China Trade — Going in One Direction

Purchasing has the scoop in a recent article that China's trade surplus rose at a massive level in February. According to their note, "China's trade surplus in February ballooned to a massive $23.76 billion, the Chinese Customs Bureau revealed on its website. That was the second-highest monthly surplus ever and compares to just $2.5 billion in the year-ago February ... The February figure means the surplus for the first two months of this year was $39.6 billion, more than three times the amount for the first two months of 2006 ... It's clear that attempts last year to rein in exports of steel and textiles has flopped—which means that exports to North America and Europe will stay high. Plans to boost imports of raw and manufactured commodities (such as coal, ores, metals, textiles, etc.) will be easy to announce but hard to do in reality."

So where does this leave procurement organizations in the US and Western Europe? I'd say it will be critical, especially considering the populist political rhetoric in the US and France at the moment, to keep a close eye on the prospects of new tariffs and duties which might get slapped on Chinese exports if the trade imbalance continues to rise and populists and protectionists win in the polls. In other words, considering possible total cost tomorrow -- not just actual total cost today -- should be a critical element that goes into all China sourcing financial models. This is especially critical in categories where the cost and time to switch suppliers -- and countries -- is significant.

Jason Busch

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