Why Trade Statistics Show Risk of Inflation
Once again, China posted robust headline trade numbers in June, showing off its status as the world’s top power in the global trading economy. Total exports increased 32% year-on-year in June to $281.4 billion. For the first half of 2021, exports rose to 39% to $1.5 trillion. Overall imports in June increased 37% to $229.9 billion. For the first six months of 2021, imports rose 36% to $1.3 trillion.
But a portion of that increase is due to rising commodities prices, suggesting that the world is facing production and capacity crunches as it rebounds from the Covid-19 pandemic, according to an analysis by Trade Data Monitor, the world’s top source of trade statistics.
For example, Chinese imports of iron ore fell 12% year-on-year in June to 89.4 million tons. But by value, because of rising iron ore prices, they increased 72% to $16.8 billion. The same thing happened with copper imports, which because of price hikes increased 64% by value (to $4.1 billion), and only 5% by quantity (to 1.7 million tons). And coal, which increased 13.1% by quantity (28.4 million tons) and 57% by value (to $2.6 billion). The effects of these price rises are bound to be broad, rippling throughout the global economy, causing prices to increase for goods from iPhones to cars, and increasing risks of inflation in the U.S. and Europe.
The trade data shows other trends. The Covid-19 pandemic, while cementing China’s place as the world’s manufacturing titan, could have helped to push supply chains for lower-value goods to other countries, while allowing China to build up capacity for higher-value products. For example, textile shipments declined 22% to $12.5 billion in June, while motor vehicle exports soared 150% to $3 billion. Exports of high-tech products increased 24% year-on-year to $76.8 billion.
The pandemic is easing in most of the world, meaning that hospital and health care ministries are reducing their demand for medical equipment. In June, exports of medical and surgical equipment fell 19% year-on-year to $1.7 billion. Factory orders and business confidence have been increasing, especially in the U.S. Chinese steel exports increased 146% in June to $8.3 billion.
On the import side, China is still ramping up agricultural purchases, as it seeks to feed a booming middle class, especially with more protein. Imports of agricultural products increased 34% to $20.2 billion. For the first six months, China bought $108.1 billion worth, up 34% from the same period in 2020. Imports of grain increased 60% to $8.3 billion. Imports of high-tech products increased 30% to $72.3 billion. And, as factories roar back to life in China, they’re making bulk purchases of important pieces and parts. Imports of paper pulp increased 45% to $1.8 billion.
Overall, China’s exports beat analysts’ expectations, despite recent outbreaks of Covid-19 and port delays due to increasing trade. However, Chinese officials warned that trade growth may fall off in the second half of 2021.
The European Union, led by German exports, is doing better than the U.S. at tempering its trade deficit with China. Exports to the U.S. increased 18% in June to $46.9 billion and imports increased 37% to $14.3 billion. Exports to the EU increased 28% to $43.1 billion and imports increased 34% to $27.7 billion. But there is no question that China’s main focus is increasingly the robust economies of Asia. In June, its exports to ASEAN countries increased 34% to $40.4 billion.