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Good morning from London, where once overcrowded office buildings and tube stations are still almost empty as many Londoners crouch down for a winter working from home.
The number of people passing through Bank Station, a hub in the City of London, is only 13 percent of the prepandemic rate, according to official statistics. Visits to bars and restaurants in the main financial district are one-fifth what they typically are, according to Google Mobility data.
With the UK economy hardest hit – the toughest of the G7 countries – it's no surprise that the share of global imports of goods has fallen to its lowest level since records began in 1960, according to an FT analysis of IMF trade data.
But at the other end of the spectrum, China has become more important than ever as a destination for goods manufactured by both developed and emerging economies Subject of today's main note.
Our Chart of the day looks at the deflationary drift of the eurozone Great stories of the trade serves a culinary trade faux pas. Trade Secrets will be on hiatus early next week while our reporters prepare to cover the US election – but we'll see you again Tuesday.
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Which countries export more?
The IMF assumes that the global economy will shrink by 4.4 percent this year. This is the sharpest decline in recent history. However, China is expected to gain 1.9 percent thanks to a robust recovery that has not been hampered by a major coronavirus resurgence like many other countries.
As my colleague in Hong Kong recently noted, Asia's largest economy is becoming an increasingly important market for businesses around the world. Worldwide, the share of exports shipped to China rose to over 11 percent in the three months to June, as an FT analysis of the IMF data shows – the highest level since the series began in the 1980s.
How is the country playing out? Let's start with Japan. Overall, Japanese goods exports fell 19 percent in the six months to September, with exports to the United States, Canada and the UK falling 30 percent or more. However, Japan's exports to China rose 3.5 percent due to the strong performance of electric machines, automobiles and metals. Chinese demand has created a much-needed ray of hope.
The situation is similar with Australia, whose share of exports to China rose above 41 percent for the first time in the six months up to August. Australia is the fifth largest exporter to China and one of the advanced economies that most relies on China as a market for its goods, especially raw materials.
One thing to note: earlier this month, Canberra investigated unconfirmed reports that China had ordered its state-owned companies to stop buying Australian coal. It is unclear to what extent such a ban would reflect China's efforts to prop up its own domestic coal mines or a larger simmering political dispute. Watch this room.
Canberra is investigating reports that Chinese state-owned companies have been asked to stop buying Australian coal. © David Gray / Bloomberg
"The countries that will benefit most from China's recovery are in Asia, but commodity exporters have also benefited," said Adrian Thomas, vice president of global emerging markets at Citigroup. “Growth in a number of emerging markets has been revised upwards. We believe this is partly due to better than expected export growth in many emerging markets. "
However, it is not only raw material producers or emerging countries that benefit from this. In Italy, goods exports to China rose by an astonishing 33 percent in September compared to the same month last year.
Across the EU, exports fell 12 percent in the first eight months of the year compared to 2019, due to a sharp drop in exports to the UK and India. In contrast, EU exports to China (and also to South Korea) remained largely stable.
As a result, EU countries are exporting more than 10 percent of the value of goods to China for the first time. Raw materials and machinery remained the main categories, but food and beverage exports have increased significantly.
Thanks to soaring demand from China, the eurozone's export-oriented manufacturing sector continued to recover in the fall, while service activities were hampered by the resurgence of the virus, according to IHS purchasing managers' closely watched indices.
It was a similar pattern for the United States. Between January and August, total goods exports fell 16 percent year over year, with items destined for Canada and Mexico falling by at least 17 percent. However, China-led demand was stable.
The trend is not the result of commitments in the January Washington-Beijing agreement, says Chad Bown, a senior fellow at the Peterson Institute for International Economics. Instead, it suggests that Chinese companies are stockpiling high-tech products in anticipation of sanctions, strong U.S. medicine sales, and soaring pork imports to China amid local shortages.
In the meantime, the Chinese export machine keeps rolling. The FT previously reported how China has increased its share of global exports thanks to a strong performance in exporting coronavirus-related products.
“Chinese exports have developed surprisingly better this year. . . Part of this market share gain can be attributed to the Covid-19 pandemic as it increases global demand for medical goods and electronics, ”says Françoise Huang, Senior Economist for the Asia-Pacific region at Euler Hermes.
Much of the increasing demand for kits such as PCs, monitors, cell phones and headphones has been met by Asian suppliers. The World Trade Organization estimates that 44 percent of global exports of personal protective equipment come from China.
The European Central Bank will make its latest monetary policy decision on Thursday. The following graph shows the challenges that policy makers face. As Martin Arnold writes, new numbers slated for this week are expected to show that the eurozone has fallen for its third straight month of deflation – something it has only done twice before. It is feared that Europe will be stuck in a Japanese growth cycle of weak growth, negative interest rates and below zero inflation.
Great stories of the trade
The UK's Department of International Trade had claimed that soy sauce from Japan was cheaper due to the trade deal with Tokyo © Alamy
Oh man. To look good, the UK Department of International Trade launched the popular cooking show The Great British Bake Off, which boasted the country's most recent trade deal with Japan. "The bakers used a lot of soy sauce in the first challenge on #GBBO. So it's good that it is getting cheaper thanks to our trade deal with Japan," said a tweet on Tuesday evening.
A few hours later a follow-up (in italics): “To clarify: Thanks to the trade agreement between Great Britain and Japan, soy sauce will be cheaper than under WTO terms, under which we would trade with Japan from January 1st, when we signed the trade agreement between Great Britain and Japan. “A lot of eggs in the face – that's something the crew in the cake tent will be familiar with.
(PS – If you really want to dive deeper into soy sauce tariffs, the BBC has promised.)
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