How Inflation is Distorting Global Trade Flows
China reported robust trade flows for July 2022. Overall, shipments from the world’s second-largest economy and top exporter rose 18% year on year to $333 billion. That was the fastest pace of the year, and beat analysts’ predictions of around 15%, but it’s largely due to rising prices for commodities from coal to soybeans, according to an analysis by Trade Data Monitor, the world’s premier source of trade statistics.
That is sure to heave repercussions throughout the global trading system, from countries reducing their reliance on costlier foreign supply chains, boosting domestic industries, to reduced demand as consumers struggle to maintain purchasing levels.
The higher prices are everywhere, they manifest themselves clearly in trade statistics. Coal imports, for example, dropped 21.8% to 23.5 million tons, but rose 28.2% by value to $3.8 billion. Soybean imports dropped 9.1% to 7.9 million tons. By value, however, they increased 16.1% to $5.8 billion. Overall, imports of agricultural products rose 8.8% to $20.9 billion.
Perhaps most alarming is China’s rapid increase in imports of fertilizers. The country’s purchases of the key ingredient for planting crops rose 11.1% to 751,458 tons, but by value increased 114.6% to $456 million. Higher prices for fertilizers signal possible food shortage and a scramble for agricultural resources.
Inflation means that companies are more likely to look for suppliers closer to their headquarters instead of looking at international trade markets. Chinese imports from the U.S. dropped 4.8% to $13.5 billion. From the European Union, they fell 7.3% to $24 billion. However, imports from the ASEAN countries in China’s immediate geographical area jumped 9.4% to $33.8 billion.
Overall imports rose only 2.3% to $231.7 billion. The Chinese trade surplus with the rest of the world reached a record $101.3 billion in 2022, topping the old record set in June.
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