The Little Trade That Could
China has displaced the US to become the biggest source of exports to the European Union, reports the Financial Times. Imports from China into EU countries rose by 21 percent last year, while imports from the US rose by 8 percent. Meanwhile, EU exports to China rose by 23 percent last year.
The trends in Chinese trade with the US and EU are showing strong similarities. Both the US and EU are running large trade deficits with China. Imports from China are growing at high rates, but not necessarily outpacing growth of exports to China. This is the silver lining: perhaps the US and EU will catch up, over time, if EU/US export growth to China continue to exceed import growth.
Maybe. But I’m skeptical — at the least, it will take a long time. US and EU exports to China remain just a fraction of their imports from China (in the EU’s case, about 25 percent), so exports would have to grow much, much faster than imports in order to catch up in a short period. More importantly, China is not stopping production at the lower-end of the value chain. According to the FT, the fastest growth in Chinese exports to Europe has been in mechanical and electrical machinery. As China continues to move its exports up the value chain….
It’s from that point that the the competition really begins.
