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China trade data reflects pessimism about trade talks – ING

Iris Pang, Economist at ING, notes that China’s exports grew 15.6% year-on-year, higher than the consensus of 11.7% and they believe this growth is due to exporters’ concern that the 10% tariffs on $200 billion of exported goods to the US will rise to 25% on 1 January 2019, which has led them to front-load exports.

Key Quotes

“Front-loading export activities should continue in November and December. So export growth data will continue to be stronger than in previous holiday seasons.”

“We think that President Xi’s meeting with PresidentTrump at the end of November will not achieve positive results and as such the increase of the current tariff rate from 10% to 25% on $200 billion of US imported goods from China is highly probable.”

“We’re hoping the meeting doesn’t damage the trade relationship even further, as Trump once said that if trade talks fail, he could raise tariffs on all Chinese imported goods.”

“Front-loading is also the reason for strong import growth (at 21.4% YoY) though to a lesser extent, as importers worry that future export growth will decline.”

“We do not think so as we believe that the USD/CNY and USD/CNH largely follow the direction of the dollar index. We believe in this trade conflict that China will passively follow the dollar index to avoid being labelled a currency manipulator by the US, and to avoid further possible damage on trade and investments.”

“Our forecasts on USD/CNY and USD/CNH at 7.0 and 7.30 by end of 2018 and 2019, respectively, are still intact.”

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