Authors: Minquan Liu, Peking University and Yuming Cui, HITSZ
As the world’s largest commodity-trading nation and second-largest economy, it’s no surprise that China’s recent trade policy moves have sparked debate. As the main supplier of many traded goods, China has an even greater impact on global price stability as Russia’s war in Ukraine continues to threaten international energy prices and food security.
As the global economy struggles to recover from the COVID-19 pandemic, the war between Russia and Ukraine, two major energy and food exporters, has caused some countries to turn inwards . For example, India and Indonesia imposed export bans to stabilize their domestic prices. This global price volatility is also putting increasing downward pressure on China’s domestic economy.
In 2021, China’s merchandise trade reached US$6.05 trillion (RMB 39.1 trillion), an increase of 21.4% from 2020. Of this total, China’s exports and imports China are valued at US$3,360 billion and US$2,690 billion (RMB 21,730 and 17,370 billion). 21.2 and 21.5% respectively compared to the previous year. In the first quarter of 2022, China’s exports and imports increased by 13.4 and 7.5 percent respectively, leading to a 36.6 percent increase in trade surplus compared to the same period in 2021.
These figures clearly indicate that, despite its strict zero COVID policy, China remains a major supplier and consumer of goods in the global market. As such, China continues to make a significant contribution to global price stability.
Take, for example, fertilizers. Crucial to agricultural production, the global price of fertilizers is rising sharply due to supply chain disruptions caused by the Ukrainian invasion. China’s policy on fertilizer exports in 2021, introduced in response to rising global inflation, is causing concern.
But according to statistics from China Customs, China recorded a trade surplus of 56.1 billion RMB (about 8.4 billion dollars) in the field of fertilizers in 2021. In the first quarter of 2022, exports and imports of fertilizers from China were valued at 1.787 and 1.047 billion dollars. This is an increase of 11.2% and 42.2% respectively compared to the first quarter of 2021, although the volume traded has decreased considerably.
Like many other economies, China faces tough internal and external challenges. Disruptions to China’s domestic supply chain and weak domestic demand, mainly due to its zero COVID policy, have added a high level of uncertainty to the country’s economic outlook. China’s export growth is also expected to decline in the second quarter of 2022 due to domestic production and supply chain disruptions in Shanghai and other lockdown manufacturing cities.
In the meantime, foreign demand for Chinese exports may decline as other major economies recover from COVID-19. Like many other countries, China has made some adjustments to its trade policies to meet domestic demand and stabilize prices in response to the challenging global economic environment. But it is also true that a big country like China should take more responsibility in the global economy. While export bans can stabilize domestic supply and price levels in the short term, they can also damage a country’s credibility with its long-term trading partners.
China’s trade policy should be seen in the broader context of the global macroeconomic environment. It would not be constructive to claim that China alone is somehow responsible for global price volatility. Rather, judgments on a country’s trade policy should be determined within the framework of the World Trade Organization (WTO). Criticisms leveled at a few specific goods traded by some specific countries without considering the wider national and global macroeconomic environment are not helpful in addressing global challenges.
Facing serious global economic and geopolitical challenges, all countries, including China, should aim to work together in adopting cooperative trade policies within the framework of the WTO. By refraining from unilaterally changing trade policy, further systemic disruptions in the global economy can be avoided. China should be fully aware that its trade policy decisions – taken in response to domestic economic challenges – could have a negative impact on its relations with its trading partners. Needless to say, the same is true for other major economies around the world.
Minquan Liu is a professor in the Department of Development Economics and founding director of the Center for Human and Economic Development Studies at Peking University.
Yuming Cui is an associate professor at the School of Economics and Management, Harbin Institute of Technology, Shenzhen (HITSZ).