from Follow the Money

The June trade data

August 14, 2007

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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The combination of a weak dollar -- at least against Europe and Canada -- and slower growth in the US than the rest of the world does seem to be bringing the trade deficit down.

The q1 export slowdown is over; June exports were strong.  q2 exports averaged about $5b a month more than than q1 exports.  The q/q growth rate (annualized) was close to 15%.

Oil imports inched up -- a process that likely has further to do.   The average price of imported oil was just under $61 a barrel.    Oil import volumes for the first half of this year are also lower than in the first half of last year.  Higher prices are having an impact.

Non-oil imports also increased, but at a rather subdued pace (consistent with recent trends).   q/q growth in non-oil imports was 4.3%. 

Combine 15% growth (q/q) in exports and 4-5% growth in imports (q/q), and there is little doubt that the non-oil deficit is heading down.   The gap between the y/y export growth rate and non-oil import growth rate isn't quite as dramatic, but 11% y/y growth in exports v 5% (4.8%) in non-oil goods imports is enough to bring the non-oil deficit down.  

In H1, the US bilateral deficit with Europe, South America and Canada all shrank.

The deficit with Asia grew, though, driven by the ongoing expansion in the bilateral deficit with China.   The deficit with the rest of Asia was roughly constant.  

Tell me again why exchange rates don't have an impact on trade?   Both Europe and Canada have let their currencies appreciate significantly against the dollar over the past five years (and even the past year).   China -- and for that matter many other Asian economies -- not so much ...

Four others points stood out:

First, the United States isn't responsible for the current surge in China's exports.  Comparing H1 07 v H1 06,  US imports from China are up by 16%.   Compare q2 07 to q2 06 and US imports from China are only up 13%.   That is still a far faster rate than the comparable y/y increase in overall non-oil goods imports (5.2% for h1 07 and 4.8% for q2), but it is also far, far slower than the overall increase in China's exports.

So far then, China has been able to decouple from the US.

y/y growth in US exports to China remains strong -- 22% in q2.  But given the huge gap between the US export and import bases, that kind of growth is way too slow to keep the bilateral deficit from growing. 

Second, US imports from the rest of the rest of Asia are flat -- but with China now accounting for almost exactly half of total US imports from Asia, US goods imports from Asia are still growing faster (7.3% looking at h1 07 v h1 06) than overall non-oil goods imports (5.2%).

Third, the improvement in the bilateral balance with Canada stems largely from very very slow growth in imports.  US exports to Canada are up only 4.3% y/y.   The overall data though is a bit hard to decipher -- as the US imports a lot of energy from Canada (that pushed up imports in q2) and the US -- really "Detroit" -- exports auto parts and the like to Canada for final assembly as well as importing parts from Canada.  The troubles of the big 3 presumably explain, at least in part, slow US export growth to Canada.

Finally, growing US exports to Europe continue to explain much of the improvement in the US trade deficit.   But the y/y pace of growth -- 7.75% -- in US exports to the EU in q2 was well below the y/y pace of growth in q1.  Then again, the pace of growth in q1 -- 28% -- was so strong that some kind of pullback almost had to be expected.


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