Global markets are getting jittery over China’s move to tighten exports of rare earth magnets, crucial components that are vital to supply chains across the world.
But while the U.S. administration threatens a 100% import tax on China, some economists argue that applying tariffs hasn’t really done much to change the game so far.
Neil Shearing, chief economist at Capital Economics, says Chinese exports to the U.S. have fallen by 30% since January, while the U.S. trade deficit with China is the smallest since shortly after it joined the World Trade Organization (WTO) in 2001.
He also points out that China’s overall exports are holding up surprisingly well. September data shows shipments growing at an annual pace of 8%, hovering near record highs.
At first glance, these figures don’t seem to add up.
“There is some evidence that emerging economies are now starting to absorb more of China’s surplus,” Shearing says. “Similarly, it is likely that some goods are being rerouted from China to the U.S. via lower-tariff countries.”
“The key point is that the U.S., by running a deficit, is providing demand to the rest of the world,” he adds.
“The rest of the world, in turn, is then able to provide demand to China.”
Source: Reuters
