|Follow-up to my post #1593:|
Don't miss the snippet on the trade in steel between Japan and China... and then, think again about the current tariff war between the US and Europe --as I once predicted, China's gonna take the slack out of her "natural" trading partners whereas Europe's gonna get stuck with shiploads of steel....
But although more modest export growth to the U.S. would be economically inconvenient for East Asia, it would not be catastrophic. While the U.S. remains the region's single-biggest export market, it is by no means the only one. Trade within Asia is increasingly important and China in particular is fast emerging as a key trading partner for countries across the region.
"China could become the Brazil of Asia: a continental-size economy with an open domestic market," says Cliff Tan, director of Asia-Pacific economic and market analysis at Citibank in Singapore.
Although China's absolute size as an export market remains small compared to the U.S., the speed at which it is developing is breathtaking. Last year--a year in which global trade contracted by 1% and in which China slapped punitive tariffs on Japanese cars, mobile phones and air-conditioners--Japan's exports to China jumped by 15% in yen terms. According to the Japan External Trade Organization, China has become Japan's second most important export market, up from fourth place the previous year.
And the trend is continuing this year. "Look at Japanese steel exports to China. They've gone completely ballistic," says Jesper Koll, first vice-president at Merrill Lynch in Tokyo. Sure enough, sales of Japanese-made steel to China more than doubled in June compared to the same month last year, the 12th monthly increase in a row.
And it's not just Japanese exporters who are benefiting from soaring Chinese demand. "China is by far the fastest-growing major export market for South-east Asia," says Steve Brice, chief economist at Standard Chartered Bank in Singapore. In the year to March, he says, Southeast Asia's seasonally adjusted exports to China grew by 9%. Over the same period the region's shipments to the U.S. dropped by 12%, while exports to Europe fell 18%.
Even so, many economists remain sceptical about China's ability to emerge as an engine of intraregional trade. China's importance, they say, is as a low-cost processing centre assembling imported goods for re-export, more often than not, to the U.S. If U.S. import demand slows, so will China's, they maintain.
That's only partly true. According to Rob Subbaraman and Graham Parry, regional economists at Lehman Brothers in Tokyo, the bulk of China's 10% rise in imports over the first half of this year was fuelled by a 20% surge in demand for goods destined for re-export.
But, significantly, the strongest demand growth for China's exports came not from the U.S. or Europe, but from elsewhere within Asia. China's shipments to the rest of Asia (ex-Japan) rose 21%, they note, stronger than the 19% rise in exports to the U.S. "China is more and more the epicentre of intraregional trade," says Subbaraman.
And that intraregional trade is looking a lot more robust. Although roughly half of imports by countries in the region consist of raw materials and part-processed goods, which are highly dependent on external demand from the U.S. and Europe, around 30% are capital goods and 20% consumer products, both of which rely far more on locally generated demand.
In all, Subbaraman and Parry estimate that between one-third and a half of Asia's intraregional trade is reliant on demand from within the region, meaning that domestic-demand-driven intraregional trade stands ready to act as a powerful buffer to any moderation in export demand from the U.S.