Just in time for Trump 2.0, China is on pace for history’s first $1 trillion trade surplus by a single nation, according to new calculations by Bloomberg. 

Silver Linings Economic Playbook

Bloomberg’s tabulations, using government data released last week, show the chasm between Chinese exports and imports hit a record high of $785 billion in the first 10 months of this year, 16% above the same period in 2023. 

Of particular note, China’s surplus with the US rose 4.4% year-over-year, creating a bigger target for tariffs that the incoming administration says could be as high as 60% across the board.

That would be bad news for China, but not as bad as you’d think given how fast it has diversified its overseas trade. The widening trade gap with the world outside of the US is proof of that: up 9.6% with the European Union and 36% with the Association of Southeast Asian Nations bloc that includes Indonesia, Thailand, Vietnam, and Singapore. That means a bigger cushion if Trump follows through on his campaign rhetoric. The US accounted for just 16% or so of China’s overall exports in 2022, and its share has shrunk since then. 

Still, Beijing won’t be firing off celebratory baozhu any time soon, as its efforts to spark domestic consumption to soak up more of what it makes continue to fall flat: 

• China announced a 10 trillion yuan ($1.4 trillion) lifeline for debt-ridden local governments on Friday, but held off from issuing any new direct stimulus. Markets weren’t impressed, and the Hang Seng Index fell 1.5% Monday, while the iShares China Large-Cap ETF saw outflows for the fourth week in a row.
• But, on the stimulus front, Finance Minister Lan Foan noted last week that “the Chinese government still has a lot of room to raise debt” — the country’s $11.8 trillion government debt, with a 67.5% debt-to-GDP ratio, is well below the 123% G7 average. And, on the equities front, Morgan Stanley economists said Chinese listed companies’ revenue exposure to the US and Canada fell to 3.7% this year from 5.7% in 2017, meaning sanctions might not bite as hard as before.

Downward Revisions: A broader trade war would still, of course, bite. UBS cut its 2025 growth forecast for China to “around 4%” in 2025, down from 4.5%, and said things will trend “considerably lower” after that. Just don’t expect any rash decisions: “History suggests that Beijing tends to react to the actual situation, not preemptively,” Larry Hu, chief China economist at Macquarie, told the South China Morning Post.

There’s a big ol’ leak in Abbvie’s drug development pipeline.

On Monday, the pharma giant announced that two mid-stage trials of a schizophrenia treatment — added through its $8.7 billion acquisition of Cerevel Therapeutics earlier this year — delivered disappointing results. It’s a blow to the company’s pipeline-via-M&A strategy.

Trial and Error

After long powering Abbvie’s sales, demand is waning for blockbuster anti-inflammatory drug Humira as generics enter the market. Last year, the first with generic competition, sales of Humira fell to $14.4 billion, down from a record $21.2 billion in 2022. Like most major biotech players, Abbvie eyed M&A as a major strategy to build out its pipeline and chart a future. And Cerevel Therapeutics, which had positive early testing results for emraclidine, its drug that aims to treat schizophrenia, seemed a perfect target.

Unfortunately for Abbvie, Monday’s results are making its Cerevel acquisition look more and more like an $8.7 billion mistake:

• Both study results released Monday showed no statistically significant difference between patients taking emraclidine and those on a placebo. Worse, patients receiving a higher dosage of the drug similarly showed no statistically significant difference.
• Following positive early stage results, Bloomberg Intelligence forecasted that emraclidine could generate $1.1 billion in annual sales starting in 2029. Now that prediction looks like bunk.

It’s a result that might have biotech players rethinking their love for M&A, with Mizuho analyst Jared Holz calling it in a note “another example of a major disappointment a buyer may face when acquiring a company prior to pivotal data.”

Falling Behind: Worst of all for Abbvie is that the competition is already pulling ahead. In September, Bristol Myers Squibb received US approval to bring its own schizophrenia treatment to market, marking the first debut of a new treatment mechanism for the mental disorder in 70 years. Unlike previous treatments, which relied on blocking dopamine receptors to the brain, Bristol’s drug, called Cobenfy, did not — helping patients to dodge many common side effects of existing treatments. Around 1% of the US population suffers from schizophrenia, according to John Hopkins Medicine, and according to Bristol, around 75% of patients stop taking existing medications within 18 months due to side effects. It’s no wonder Abbvie wanted in — and why its share price closed down over 12% Monday after the bad news.

KitKats are great, but it’s hard to see them being handed out to F1 drivers on the winners’ podium.

Nestlé and Formula 1 announced on Monday that starting with the upcoming 2025 season KitKat will be the sport’s “official chocolate bar.” It’s a sign that the world’s largest food company, which has suffered a sugar-crash of a year, is throwing its weight into marketing to improve its fortunes. It’s also a testament to the soaring appeal of Formula 1. 

Vroom

Nestlé’s 2024 has been battered by spiking manufacturing costs, a changing of the guard at the CEO level, and faltering growth. Its stock has sunk 20% so far this year, and the shadow of weight-loss drugs and their prophesied impact on consumers’ snackishness still hangs over the company’s share price. New CEO Laurent Freixe cut Nestlé’s full-year sales growth forecast to 2% last month. In February it was predicting 4% growth, and the reduction is an unprecedentedly big downturn for the company, Vontobel analyst Jean-Philippe Bertschy told the Financial Times. “The priority for the new management team now is to bring Nestlé back to its roots and to what it does best: marketing and connecting with consumers,” Bertschy added.

Meanwhile, Nestlé’s new partner is still lapping the world:

• In Q1 of this year F1 reported 45% revenue growth year-over-year, followed by 20% in Q2. In the most recent quarter results were less stellar; it reported a 3% revenue drop largely due to fewer races compared with the same time last year.
• F1 is experiencing a broadening of its audience, which is probably very appealing to Nestlé. Its fan base is growing, getting younger, and more female thanks to a new clutch of F1 influencers on social media, CNBC reported earlier this year. 

Season’s Shrinkings: While Nestlé is hoping to woo consumers with its shiny new F1 partnership, it faces a backlash in the UK over alleged shrinkflation. British consumers spotted last week that some of the miniature chocolates in Nestlé’s Quality Street chocolate box (long considered a Christmas-time staple) have shrunk in size. Nestlé insists that the net weight of the box remains the same, but that wasn’t enough to head off the ire of British chocoholics.