November Trade winds blow China off Course

China managed to shrug off slowing global growth for months. No longer—November trade data was unambiguously bad

By guest author Nathaniel Taplin, Columnist, Heard on the Street, The Wall Street Journal

The trend is your friend, economists and investors love to say—unless it is not.

Strong Chinese exports have, for months, managed to buck slowing global growth and rising trade tensions. Not anymore—November export data released on the weekend was the worst, excluding the holiday period around Lunar New Year, since late 2016. Import growth also slowed sharply, partly due to falling oil prices.

Economists have been expecting Chinese trade data to falter in line with the rest of the world for months. The fact that it finally has—and that exports to the U.S. held up better than elsewhere—hands additional leverage to President Trump’s team as negotiations on a comprehensive trade deal with China shift into high gear.

For the weak numbers come as signs mount that China’s economy is beginning to slow sharply. November’s official purchasing managers index showed the factory sector on the verge of contraction for the first time since mid-2016 and the job market weakening in services and construction.

Falling imports of iron ore, copper and coal in November from a year earlier add to evidence that the construction sector, the big bright spot in China’s economy in 2018, is now beginning to stumble. Last week, China’s cabinet announced policies to support employment and consumption, including broader subsidies for the jobless and higher tax rebates for companies that do not lay off workers. Chinese policy makers are doubtless fuming about the arrest of Huawei scion Meng Wanzhou, but with the employment picture markedly deteriorating, they still have a strong incentive to avoid another trade blow-up in early 2019.

For sure, there is not much evidence that the trade conflict itself is the main problem for Chinese exports so far—instead, the culprit looks to be slower global growth, particularly in Europe. Chinese exports to the U.S. slowed in November but still rose 9.8 % on the year, against 4.8 % growth in shipments to Japan and 6 % growth in Europe-bound shipments. In a sense, China is just catching up: Growth in Korean and Taiwanese exports has been trending down for months. Chinese exports likely held up better initially because of the cheaper yuan and frontloading in U.S.-bound shipments ahead of expected higher tariff rates.

Still-strong exports to the U.S. paired with marked deterioration everywhere else strengthens Mr. Trump’s hand during this crucial 90-day negotiation period. The data also contains a warning, however—signs of rapidly slowing global growth are everywhere now. How long the U.S. can keep shrugging that off, particularly with its housing and financial markets struggling, is questionable. That strong negotiating position might look much more rickety before too long.