. filings up 64%.

The customs data confirms that more Chinese goods are going to California than taking the long route via the Panama Canal to the East Coast. This is beginning to sound like a broken record, but freight rates keep rising in the trans-Pacific market. What’s driving this import demand just as the U.S. is in the midst of a pandemic-induced economic crunch?

There are some factors are at play here. First is a shift in consumption patterns away from services to physical goods, which would give rise to a need for stockpiling a large volume of goods different to what were previously sold.

Second, restrictions of traveling and regular outings would potentially fund a higher spending on consumer products. Lastly, a change in working conditions necessitating a work-from-home approach has also driven consumer behavior towards purchases for furnishing home offices.

In the U.S. market, these factors are driving importers to buy more from China, where they can source the highest volumes in the least amount of time. U.S. demand for Chinese exports has escalated so much that it could soon come up against a practical ceiling, according to Poskus of Flexport. Too many containers are leaving China and not enough empties are coming back to be restuffed. Equipment availability is going to be a real issue in September.

About 3,500 United States companies, including Tesla, Ford Motor, Target, Walgreens and Home Depot, have sued the Trump administration in the last two weeks over the imposition of tariffs on more than $300bn in Chinese-made goods.

The suits, filed in the US Court of International Trade, named US Trade Representative Robert Lighthizer and the Customs and Border Protection agency and challenge what they call the unlawful escalation of the US trade war with China through the imposition of a third and fourth round of tariffs.

The World Trade Organization has ruled that tariffs the US imposed on Chinese goods in 2018, triggering a trade war, were “inconsistent” with international trade rules.

The WTO said the US did not provide evidence that its claims of China’s unfair technology theft and state aid justified the border taxes. Chinese officials welcomed the ruling.

But the US said it showed that the WTO was “completely inadequate” to the task of confronting China.

Ambassador Robert Lighthizer, America’s top trade negotiator, said the US “must be allowed to defend itself against unfair trade practices”.

“This panel report confirms what the Trump Administration has been saying for four years: The WTO is completely inadequate to stop China’s harmful technology practices,” he said.

“Although the panel did not dispute the extensive evidence submitted by the US of intellectual property theft by China, its decision shows that the WTO provides no remedy for such misconduct.”

The dispute has seen the US and China impose tariffs on hundreds of billions of dollars worth of one another’s goods.

US President Donald Trump has long accused China of unfair trading practices and intellectual property theft.

In China, there is a perception that America is trying to curb its rise as a global economic power.

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