China now world’s No. 1 trading nation

CHINA surpassed the US to become the world’s biggest trading nation last year as measured by the sum of exports and imports, a milestone in the Asian nation’s challenge to the US dominance in global commerce that emerged after the end of World War II in 1945.

US exports and imports last year totaled $3.82 trillion, the US Commerce Department said last week. China’s Customs administration reported last month that the country’s total trade in 2012 amounted to $3.87 trillion. China had a $231.1-billion annual trade surplus, while the US had a trade deficit of $727.9 billion.

China’s emergence as the biggest global trading nation gives it increasing influence, threatening to disrupt regional trading blocs as it becomes the most important commercial partner for countries including Germany, which will export twice as much to China by the end of the decade as it does to neighboring France, said Goldman Sachs Group Inc.’s Jim O’Neill.

“For so many countries around the world, China is becoming rapidly the most important bilateral trade partner,” O’Neill, chairman of Goldman Sachs’s asset management division and the economist who bound Brazil to Russia, India and China to form the BRIC investing strategy, said in a telephone interview. “At this kind of pace by the end of the decade, many European countries will be doing more individual trade with China than with bilateral partners in Europe.”

Still, the US economy is more than double the size of China’s, according to the World Bank. In 2011 the US gross domestic product reached $15 trillion, while China’s totaled $7.3 trillion.

“It is remarkable that an economy that is only a fraction of the size of the US economy has a larger trading volume,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, said in an e-mail. “The surpassing of the US is not because of a substantially undervalued currency that has led to an export boom,” Lardy said, noting that Chinese imports have grown more rapidly than exports since 2007.

The US emerged as the preeminent trading power following World War II as it spearheaded the creation of the global trade and financial architecture and the UK began dismantling its colonial empire. China began focusing on trade and foreign investment to boost its economy after decades of isolation under Chairman Mao Zedong. Economic growth averaged 9.9 percent a year from 1978 through 2012.

China became the world’s biggest exporter in 2009, while the US remains the biggest importer, taking in $2.28 trillion in goods last year compared with China’s $1.82 trillion of imports. HSBC Holdings Plc. forecast last year that China would overtake the US as the top trading nation by 2016.

China was last considered the leading economy at the height of the Qing dynasty. The difference is that in the 18th century, the Qing Empire—unlike rising Britain—did not focus on trade. The Emperor Qianlong told King George III in a 1793 letter that “we possess all things. I set no value on objects strange or ingenious, and I have no use for your country’s manufactures.”

While China is the biggest energy user, has the world’s biggest car market and the world’s largest foreign currency reserves, a significant portion of China’s trade involves importing raw materials and parts to be assembled into finished products and re-exported, an activity that provides “only modest value added,” Eswar Prasad, a former International Monetary Fund official who is now a professor at Cornell University in Ithaca, New York, said also in an e-mail.

Last month China’s trade expanded more than estimated, with exports rising 25 percent from a year earlier and imports increasing 28.8 percent, government data released on Saturday showed. China’s trade figures in January and February are distorted by the week-long Lunar New Year holiday that fell in January of last year and started also on Saturday.

Economists from banks including UBS AG and Australia & New Zealand Banking Group Ltd. recently questioned the veracity of China’s export data after the Customs administration reported an unexpected 14.1-percent export gain in December. The General Administration of Customs defended the data last month, saying all statistics are based on actual Customs declarations, and the Ministry of Commerce said the jump was caused by exporters who hurried shipments before a waiver of inspection fees expired at the end of the month.

The US’s bilateral trade deficit with China that peaked in 2012 could remain a flashpoint of tension between the two countries, Prasad said.

“This trade imbalance is not representative of the amount of goods actually produced in China and exported to the US, but this perspective tends to get lost amid the heated political rhetoric in the US,” he added.

According to O’Neill, the trade figures underscore the need to draw China further into the global financial and trading architecture that the US helped create.

“One way or another, we have to get China more involved in the global organizations of today and the future despite some of their own reluctance,” he said, mentioning China’s inclusion in the International Monetary Fund’s Special Drawing Rights currency basket. “To not have China more symbolically and more important actually central to all these things is just increasingly silly.” –Bloomberg