General

Is Sino US trade relations at risk? What is the future of China's trade? Recently, the leaders of China and Russia held a high-level meeting to discuss bilateral cooperation in areas such as economy and security. As China and Russia strengthen cooperation, Republican Senator Josh Holly of Missouri submitted a bill on ending normal trade relations with China.

The trade war launched by the United States against China in 2018 has led to increased trade imbalances between China and the United States and uncertainty in global trade. According to Chinese customs data, China's exports fell 6.8% year-on-year from January to February this year, while exports to the United States fell 15.2%, raising questions about China's trade prospects. In recent years, major events such as Sino US economic and trade frictions, the impact of the COVID-19, and the Russia-Ukraine conflict have successively impacted world trade. After experiencing a recession in 2020 and a strong rebound in 2021, the growth rate of world trade in goods (hereinafter referred to as "trade in goods") in 2022 is close to normal. According to the Kiel Trade Index of the Kiel Institute for World Economics in Germany, in January 2023, world trade grew by 2.1% month-on-month, with a fair overall performance. Among the major economies, exports from the European Union, China, the United States, Russia, and others all showed a positive month-on-month growth.

Looking forward to the global trade situation in 2023, from the perspective of influencing factors, the growth rate of world trade in 2022 will not increase or decrease significantly, so the role of base period factors on world trade in 2023 can be ignored, and the COVID-19 is no longer the main factor impeding world trade, but at the same time, world trade still faces many risks at the economic and political levels.

main points

1. In 2022, the foreign trade performance of developed economies was slightly better than that of emerging and developing economies because the import growth rate of developed economies was significantly better than that of emerging and developing economies.

2. From the perspective of China's aviation market, the number of international flights is increasing rapidly after the release of the "Class B and Class B management" policy of the COVID-19 epidemic. The resumption of business transactions can contribute to the business growth of multinational companies, while the development of service trade can indirectly promote the growth of trade in goods.

3. Despite the pressure on China's export situation in 2023, it is expected that the dividends brought by the Regional Comprehensive Economic Partnership Agreement (RCEP) will continue to support trade growth in East Asia regions such as China, ASEAN, Japan, and South Korea.

After experiencing a strong rebound in 2021, the real growth rate of world trade significantly decreased in 2022. Due to the impact of the COVID-19 epidemic and other factors, world trade will decline by 5.3% in 2020. Under the combined effects of demand factors, structural factors, and base period factors, world trade rebounded strongly in 2021, with a real growth rate of 9.7%, the highest since the 2008 international financial crisis. In 2022, the real growth rate of world trade fell back to 3.9%. Among them, world trade increased by 4.4% in the first quarter. The impact of the Russia-Ukraine conflict was mainly reflected in March April, and the growth rate of world trade in the second quarter fell to 4.0%. World trade rebounded in the third quarter, with a growth rate of 5.6%. World trade grew by only 1.0% in the fourth quarter, mainly because the COVID-19 in the fourth quarter had a great impact on China's production and demand, leading to a downturn in China's foreign trade and an impact on world trade as a whole.

The sharp rise in commodity prices has boosted the nominal growth rate of world trade in goods. In 2022, the trade price of commodities increased significantly, with an overall increase of 9.3%. Among them, the price of energy increased by 77.2%, while the price of other primary products increased by 6.2%. The current round of commodity price increases began in 2021. In 2021, the nominal growth rate of world trade in goods was 27%, 17.3 percentage points higher than the actual growth rate. This is mainly due to the rise in commodity prices, especially energy prices.

In terms of economies, in 2022, the foreign trade performance of developed economies was slightly better than that of emerging and developing economies, because the import growth rate of developed economies was significantly better than that of emerging and developing economies. In 2022, imports from developed economies increased by 5.8%, while imports from emerging economies only increased by 2.0%. Exports from emerging economies increased by 4.0%, while exports from developed economies only increased by 2.7%. Among them, the euro area and the United States perform relatively well in the foreign trade of developed economies. The export growth rates of the euro area and the United States were 3.5% and 4.8%, respectively, while the import growth rates were 6.7% and 7.0%, respectively.

With the weakening of the pathogenicity of Omikjon virus, the popularization of vaccination, and the accumulation of experience in prevention and control, the current situation of COVID-19 epidemic tends to be stable globally, which will greatly support the world trade situation in 2023. Many countries and regions will no longer release epidemic data, and China will optimize and adjust prevention and control measures according to the time and situation, and adjust novel coronavirus infection from "Class B A" to "Class B B B" on January 8, 2023. The promotion channels for world trade through a stable epidemic include both direct and indirect channels: direct channels refer to the fact that a stable epidemic reduces the possibility of production interruption, which is conducive to stabilizing exports. Indirect channels refer to the gradual resumption of personnel flows as countries open their borders and resume flights, which will greatly promote the growth of world service trade. According to the data released by the International Air Transport Association on February 6, 2023, the global air traffic volume in 2022 surged by 64.4% compared to 2021, returning to 68.5% of the pre epidemic level. From the perspective of the Chinese aviation market, the number of international flights has increased rapidly since the release of the "Class B and Class B management" policy. The resumption of business transactions can contribute to the business growth of multinational companies, while the development of service trade can indirectly promote the growth of trade in goods.

In addition, the development of the digital economy is also conducive to promoting global trade growth. According to data from the World Trade Organization, since 2005, the growth of world digital services exports has been significantly faster than that of goods trade. In 2021, the world's exports of digital services have reached 1/4 of the exports of manufactured goods. In 2023, the development of the digital economy will continue to promote the development of trade in goods.

