Despite the trade war with the U.S., China's foreign trade volume rose 9.7% in 2018 to hit a record high of 30.51 trillion yuan ($4.5 trillion). It recorded a trade surplus, or positive trade balance, of 2.33 trillion yuan. However, the country's economic growth slowed to 6.6% – a 28-year low.

As the second largest economy and a leader in global trade, what happens in China doesn’t stay in China — it affects the rest of the world. So the country's recent slowdown in economic growth and the trade war has significant implications for the global economy but will have the greatest impact on China’s main trading partners: the U.S., Japan and Hong Kong.

The United States

At $20.49 trillion, the United States boasts the largest economy in the world and is China’s largest trading partner. Last year, the total value of bilateral trade between the two countries was $737.1 billion, with U.S. imports from China valued at $557.9 billion and U.S. exports to China valued at $179.3 billion.

US China Trade Balance

The top goods exported from China to the U.S. and their total values for 2018 were electrical machinery ($152 billion), machinery ($117 billion), furniture and bedding ($35 billion), toys and sports equipment ($27 billion), and plastics ($19 billion).

The top goods imported from the U.S. to China and their total values for 2018 were aircrafts ($18 billion), machinery ($14 billion), electrical machinery ($13 billion), optical and medical instruments ($9.8 billion), vehicles ($9.4 billion) and agricultural products ($9.3 billion).

The U.S. exported an estimated $58.9 billion in services to China and imported $18.4 billion in services from the Asian nation in 2018.

The bilateral trade surplus that China runs with the United States may be exacerbated by China's slowdown. Not only will a slower growing Chinese economy translate into weaker demand for U.S. goods, but the devaluation of the yuan, by making Chinese goods cheaper for America, could increase U.S. imports from China. This won't sit well with a number of U.S. policymakers already critical of the large trade deficit vis-à-vis China.

Japan

Japan is the third largest economy in the world at $4.9 trillion and China’s second largest trading partner. China is also Japan's largest trading partner. In 2018, the total value of bilateral trade between the two countries was about $330 billion with Japanese imports from China valued at $180.7 billion and Japanese exports to China valued at $149.7 billion.

Japan’s top exports to China and their total values for 2018 were machinery ($36.5 billion), electrical machinery ($32 billion), chemicals ($24 billion) and transport equipment ($14.4 billion).

Japan’s top imports from China and their total values for 2018 were electrical machinery ($52.4 billion), machinery ($31.1 billion), clothing and accessories ($18.3 billion) and chemicals ($12.1 billion).

Japanese exports to China rose by 6.8% percent and imports from China rose by 4% in 2018. The country blamed sluggish demand from China and slowdown in its economy for its first global trade deficit since 2015, which was 1.2 trillion yen in 2018.

Hong Kong

With a GDP of $362.9 billion, Hong Kong has only the world’s 35th largest economy. However, it is tightly integrated with the economy of its closest neighbor. In 2018, the total value of bilateral trade between the two regions was $570.5 billion, with Hong Kong’s imports from China valued at $278.8 billion and Hong Kong’s exports to China valued at $291.7 billion.

However, almost all exports to China from Hong Kong are re-exports since the latter has no tariff on goods entering its borders and is ranked the freest economy in the world. Besides this, almost 44.2% of Hong Kong’s domestic exports went to China and 46.3% of its total imports came from China in 2018.

The major categories of goods exported from China to Hong Kong and their value in 2018 were electrical machinery ($160 billion), machinery ($44 billion) and medical or surgical instruments and apparatus ($10 billion). China imports from Hong Kong were mainly electrical machinery ($198 billion) and machinery ($39 billion).

Slow growth in China, the trade war between the two largest economies of the world, and civil unrest are no doubt putting downward pressure on Asia's largest financial hub.

The Bottom Line

As the second largest economy in the world and the largest trading country worldwide, China’s global importance cannot be underestimated. Its escalating dispute with the U.S. has investors and analysts concerned about economies all over the world.

"There are no real winners in this U.S.-initiated trade war. Countries facing new tariffs, including the United States, experience declines in real exports and GDP. Other countries are hit indirectly through weaker demand for their own exports, either through supply chains or in response to weaker global economic growth," wrote IHS Markit

"While the short-term effects of higher U.S. tariffs are manageable for China, the longer-term ramifications for growth are more serious and largely underestimated," said a S&P Global Ratings note in May. "This is more a supply than a demand shock. The technology sector is where the combined effects of investment restrictions, export controls, and tariffs will be felt. And it's on technology and its ability to raise China's stumbling productivity growth that the country's prospects for a smooth rebalancing depend."