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Trade deficits with China widen despite higher import demand
American Shipper
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When China joined the World Trade Organization in 2001, Western governments and companies agreed to give Beijing low-tariff access to their markets in exchange for the promise of one day ing up China for its own companies.

Since then, politicians in Europe and the United States have been consistently frustrated by trade deficits with the Asian powerhouse, in particular’s China’s tight control over its currency, which it pegs to a basket of currencies including the dollar, consistently lower wages, and its direct and indirect subsidies for its top companies.

The situation is not improving, according to data from IHS Markit’s Global Trade Atlas, China in 2016 imported $1.5 trillion worth of goods and exported $2.1 trillion. And although it fell a little last year, China’s trade balance with the rest of the world has deteriorated this decade.

China’s trade surplus with the rest of the world, 2011-2016

2011: $157.9 billion

2012: $232.8 billion

2013: $261.4 billion

2014: $380.1 billion

2015: $678.8 billion

2016: $610.6 billion

Besides factors like wages and currency, a big reason for the current imbalance is that, after building itself up as a global manufacturer of everything from shoes to computers, China now has plenty of capacity to supply its own booming internal market.

Still, for exporters, shipping lines and logistics companies trying to cash in on what will eventually be the world’s biggest economy, it’s worth looking at what China imports, and from where. Five of China’s top 10 trading partners are fellow Asian countries.

China’s top 10 imports sources (and increase) first 7 months of 2017

South Korea $94.6 billion (8.6 percent)

Japan $90.4 billion (15.2 percent)

US $83.7 billion (16.5 percent)

Taiwan $80.7 billion (9.8 percent)

Germany $52.6 billion (7.4 percent)

Australia $49.7 billion (49.2 percent)

Brazil $34.3 billion (28.6 percent)

Malaysia $29.7 billion (15.4 percent)

Russia $23.2 billion (29.8 percent)

Thailand $23.1 billion (21.5 percent)

Despite current tensions over how to handle North Korea’s aggressive nuclear testing and the US deployment of missiles in the country, South Korea remains China’s biggest trading partner. Connected by proximity and Asian business culture, China and South Korea have enjoyed a healthy trading relationship since both countries fully embraced capitalist investment in the 1990s. The Chinese listen to K-pop and buy cars from Hyundai and phones from Samsung, while exporting their usual Made in China mix of Apple products, Nikes and consumer durables. South Korean exports to China increased to $158.8 billion in 2016 from $89.8 billion in 2006.

The relationship is expected only to grow. China and South Korea signed a free trade deal in 2015, allowing companies like China like electronics giants Samsung and LG Electronics, and POSCO, one of the world’s largest steelmakers, and carmaker Hyundai to ship their goods tariff-free to China. China’s imports from South Korea show where demand lies.

Top categories of goods imported by China from South Korea, 2016

Electric Machinery, Sound equipment; TV equipment $73.9 billion

Optic, Photo, Medic or Surgical Instruments $17.4 billion

Nuclear Reactors, Boilers, Machinery $15.3 billion

Organic Chemicals $10.3 billion

Plastics and articles thereof $10.2 billion

The fastest-growing importer of goods into China is Australia, whose exports to the country increased almost 50 percent, to $72.2 billion from $48.7 billion, in the first seven months of 2017. Australia’s Pilbara region in the west of the country is one of the world’s great sources of iron ore. The rock is drill blasted, then shipped by train to Port Hedland, Dampier and Cape Lambert. Australia still has decades of mineable reserves, so Chinese bridges and steel will keep starting out as rock in the Pilbara.

For years, US politicians have talked about the importance of balancing out the trade relationship with China. In 2016, China imported $132.4 billion worth of goods from the United States while shipping $388.6 billion in the other direction. The fastest-growing high-volume category of goods is aircraft and aircraft parts. U.S. shipments have increased 58 percent to $13.2 billion in 2016 from $5.5 billion in 2011. Another promising category is optical and medical devices. US exports to China have increased 25 percent to $11.1 billion from $8.3 billion in 2011.

The biggest European exporter of goods to China is Germany, thanks to Volkswagen, BMW and Daimler AG, which makes the Mercedes-Benz. In 2016, Germany exported $86.1 billion worth of goods to China, including $20.1 billion worth of cars and trucks.

As China cements its place as a global economic superpower, it’s likely other countries will continue to struggle to find a balance. For the moment, China simply has too much leverage. As a US defense official admitted recently, the US military would be vulnerable to a cut-off of electronics and clothes from China. The good news is that the Chinese economy is so big that, even while it runs a trade surplus, it will continue to import well over a trillion dollars worth of stuff a year.

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