1. The outlook for world economic growth is weak and may even fall into recession

The growth rate of the world economy in 2023 will be lower than that in 2022. In its World Economic Outlook report in October 2022, the International Monetary Fund predicted that the world economy would grow at 2.7% in 2023, the lowest growth rate since 2001, except for the years hit by the international financial crisis and the COVID-19. Although the International Monetary Fund increased the world economic growth rate in 2023 by 0.2 percentage points to 2.9% in January 2023, this growth rate is still 0.5 percentage points lower than that in 2022. The latest forecasts from the World Bank and the Organization for Economic Cooperation and Development also show that the growth rate of the world economy in 2023 will be significantly lower than that in 2022. The Global Economic Outlook report released by the World Bank in January 2023 pointed out that against the backdrop of high inflation, rising interest rates, and reduced investment, the global economic growth rate is slowing sharply, and it is expected that the global economic growth rate will only be 1.7% in 2023.

2. Beware of negative growth or even severe recession in the world economy in 2023

The main risk factors that may trigger a world economic recession are as follows: First, monetary tightening in developed economies may lead to economic stagnation; The second is that the debt of emerging and developing economies is generally rising, and their vulnerability coupled with the deterioration of the external environment may trigger a debt crisis, leading to economic recession. The recession of the world economy means that the demand of countries is sluggish, which will greatly affect world trade.

3. The Russia-Ukraine conflict, Sino US relations and other political risks continue

The Russia-Ukraine conflict has lasted for a whole year since its outbreak in February 2022, and it is still unresolved in the short term from the current situation. The path of Russia-Ukraine conflict affecting world trade includes: first, it directly affects both Russia and Ukraine and European countries; Second, indirectly affect the economy and trade of other countries through supply chains and trade channels; The sanctions and political rivalries triggered by the crisis continue to affect the world economy and supply chains. The Russia-Ukraine conflict may continue to escalate in 2023, which will further drag down the global economy and trade.

4. Continued Sino US economic and trade frictions

According to recent data released by the United States Department of Commerce, the total trade volume between China and the United States reached a record $690.6 billion in 2022, but the proportion of bilateral trade in their respective total foreign trade is continuously declining. An important factor behind the decline in the proportion of bilateral trade lies in the continuous trade frictions between China and the United States since 2017. Although both countries currently have the willingness and need to ease bilateral relations, the political complexity in the United States makes it more difficult to ease the relationship. If trade frictions between China and the United States significantly escalate in 2023, it will undoubtedly have a significant negative impact on world trade and the world economy. In particular, the United States continues to increase its control over China in the high-tech sector, which will greatly disrupt the supply chain of related industries.

In addition, the risk of increased political confrontation in other hot spots cannot be ignored. For example, the emergence of new crises in Iran and the Korean Peninsula may trigger competition among major countries and affect the operation of trade.

5. Still need to be alert to the risks of "Black Swan" and "Grey Rhinoceros" incidents

In recent years, various "black swan" and "gray rhino" incidents have emerged in an endless stream, causing a significant impact on the world economy and trade. In 2023, it is also necessary to be vigilant about the impact of the "Black Swan" and "Grey Rhino" incidents on world trade.

First, although the recent global epidemic situation is more stable than before, it cannot be ruled out that the mutation of COVID-19 causes the emergence of more pathogenic strains, which significantly affects the global epidemic prevention and economic and trade situation.

The second is that the probability of extreme climate change or natural disasters is increasing, which will trigger a chain reaction once they occur and seriously impact the economy of important countries.

The third is the system impact caused by long-term blockage of important shipping channels. For example, in March 2021, the container ship "Changci" ran aground on the Suez Canal, causing a blockage in the canal, causing delays in global trade for several months, and leading to soaring freight rates and serious container shortages, making it a "Black Swan Event" in shipping history.

To sum up, from the perspective of the overall situation of global trade, although the epidemic is no longer the main factor impeding global trade, under multiple risk constraints, the outlook for world trade in 2023 remains difficult to be optimistic, and the growth rate will decrease compared to 2022. According to the prediction of the World Trade Organization in October 2022, the growth rate of world trade in 2023 will be 1.0%, which is 2.5 percentage points lower than its expected growth rate in 2022.

From the perspective of major countries (regions), it is expected that the East Asian region will remain the most important engine of world trade in 2023. According to the "Trade Statistics and Prospects" released by the World Trade Organization in October 2022, in 2023, North America, Asia, and the CIS countries' trade in goods performed relatively well. Among them, the CIS countries account for a small proportion of world trade and have a limited pull on global trade. From the perspective of the fundamental situation between the United States and the euro area, according to the prediction of the International Monetary Fund, the economic growth rate of the United States in 2023 decreased by 0.6 percentage points compared to 2022, while the economic growth rate of the euro area in 2023 was only 0.7%, lower than 2.8 percentage points in 2022. Against this background, its trade growth in 2023 may be affected.

In contrast, for China, the International Monetary Fund predicts that China's economic growth rate will increase from 3% in 2022 to 5.2% in 2023. Despite the pressure on China's export situation in 2023, it is expected that the dividends brought by the Regional Comprehensive Economic Partnership Agreement (RCEP) will continue to support trade growth in East Asia regions such as China, ASEAN, Japan, and South Korea. Overall, globally, the trade performance of East Asia in 2023 remains the most anticipated.