China Reports Biggest-Ever Annual Trade Surplus With U.S. -- 3rd Update

By Lingling WeiFeaturesDow Jones Newswires

China reported its largest-ever annual trade surplus with the U.S. last year while its overall imbalance with the world shrank, potentially strengthening the Trump administration's case for tougher penalties and other trade actions against Beijing.

A global recovery led by the U.S. provided a shot in the arm for Chinese exporters last year, boosting China's economy. Rising American demand, in particular, pushed up Chinese shipments, expanding China's trade surplus in goods with the U.S. by 10% to $275.8 billion in 2017, according to Chinese customs data released Friday.

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That figure, a record for the nearly five decades for which such data exist, marks the U.S.'s largest trade deficit with any trading partner. By comparison, China's overall foreign trade surplus contracted 17% as higher prices of oil, iron ore and other commodities raised the value of inbound shipments from countries like Russia, Australia and Saudi Arabia.

The widening of the China-U.S. trade imbalance comes as U.S. and Chinese officials and business groups warn of sharper clashes over trade between the world's largest economies.

"The risks of growing U.S.-China trade conflicts are high," said Zhang Ming, a senior economist at the Chinese Academy of Social Sciences, a government think-tank in Beijing.

President Donald Trump has promised sterner measures to curb the U.S.'s chronic trade imbalance with China. In a turnabout in tactics, Trump administration officials have set aside the longstanding practice of eking out piecemeal concessions from Beijing on trade and market access. Instead, U.S. officials are preparing sanctions or other enforcement actions against China to try to challenge practices that the administration says favor Chinese companies and restrict U.S. ones.

The Trump administration faces a series of decisions in the coming weeks and months on whether to enact penalties on imports of Chinese products such as steel, aluminum, washing machines and solar equipment. An investigation is proceeding on whether China is forcing American companies to turn over proprietary technologies and information in exchange for access to the Chinese market.

Mr. Trump savaged China as a predatory trader during his campaign for the presidency, though he has toned down his rhetoric since. In an interview with The Wall Street Journal on Thursday, before the latest trade figures were published, Mr. Trump suggested he would have resorted to stricter measures to correct the trade imbalance with China if it weren't for Beijing's help in pressuring North Korea over its nuclear weapons development.

"We've been much tougher on China, but not nearly as tough as I would be, but they are helping us a lot with North Korea," Mr. Trump said.

Friday's trade data showed that China's imports from North Korea fell 33% in 2017, a possible indication of Beijing's cooperation with the U.S. and compliance with U.N. sanctions, though China's exports to North Korea increased 8.3%.

Chinese officials have played down any friction in public remarks, including in Friday's announcement of trade figures.

In closed-door meetings with American officials and business executives, Chinese officials have threatened tit-for-tat for any U.S. penalties and urged American companies with large operations in China to warn Washington against taking such actions. "We have contingency plans in place," a Chinese official involved in policy-making said, without giving details.

One likely target is imports of U.S. soybeans. China's hefty demand for soybeans, used to feed hogs in large-scale farms, has benefited U.S. farmers and companies including Cargill Inc. and Archer Daniels Midland Co., and executives with American soybean exporters have said they've been warned that shipments could suffer in a trade spat with the U.S.

Reducing the U.S. exports carries some risks by possibly leading to a rise in pork prices in China and potentially driving up inflation, economists said.

While most trade experts don't expect a full-fledged trade war this year, many foresee a proliferation of disputes and more U.S. penalties on some Chinese goods. And Chinese trade experts and analysts said that in the near-term little can be done to reduce the trade imbalance, given that the strong U.S. economy is likely to translate into heftier demand for Chinese goods.

"The U.S. economy will probably keep recovering this year, so it won't be easy for the Sino-U.S. trade surplus to narrow too much in 2018," said Mei Xinyu, a researcher at a think tank under China's Ministry of Commerce. "I don't think there is much Trump can do to reverse the situation."

China's $275.8 billion surplus with the U.S. last year surpassed the previous record of $261 billion in 2015, according to Chinese data. U.S. figures put the 2015 deficit with China at $367 billion.

China's trade figures don't match U.S. figures due to different calculation methods. Indirect shipments via Hong Kong and other intermediaries is another factor that has been cited for the discrepancy in the sets of figures. Neither the Chinese nor U.S. figures include trade in services, which when factored in, China's Commerce Ministry says, gives the U.S. more balanced trade with China.

One thing the U.S. could do, Mr. Mei said, would be to make it easier for Chinese companies to invest in the U.S. Concerns about China buying up cutting-edge technology or getting access to important data have grown in the U.S. Several pending acquisitions by Chinese companies have been scuttled after reviews by a U.S. government panel that assesses if foreign investments impinge on national security.

--Liyan Qi contributed to this article.

Write to Lingling Wei at lingling.wei@wsj.com

(END) Dow Jones Newswires

January 12, 2018 08:05 ET (13:05 GMT)