International Trade – Wars vs Data


In May 2018, President Donald Trump tweeted “trade wars are good, and easy to win”, yet a year and a half on from that tweet both the United States and China are still playing a tit-for-tat game, effecting the markets as a whole. As a result the VIX, a measure of market volatility, reached its highest levels in December 24, 2018 since 2011. This has become a great source of uncertainty throughout this period, with Hong Kong’s Hang Seng index falling more than 13% and the Shanghai Composite down by nearly 25% in 2018 alone. In contract the S&P 500 declined by 6.59% during 2018. The global uncertainly is largely effecting global trade.

This week China and Germany reported the latest trade figures. Both countries seem to be heading in the opposite direction. Germany, the largest economy within Europe showed a glare of hope, following a negative month in June.

The Federal Statistics Office stated that the seasonally adjusted exports in Germany rose by 0.7% during the month of June. Meanwhile imports fell by 1.5% – registering a trade surplus of €20.2billion, after a downward revision of €18 billion in the prior month.

On the other hand a Reuters’s poll of economists, had forecasted that both German exports and imports would fall from 0.5% and 0.3% respectively – registering a trade surplus of €17.5billion.

The solid start to the third quarter, eased the tone of a recent run of negative data from Germany. Which data had triggered concerns of a possible recession within the third quarter of this year – as German gross domestic product contracted in two successive months.

Despite the choppy figures in the past months, still during the period between January and July German exports contributed strongly towards the 2.9% growth in the European Union, with Germany registering 1% growth.

German exports to China and the US have performed better than other European countries if we were to compare the first six months of this year with the same period in 2018. Exports to both China and US were up by more than 4%.

The trade figures were primarily effected by a decline in exports from Scandinavian and Baltic countries. Moreover the current economic turmoil in Italy did leave an impact on German trade as exports were down by 1.5%. On the other hand, Eastern European Countries remain an important driver for growth.

The United States remains the single and most important export market for Germany, but possible US tariffs might be of detriment towards Germany’s trade. Right now, it is not the direct impact between US-Chinese trade conflict which is hurting German trade but rather the global uncertainty.

As stated the trade war is indirectly effecting the German economy, while China has been bitten quite hard, and will continue to do so throughout the course of this year as almost all Chinese products will have a US tariff before the end of 2019.

China’s exports fell in August as the trade war with the United States continued to effect the world’s second largest economy.

Chinese exports fell by 1% year-on-year in the month of August, missing the estimated 2.1% growth according to the Bloomberg poll.

In the month of July export figures showed growth of 3.3% over the same month last year. July’s figures seem to be just a one-off, as they were likely driven by front-loading as new tariffs of 15% on about $110 billion of Chinese goods took effect in September 1. The one-off rise seemed to be triggered by the fact that American buyers of Chinese goods, subject to new tariffs, were likely to have filled their inventories as much as possible before a further rise in tariffs.

China’s exports to the US in August, dropped by 16 per cent to $ 37.3 billion. This was relatively larger than July’s decrease of 6.5%. Imports declined by 19.1% and 22.3% in July and August respectively. Trade surplus reached $26.95 billion.

The depreciation of the Yuan of 3.8% in the month of August, failed to ease the negative impact on exports caused by the trade tariffs imposed by the U.S. Analysts’ expectations had been that a falling Yuan would offset some cost pressure.

In light of the current scenario, on September 6 the Central Bank of China announced that it will be cutting the Banks’ reserve requirements for the seventh time since early 2018 in order to inject more liquidity in the economy and stimulate demand.

For months analysts have been raising concerns regarding China’s consumption levels as retails sales are underperforming, with government support is yet to effect the real economy. The import decline is also leaving a negative impact on the manufacturing index as many of China’s imports are components ordered by factories for use in goods for export. This is being reflected in the Manufacturing Purchasing Index as exports remain in negative territory for the fifteenth month in a row.

Looking ahead, the US-China trade battle remains important for the outlook of the global economy. This might be detrimental to the European Union with Trump already mentioning tariffs on cars and future trends in the Chinese markets for automotive. Analysts expect that growth is yet to slow down further with more US tariff measures due to take effect in October 1 and December 15.  It all boils down to the renewed trade talks in October in Washington, the first since a failed US- China trade meeting in July.

As we have written last week, markets are constantly being effected by the political events globally. It is of utmost importance to diversify in order to mitigate unsystematic risk to lessen the impact of market volatility. While political noise will impact the value of our portfolios on a day-to-day basis, investors should never lose sight of fundamentals.


Julian Mangion, ICWIM, B Com (Melit), is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]