China Exports Fall by 20-30 percent

China’s fabled export competitiveness is on the wane and that has implications for the rest of the world economy, conclude Morgan Stanley economists Spyros Andreopoulos and Sung Woen Kang.

Their estimates show the profits of Chinese exporters from trading with the U.S. shrank 20 percent to 30 percent between 2004 and 2010 as domestic labor costs grew and their currency’s climb against the dollar lowered revenue once translated back into yuan.

With such forces likely to keep weighing on margins, chances are the rest of the world will have to pay more for Chinese goods, resulting in “global developments of high importance,” the economists said in a July 25 report.

While China’s trade data are volatile, there are signs that the country’s export powers are slipping. China’s February trade deficit was the biggest since at least 1989. In April, the International Monetary Fund cut its outlook for the current account surplus, which it estimates had already fallen from 10.1 percent of gross domestic product in 2007 to 2.8 percent in 2011.

Higher Chinese prices will eat into disposable incomes worldwide and fan global inflation, while allowing other economies to claw back manufacturing share, they said.

“Globalization may already be turning from tailwind to headwind for consumers the world over,” the economists said.