By Guan Tao

T he US-China trade dispute has escalated since mid-June, with the two countries ratcheting up their import tariffs. The US announced the first round of tariff hikes on June 15, imposing a 25% duty on US$50 billion worth of Chinese goods. A day later, China responded with countermeasures of equal scale. Threatened tariffs on $34 billion of Chinese imports went into effect on July 6, and the remaining US$16 billion was implemented on August 23. The US imposed another tariff of 10%on $200 billion worth of imported Chinese goods,a move that was followed by China's imposition of tariffs ranging from 5%-25% on $60 billion of imports from the US.

Plans by both sides to impose more punitive tariffs have been put on hold but there is no resolution to the underlying problems.

What effects can we see from the trade dispute?Chinese and US trade statistics for the first eight months of the year can provide some clues.

If we look at the trade balance, China sustained less damage than the US. According to Chinese data,China had an overall trade surplus of US$169.7 billion over the January-August period this year, down 26.4%from the same months last year. During the same eight-month period this year it had a US$193.1 billion surplus with the US, up 13.8% from a year earlier.The increase was especially obvious since the official outbreak of the dispute in mid-June. China's trade surplus with the US maintained double digit growth year on year over the June-August period, expanding 13.9% in June, 11.3% in July, and 18.7% in August year on year. The monthly surplus was US$28.9 billion in June, US$28.1 billion in July and US$31.1 billion in August. These were the highest levels for the year at that point (see Chart 1), with August setting a new record.

Chart 1: The China-US trade balance for January-August 2018(Chinese data)

According to US statistics, the US had an overall trade deficit of US$573.9 billion in the first eight months of this year, up 8.4% over the previous year. Its deficit with China was US$261.1 billion, up 9.0% from a year ago, contributing 45.5% of the total US deficit (up 0.2 percentage point from the same period last year)and 48.1% of the total increase during the period. The monthly trade deficit with China maintained year-onyear growth between June and August, rising 2.8% to US$33.5 billion in June, 9.6% to US$36.8 in July and 10.2% to US$38.6 billion in August (see Chart 2). These were the three biggest deficits of the year (as of that month) and August was a record high.

Chart 2: US-China trade balance for the first eight months of 2018(US data)

Note: The accumulated total for 2018 was for the first eight months Chart 3: China's growth rate for total exports and exports to the US(Chinese data; unit: %)

There are two possible explanations for the increased trade imbalance with China. One is that companies in China were trying to speed up their exports ahead of the imposition of further tariffs. The other is that the impact of the tariff increase was partially offset by accelerated economic growth, stronger domestic demand as a result of tax reform in the US and the appreciation of the dollar. The statistics from the two countries suggest that the latter explanation is more likely.

According to Chinese statistics, China's exports overall rose 13.0% year on year during the January -May period, while exports to the US were up 12.3%.Exports overall in July and August combined rose 11.0% year on year, while exports to the US were up 12.3% (see Chart 3). It is reasonable to conclude that the increase in China's exports to the US from June to August resulted from enterprises attempting to speed up exports to avoid punitive tariffs. However,the growth rate in China's exports to the US for the first eight months was up 12.3%, roughly equal to the accumulated rise of 12.2% year on year in China's total exports for the same period (see Chart 3). In 2017,China's exports to the US rose 11.3% - far higher than the 7.9% average growth rate of the country's total exports (see Chart 3). These figures don't support the first explanation.

Similarly, US statistics do not show an acceleration of imports from China. According to US data, total imports rose 9.3% year on year over the first eight months, 1.3 percentage points higher than the 8.0%growth in imports from China (see Chart 4). Over the first five months of the year, US imports from China rose 9.4%, outpacing the rise in imports overall of 8.8%. But from June to August, US imports from China were up 6.0%, 4.2 percentage points below the 10.2%increase in total imports (see Chart 4). If companies in the US were speeding up their imports, this should have been evident earlier in the year. But US imports from China didn't rise faster than the average growth rate in total imports. Moreover, it was widely known that any increase would not be made until the end of May.

Chart 4: Growth in total US imports and US imports from China over the first eight months in 2018, according to US data (unit %)

Chart 5: Growth in total US exports and US exports to China over the first eight months in 2018, according to US statistics (unit %)

Furthermore, if Chinese enterprises were in fact speeding up their exports to the US in an effort to beat the new and higher tariffs, wouldn't it be likely that US enterprises tried to do the same thing with their exports? In fact, US exports to China increased by only 0.5% from June to August, 9.1 percentage points lower than the growth in exports overall in the same period and 7.3 percentage points lower than the growth rate over the first five months of this year (see Chart 5).

