China’s export boom lands in Europe

Over the past year, with the end of the de minimis rule and the Trump administration's (at times) confusing trade policy, U.S. imports from China are down. That hasn’t stopped Chinese exports from going out, however. Last year, the country reached a trade surplus over $1 trillion.

Those goods have just found new destinations, with Europe emerging as a major new destination for low-cost items, from disposable consumer items to advanced manufactured products.

“Marketplace Morning Report” host Sabri Ben-Achour spoke with Jay Shambaugh, a professor of economics and international affairs at The George Washington University, about what the shift means. The following is an edited transcript of their conversation.

Sabri Ben-Achour: So tariffs cut down how much we in the U.S. buy from China, but all that stuff, I guess, has to go somewhere — which is everywhere else. How big is this shift?

Jay Shambaugh: It's pretty large, especially when you're talking from China. Tariffs don't necessarily change how much you import or export, but they very much redirect where they are, because it's not like we have a flat tariff on everybody. Our imports from China are way down. Europe's imports from China are up a fair amount.

Ben-Achour: How is that showing up in Europe? Because, I mean, someone's got to all of a sudden decide they want to buy more of this stuff.

Shambaugh: So, I think you could divide it into two types of goods: so some, I think, is what we might think of as kind of cheap products that are somewhat disposable goods. Part of it is, just over the last three years, the real value of China's currency has fallen quite a bit against the euro. So China has had very, very low inflation; in some cases, deflation in some goods. Europe's price has been rising, so the relative cost of goods has been going up for European goods relative to China. And then the Euro versus the RMB has moved in a way that has made Chinese goods just cheaper in Europe than they used to be.

Ben-Achour: Does this pose a threat to manufacturers in Europe or the U.K. or wherever else all this, this deluge of products is headed?

Shambaugh: There are some goods that, transparently, Europe isn't making a lot of right now. And so that really may not be the most important thing, partly; it may just be replacing goods that were coming from Mexico or were coming from Vietnam that are now going to the United States, and I don't think that poses as big a threat. On the other hand, the longer kind of more systemic shift where Chinese goods overall have been getting cheaper, and — crucially — they've been shifting toward goods that used to be core manufactured goods for Europe, that you really do see concerns in Europe; in some goods, they may not care. Chinese solar panels are very cheap. They're selling them below cost because they've produced far too many. If Europe wasn't producing solar panels to begin with, they might say, “Great, we needed some cheap solar panels.“ On other goods — whether it's batteries or electric vehicles or chemicals or machinery — those are real threats to Europe's production model.

Ben-Achour: The EU has agreed to impose a fee on imported small packages starting in July, and it'll eventually close the loophole that allows small packages to go in without being tariffed. The UK is going to do the same. Is this going to be effective?

Shambaugh: I think it depends on what you mean by effective. The whole point of the de minimis exception was, if average tariffs are 2% and the good is $200, it's just not worth the paperwork for the $4. The issue is, when we've moved to a world with realistically much higher tariff levels, then that de minimis exemption did become more of a loophole. It will be effective in that it will make the goods more expensive. Whether they'll import a lot less or not depends on how big a fee they put on them.