The Trump risk on global trade

If it's any indication, China's latest international trade accounts underline the current missive of strengthening global growth and with it, global trade.

China's trade surplus improved to US$42.77 billion in the month of June from US$40.79 billion in the previous month. This is better than market expectations for a US$42.44 billion surplus and marks the fourth straight month of steadily growing surpluses since January this year when it recorded a US$9.41 billion deficit.

However, June's surplus is lower than the US$45.16 billion surplus achieved in the same month last year as exports expanded less than imports.

Stronger global demand sent Chinese exports up by 11.3% in the year to June that followed an 8.7% increase in the previous month. This is higher than market expectations for an 8.7% gain and is the fastest rate in three months.

On the other side of the ledger, China's imports soared by 17.2% in the year to June following the previous month's expansion of 14.8% highlighting the improvement in domestic demand. This is better than expectations for a 13.1% increase and the highest growth rate since March.

The Baltic Dry Index's (BDI) - which measures changes in the cost to transport various raw materials - gradual but upward trend validates the improvement in global trade.

After dropping to a record low reading of 290 in February 2016 - lower than the GFC bottom of 764 in December 2008 or that of the European debt crisis' 706 in February 2012 - the BDI climbed to 859 overnight.

The one major risk to the continued improvement in trade is Donald Trump and his "America First" policy.

One that Trump reminded the world once more last night when he revealed his thoughts on steel dumping. "Not only China, but others. We're like a dumping ground, okay? They're dumping steel and destroying our steel industry, they've been doing it for decades, and I'm stopping it. It'll stop."

"There are two ways - quotas and tariffs. Maybe I'll do both."

Trump has every right to do so under 'Section 421 of the Trade Act of 1974 (China-Specific Safeguards)' which specifies that:

"If a product of the People's Republic of China is being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of a like or directly competitive product, the President shall, in accordance with the provisions of this section, proclaim increased duties or other import restrictions with respect to such product, to the extent and for such period as the President considers necessary to prevent or remedy the market disruption."

China (and others) has every right to retaliate too. Trade war here we come.

And it won't do any nation any good, not least the US of A. The history of the Great Depression had already shown us, in particular the Smoot-Hawley Tariff Act.

The Smoot-Hawley Tariff Act - enacted on 17 June 1930 - increased the tariffs on US imports from 25.9% to 50%. What did this produce? Other countries imposed retaliatory tariffs on US imports.

US imports decreased by 66% between 1929 and 1933 and its exports plunged 61%. Ouch! We all know what happened thereafter - the depression deepened. The US unemployment rate jumped from 7.8% in 1930 to 25.1% three years later.

Read more: ChinaBDIBaltic Dry IndexDonald TrumpGreat DepressionUnited States
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