From the comparison of US and China statistics it seems more likely that China's expanded trade surplus with the US was a result of US demand rather than accelerated supply from China. Additionally, the central parity rate of the renminbi against the US dollar fell by 6.0% between June and August (see Chart 6)under the combination of overall US dollar strength,the US-China trade dispute, and international financial turmoil. This helped offset the impact of increased tariffs on China's exports. Therefore, even if Chinese exporters were trying to speed up shipments to the US, the results were limited.

According to US statistics, of the 66 types of goods classified as sub-categories in the United Nations Standard International Trading Classification (SITC),21 saw negative growth in exports to China over the first eight months of this year. In August alone, 33 of these sub-categories showed negative growth. Of the 67 types of goods imported to the US from China,only 13 showed negative growth in the eight-month period and in August alone there were 18 such subcategories that showed negative growth. US exports to China saw a 14.2% year-on-year decrease in August,while US exports overall were up 8% (see Chart 5). US imports from China rose 4.5% in August, while imports overall were up 11.1% (see Chart 4).

According to Chinese data, of the 98 types of goods classified in the Harmonized Commodity Description and Coding System compiled by the World Customs Organization, 13 categories showed negative year-onyear growth in exports to the US over the first eight months of this year. In August there were 18 categories of goods that posted negative growth. However, of the 98 categories of goods imported from the US,35 recorded negative growth. In August the number reached 22 categories. The statistics also support the conclusion that US exports saw a bigger impact from the trade dispute. After the implementation of the first round of tariffs, China's exports to the US saw a 13.2% year-on-year increase in August, 3.4 percentage points higher than the average growth rate of China's total exports (see Chart 4). The performance was much better than that of US exports to China, which showed negative growth over the same period (see Chart 5).China's imports from the US rose 2.2%, compared with the 19.9% rise in imports overall (see Chart 7).

China's exports to the US in August rose relatively rapidly. This may have had little to do with the release of the second round of US tariffs in mid-July. As stated earlier, statistics from the US don't support the conclusion that US companies were speeding up imports. In addition, there is a lag time between Chinese export declarations and US import declarations.

Chart 6: The US dollar index (100 in March 1973) and the renminbi central parity rate (unit: renminbi/US dollar)

Chart 7: Growth in China's overall imports and imports from the US over the first eight months of 2018 (Chinese data; unit %)

Other statistics show how damage to the US exceeded damage to China's interests. Goods included in the first round of tariffs accounted for only 10%of exports from China to the US, but 30% of exports from the US to China. Due to the hollowing out of US manufacturing capacity it will be difficult for the US to find replacements for China in the global supply chain in a short period of time. Additionally, US companies are being hit by the tariffs on import from China. It is estimated that 59% of the US imports from China that were subject to the first-round of tariff increases were produced by foreign-invested companies. Many of these had American investment capital.

According to US statistics, exports to China for many of the 66 types of goods classified as SITC subcategories showed significant falls this year. Exports of agricultural products were hit particularly hard.There was a 30%-40% drop in exports of meat and meat products year on year beginning in May. There also was an 85%-98% drop in grain and grain product exports year on year starting at about the same time. Exports of oilseeds and oil-bearing fruit also recorded negative growth beginning in June, with a 94.5% decline in August. To cushion the impact, the US government proposed allocating US$12 billion in emergency assistance to US farmers in late July. The US Secretary of Agriculture stated that "perhaps it was a mistake" for the US to have been overly dependent on the Chinese market for exports of agricultural products.

The impact was expanding as the first round of tariff increases took effect and the trade dispute escalated. For example, in August there was an 82%fall in coal, coke and briquette exports compared with a year ago, a 46% drop in vehicle exports, and a 30% decrease in office machinery and automatic data processing equipment. If we look at the 66 types of export types classified as SITC sub-categories, 33 of them showed declines in exports to China of 1%-95%over the January-August period compared with a year ago. In August alone 22 such sub-categories showed a decline of more than 20%. As for China's exports to the US, however, 18 of the 98 categories of export items in the Harmonized System decreased 2%-80% year on year. Only 5 categories showed declines of more than 20% over the same period.

In conclusion, it appears that the US-China trade dispute has had a greater impact on US foreign trade than on China. This result is not surprising in view of the state of domestic investment and savings in the US, the global value chain, the international division of labor, as well as the competitive advantages of China's manufacturing sector. But China's foreign trade has sustained damage as well. Other negative effects,such as financial market instability, will also need to be tallied in the months ahead.

The author is a senior researcher at China Finance 40 Forum