InternationalChina

China’s Exports Crash 25%—But Hold On

By Scott Cendrowski
<h1>Trade</h1> President Obama's National Export Initiative aims to double exports by 2015 to $3.5 trillion based on the idea that every $1 billion in exports supports 6,000 jobs. The U.S. Department of Commerce estimates that at the current annual 16% growth rate, we are on track to hit that mark. Many factors have aided this achievement. The Export-Import Bank, which provides direct trade loans and guarantees, as well as insurance to businesses that export, recently increased its lending cap by 40% to $140 billion. Looking ahead, the President hopes to make progress on free-trade deals passed under the George W. Bush administration; the Trans-Pacific Partnership and WTO negotiations; and increased protection of intellectual property. He has also announced plans to eliminate tax loopholes and pose an immediate tax on profits by U.S. companies overseas. To expand trade opportunities for U.S. firms, Romney also wants to pursue new free trade agreements with nations committed to free enterprise and open markets. But he supports unilateral and multilateral punitive measures to deter unfair practices by China, including undervaluing the yuan to make exports cheaper. He envisions a territorial tax system, which would overturn the current system that requires U.S. businesses to pay income taxes, regardless of where revenues are generated. His goal: to encourage domestic investment of foreign profits and make U.S. companies more competitive in the world market. Reality Check: Most U.S. exporters are small to midsize businesses (with up to 500 employees), not Fortune 500 companies. These enterprises account for about 97% of all exporters and importers, the International Trade Administration reports. Despite the nation's gains, many small business owners face stiff tariffs overseas. They would like to see a more level playing field, especially in China, which is the third largest export market for small and midsize companies.

Trade

President Obama's National Export Initiative aims to double exports by 2015 to $3.5 trillion based on the idea that every $1 billion in exports supports 6,000 jobs. The U.S. Department of Commerce estimates that at the current annual 16% growth rate, we are on track to hit that mark. Many factors have aided this achievement. The Export-Import Bank, which provides direct trade loans and guarantees, as well as insurance to businesses that export, recently increased its lending cap by 40% to $140 billion. Looking ahead, the President hopes to make progress on free-trade deals passed under the George W. Bush administration; the Trans-Pacific Partnership and WTO negotiations; and increased protection of intellectual property. He has also announced plans to eliminate tax loopholes and pose an immediate tax on profits by U.S. companies overseas. To expand trade opportunities for U.S. firms, Romney also wants to pursue new free trade agreements with nations committed to free enterprise and open markets. But he supports unilateral and multilateral punitive measures to deter unfair practices by China, including undervaluing the yuan to make exports cheaper. He envisions a territorial tax system, which would overturn the current system that requires U.S. businesses to pay income taxes, regardless of where revenues are generated. His goal: to encourage domestic investment of foreign profits and make U.S. companies more competitive in the world market. Reality Check: Most U.S. exporters are small to midsize businesses (with up to 500 employees), not Fortune 500 companies. These enterprises account for about 97% of all exporters and importers, the International Trade Administration reports. Despite the nation's gains, many small business owners face stiff tariffs overseas. They would like to see a more level playing field, especially in China, which is the third largest export market for small and midsize companies.
Photo: JOE KLAMAR/AFP/Getty Images

Yep, the February trade numbers out of China were downright frightening: exports fell more than 25% year-over-year in U.S. dollars.

At first glance, that’s a horrible figure, the worst decline since 2009. It was also well below the 14.5% drop expected by economists and the 11% drop recorded in January. In renminbi terms, it was the biggest year-on-year drop ever.

But panicking now might be early. It’s worth noting that neither the Chinese stock market nor its currency have reacted much to the news.

So what’s going on?

The export crash is misleading in this case because the January and February months host China’s biggest holiday, the Chinese New Year, when factories rush to meet orders before business shuts down for the better part of a week. The holiday’s start date shifts according to the lunar calendar and can distort comparisons.

In February 2015, exports jumped 48%. So this February exports were up against a strong performance last year. No one would confuse last year as a good one for China’s trade.

 

Imports, less affected by the holiday, performed better this February—improving to a 14% decline from a 19% decline in January.

This year’s figures are still not favorable. The combined January and February export decline this year was 18%, the worst start to a year since 2012, according to HSBC. But the real test for trade will come next month, when China’s struggling export sector gets a favorable baseline comparison to last March, when exports fell 15%.

If the numbers don’t improve then, then the real worrying should start.