China's General Administration of Customs reported on November 7 that the country's exports in October fell by 6.4% year-over-year to $274.2 billion. This decline was slightly greater than September's 6.2% drop and exceeded market expectations of a 3.5% fall. This marks the sixth consecutive month of year-over-year export declines for China, with cumulative exports from January to October totaling $4.899 trillion, a 5.6% decrease from the previous year.
Specifically, China's annual cumulative exports to major economies have declined, except for a 52.2% increase to Russia. Exports to China's top three trading partners-the ASEAN, the EU, and the US-fell by 5.3%, 10.6%, and 15.4%, respectively. Exports to Japan and South Korea also saw declines of 8.6% and 8.2%.
Challenges for Export Giants Germany, Japan, and South Korea
Globally, traditional export powerhouses like Germany, Japan, and South Korea have faced challenges of weak exports and even significant declines this year.
On November 3, Germany's Federal Statistical Office released trade data showing that the country's exports in September, after seasonal adjustment, fell by 2.4% month-over-month and 7.5% year-over-year to €126.5 billion. From January to September, the seasonally adjusted annual export total showed a slight increase of 0.1% to €1.1778 trillion.
Among its main trading partners, Germany's exports to EU and Eurozone countries in September fell by 1.3% and 2.4% month-over-month, respectively. Exports to non-EU countries like the US, China, and the UK saw month-over-month declines of 4.0%, 7.3%, and 2.3%.
Compared to the record high of €137.1 billion in February, Germany's monthly exports in September have fallen by more than 8%.
Jens-Oliver Niklasch, an economist at LBBW in Baden-Württemberg, noted that the downward trend in foreign trade has been nearly uninterrupted since the beginning of the year. This is a worrying signal, especially with exports to the US, one of its largest trading partners, expected to slow significantly. Therefore, foreign trade is unlikely to be a driving factor for the German economy in the short term.
In contrast to Germany, which has maintained a trade surplus despite shrinking exports, the impact on traditional Asian export powerhouses South Korea and Japan appears to be more significant.
South Korea's Ministry of Trade, Industry, and Energy reported on November 2 that the country's exports in October totaled $55.1 billion, a 5.1% increase year-over-year and the first growth in 13 months.
Affected by semiconductor export obstacles and sluggish exports to China, South Korea's monthly exports have been contracting year-over-year for 12 consecutive months since October last year, with the decline reaching as high as 16.4% in January. This led to a trade deficit for South Korea for 15 consecutive months starting in early 2022.
Last month's brief recovery in South Korean exports is still not enough to reverse the country's sluggish export trend for the year. Especially for semiconductors, South Korea's most important export item, which saw year-over-year declines of 40%, 34.8%, and 22.6% in the first three quarters of the year, respectively. Although the decline in semiconductor exports in October narrowed to 4.5%, this was mainly due to a one-time bulk export of components following the release of the iPhone 15, and whether this positive trend can continue remains to be seen.
Specifically, South Korea's exports to its second and third-largest trading partners, ASEAN and the US, increased by 14.3% and 17.3% year-over-year in October, turning positive for the first time in 13 months. However, exports to China, its largest trading partner, still recorded a 9.5% decline for the month.
Beyond the global trade environment, the significant depreciation of the Japanese yen is considered one of the important factors contributing to South Korea's export weakness. Research by the Korea Economic Association shows that for every percentage point the yen depreciates, South Korea's export growth rate decreases by 0.61 percentage points. Based on this year's depreciation of the yen, this is equivalent to a loss of more than $10 billion in South Korean exports.
Since the start of the global central bank rate hike cycle, the yen has depreciated significantly due to the Bank of Japan's ultra-loose monetary policy, falling from 114 yen to the dollar in March 2022 to 150 yen, a cumulative depreciation of over 40%.
However, Japanese exports, which theoretically should benefit from a weaker yen, have not seen the expected growth. After reaching a recent high of $65.97 billion in February last year, Japan's exports have been in a downward cycle. According to the latest data from Japan's Ministry of Finance, the country's exports in September totaled $60.268 billion, a slight increase from the $57.39 billion in August, but still below the previous peak.
Even when calculated in the continuously depreciating yen, Japan's export figures are not ideal. Japan's total exports in September were 9.199 trillion yen, a year-over-year increase of only 4.3%, significantly less than the yen's rate of depreciation. The cumulative export total for the fiscal year 2023 (April to September) was 50.242 trillion yen, with a year-over-year increase of only 1.4%.
Specifically, Japan's exports to the US and the EU grew faster, somewhat offsetting the slide in exports to Asian countries. For the fiscal year 2023, Japan's exports to the US and the EU increased by 10.6% and 17.7% year-over-year, while exports to Asia fell by 8.2%. Notably, the US surpassed China to become Japan's largest export destination with an import total of 10.075 trillion yen.
Global Trade Shows Signs of Fragmentation
The gradual stalling of the trade engines of traditional export powerhouses like China, Germany, Japan, and South Korea reflects the challenges brought about by the continued slump in global trade.
On October 30, WTO Director-General Ngozi Okonjo-Iweala, during an interview with Nikkei in Osaka, Japan, said that while the global economy has not decoupled, it is showing signs of fragmentation, which is too costly for everyone involved.
Okonjo-Iweala believes that despite the US's efforts to reshape supply chains and the EU's de-risking strategy, the WTO has not found further, widespread signs of deglobalization. Trade between China and the US, as well as between China and the EU, remains relatively strong. However, she also pointed out that new signs of fragmentation in global trade are emerging, especially as intermediate products, a measure of the health of global supply chains, have decreased from 51% of world trade before the pandemic to 48.5% in the first half of 2023.
Okonjo-Iweala predicts that if the world splits into two major trading blocs, global GDP could fall by 5%, equivalent to the evaporation of Japan's economy. The International Monetary Fund believes that if trade fragmentation persists, the global economy could shrink by up to 7%.
In the first half of 2023, the share of bilateral cooperation between the US and Asian partners in US component trade fell from 43% in the same period of 2022 to 38%.
Okonjo-Iweala's pessimistic expectations are also reflected in the WTO's quarterly economic development reports.
In its latest report on October 5, the organization downgraded its forecast for merchandise trade growth in 2023 to 0.8%, not only well below the United Nations Conference on Trade and Development's forecast of 2.4% global economic growth for the same period but also below the WTO's April forecast of 1.7% growth.
The UNCTAD's "Global Trade Update" report in April pointed out that despite the uncertain outlook for global trade, positive factors were expected to offset negative trends. However, the conclusion of the agency's report in June became "Overall, the global trade outlook for the second half of 2023 is pessimistic, with negative factors dominating."
In the latest "Trade and Development Report" by UNCTAD, ongoing trade tensions between major economies, weak global demand, and intensifying geopolitical uncertainties have become multiple risks for the downturn in global trade.
If global trade is divided into merchandise and services trade, the decline in the former is more pronounced. UNCTAD data shows that compared to global services trade, which has continued to grow since the start of the rate hike cycle, the scale of global merchandise trade has fallen by nearly 15% from last year's peak.
The WTO also maintained its previous forecast of a 3.3% growth rate for global merchandise trade in 2024, but the specific elaboration was more neutral than before. The organization stated that as inflation slows and interest rates begin to decrease, industries sensitive to the business cycle should stabilize and rebound. However, signs of supply chain fragmentation are beginning to emerge, which could threaten the relatively optimistic outlook for 2024.
