from Follow the Money

The facts, just the facts (US goods trade)

August 31, 2006

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First, US imports to three major non-oil (really non-resource) exporting regions of the world economy – Asia, Europe and North America.  Ok, Canada and Mexico sell their share of oil to the US, but they also account for a large share of US non-petroleum imports and exports.   I haven’t tried to strip out Mexican and Canadian energy exports to get their goods exports (US goods imports) only.     It turns out that it doesn’t matter – even if you include energy imports, the NAFTA countries do not explain the recent surge in US imports.   Look instead to Asia. 

All data comes from the BEA, ends with q1 2006, is a rolling four quarter sum and is presented as a percentage of US GDP.

the_facts_1

After the very strong growth in US imports from Asia in 2004 and 2005, I just don’t see how folks can still argue that rising US imports from China just reflect shifts in the location of final production in Asia.  

Sure, that has happened.   In early 2003, total US imports from Asia were not any higher than they had been at the peak of the tech boom.   But things have changed since then! 

If imports from China were substituting for imports from elsewhere in Asia, I would expect overall US imports from Asia to be flat as a share of US GDP.  Or perhaps even fall, as cheap Chinese assembly replaces expensive Korea and Taiwanese assembly.   Yet overall US imports from Asia (the data series excludes Asian OPEC countries) clearly are rising as a share of US GDP.  That suggests some things previously made in the US are being imported from Asia – though the pace of increase seems to have moderated recently.

Second, US goods exports to the major goods producing regions of the world economy.

the_facts_2

It is striking to me that US exports to these three regions remain below their 2000 (tech boom) levels.  Some of that fall reflects the tech bust.    Less capital investment globally (and in the US) meant fewer US chip exports (including the export of chips that were then imported as assembled electronics goods).   But that isn’t all that is going on either.   The big fall in US exports to Europe in 2002 reflects a European slump, but also the very strong dollar in 2001 and early 2002 …

Finally, the US trade balance with these three regions.    the_facts_3
The deterioration in the US trade balance with Asia stands out, at least to me.    From say the end of 2001, the US trade balance with Europe has deteriorated by about half a percent of US GDP while the US trade balance with Asia has deteriorated by almost a full percentage point.  

As importantly, most of the deterioration with Europe came in 2002 and early 2003, when the dollar was strong. The absence of a stronger rebound in the US trade balance with Europe is a bit of a puzzle – one that I suspect is explained in part by the strong growth of Chinese exports to Europe over the past few years.   Dollar (and RMB) depreciation did have an impact.  But it had a stronger impact on China than on the US.   

My hunch?  US (and other) firms are using China as an export platform for Europe … just as they are using China as an export platform to supply the US.

Or, put differently, the US has responded to the pressures created by globalization in two ways since say 2000.   Those at the top organize global supply chains (and the global financial chain).   Those at the bottom increasingly specialize in the production of non-tradables services …

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