China’s Export Surge and the Politics of Imbalances

China’s export-oriented manufacturing sector powered the economy’s recovery in late 2020, and the sector remains a key source of strength early in 2021. Strong trade surpluses have produced market pressures for China’s currency to appreciate, while the PBOC continues to claim little to no official intervention in the foreign exchange markets. In this brief note, we look at the drivers of China’s recent export strength, the sector’s role in the economic recovery late in 2020, and the potential political implications of China’s rising external imbalances under the Biden administration. Key findings include:

• Exports will continue to provide strength to industrial production through mid-year, at least. But support from exports will likely fade in the second half, as China’s gains in global market share in 2020 are unlikely to be repeated.
• China’s large current account surplus will become a major political issue between the United States and China, given the Biden administration’s likely focus on the middle class and employment-related costs and benefits from trade relationships.
• Rising shipping costs may boost the prices of China’s exports in the coming months. This will probably have little impact on broader inflationary pressures but could influence debates about the rationale for keeping tariffs in place.