It is time again for us to look East and we can start the main driver of these times which is trade. Here is the Financial Times on this morning’s figures.
China’s exports rose faster than expected last month, official data showed, ahead of the expiry next week of a tariff truce with the US that threatens to reignite trade tensions between the world’s economic superpowers.
Most would e expecting a push from Chinese exports ahead of the end of the tariff truce but anyway here is a breakdown.
Exports added 7.2 per cent in July on a year earlier in US dollar terms, the fastest rate of growth since April and exceeding forecasts of 5.4 per cent in a Reuters poll. Imports added 4.1 per cent, the strongest reading in a year.
In terms of the position with the US and the Trump Tariffs well it looks as though there has been quite a strong impact so far.
Trade between the two has already been hit substantially, however. The July figures showed China’s exports to the US declined 22 per cent on a year earlier, after having previously sunk in May by the most since the start of the Covid-19 pandemic.
At this stage we can sing along with Hot Chocolate.
Everyone’s a winner, baby, that’s no lie (yes, no lie)You never fail to satisfy (satisfy)
There is however also a nuance and things are seldom clear-cut.
China’s exports to south-east Asia, which have by contrast continued to grow at double-digit rates in recent months, have drawn scrutiny over so-called “transshipment” of goods through third-party countries before reaching their final destination.
Also there is now an effort o curtail this.
Yuan Devaluation
There is an interesting context to this which returns me to the days when we looked at China and Japan as both being currency devaluers and in essence the Pacific being a region of it. Just over two years ago on June 30th 2023 I pointed out this.
We see that the countries with the most mercantilist trade policies are also running a plan for a lower currency. In one case it is a depreciation and the other more of a devaluation but the end game is the same…….They may step in from time to time but do they really want to stop the fall? I do not think so
We have looked at Japan on plenty of occasions but I was reminded of the Chinese efforts by this from Brad Setser.
Lots of folks (including the FT!) seem puzzled by the broad strength of Chinese exports so far this year — The answer tho seems easy. China’s real exchange rate has fallen by at least 15% over the last couple of years — giving China’s exports a big boost.
There are different ways of measuring a real exchange rate but for example the Fred ( St’Louis Federal Reserve) chart has it falling from 106.38 in March of 2022 to 86.22 this June. So we have the same direction of travel and a significant move over a slightly longer period. At this point we are on economics 101 or China has grabbed a competitive advantage.
Brad also thinks that China is acting to reinforce this.
A bit technical, but there is now overwhelming evidence that China has resumed intervention to limit the yuan’s APPRECIATION. The rise in settlement when the yuan is at the center point of the band is part of the story, as is the general increase in the SCB’s foreign assets.
One can always argue over points of detail but staying in the land of economics 101 this lower currency is being accompanied by trade strength.
China’s seemingly inexorable march toward a $1.2 trillion goods surplus (customs data) continues. The July monthly surplus was a bit below $100b, but still up about $15 billion compared to July 2024.
Another Problem for Germany and hence the Euro area?
The analysis from Brad Setser carried on to this.
China tho has made up for the fall in direct exports to the US through increased indirect exports (parts to Asia for final assembly for the US market) and higher direct exports to the EU …
This reminds me of the news from Germany today.
WIESBADEN – According to preliminary data from the Federal Statistical Office (Destatis), real (price-adjusted) production in the manufacturing sector fell by 1.9% in June 2025 compared to May 2025, adjusted for seasonal and calendar effects.
We have become used to that trend, but it was the next sentence in the release that was particularly significant in today’s context.
This means that production in the manufacturing sector reached its lowest level since May 2020, when production collapsed as a result of the coronavirus pandemic.
As China has prioritised exports we have seen Germany struggling with the consequences of its Energieweinde which promised lower electricity prices and produced higher ones. Plus on today’s theme Euro leaders have been boasting about the Euro itself.
SINTRA, Portugal, July 1 (Reuters) – The euro’s recent appreciation against the dollar doesn’t just reflect market conditions but also the strength of the euro zone’s economy, European Central Bank President Christine Lagarde said.”It’s a reflection of the market conditions and assessment,” Lagarde told the ECB’s Conference on Central Banking. “It’s also a reflection of the strength of our economy.”
It seems that she may well be doing to the German economy what she did to the Greek one when her rhetoric was “shock and awe” whereas the reality was an economic collapse. The Euro is around 7% higher versus the Chinese Yuan but there has been quite a shift since the beginning of February when it was 6.81 against the present 8.38. That is quite a shift against German exporters in a few months.
We are in the area of the J-Curve and indeed the reverse J-Curve if you want a dose of economic theory but returning to the German release are we seeing an impact as these was also this large revision.
In May 2025, production fell slightly by 0.1% compared to April 2025 following revisions of the preliminary results (preliminary figure: +1.2%). This exceptionally high revision is due to corrective reports from some companies in the automotive industry.
As you can see recent German economic history has been rather rewritten there of the down is the new up variety. We may see a downwards revision to the quarterly GDP estimate of -0.1% as well.
Comment
There was a time when the US Treasury issued notices like this.
Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator.
As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.
That was from August 2019 and the first term of President Trump. Things have been much quieter on that front this time around. That leads me to think he was to devalue as well. The problem is that not everyone can devalue and someone’s currency has to rise.
Also for China it reinforces the imbalance between manufacturing and hence exports and domestic consumption.
