from Follow the Money

Old habits die hard ...

August 5, 2008

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

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At the first hint of a slowdown, the US tends to take steps -- like a fiscal stimulus package -- to support domestic demand.

Though to be fair, the US has also loosened monetary policy, and one of the ways monetary policy helps support the economy is through a weaker dollar and stronger exports. Some of the smartest advocates of fiscal stimulus advocated it in part because they worried that cutting policy rates would might fail to generate the intended stimulus because of financial weakness while risking a true dollar crisis.

And at the first hint of a cyclical slowdown, China tends to take steps -- slowing RMB appreciation, increasing export rebates -- to support its export sector.

Keith Bradsher of the New York Times has joined the chorus writing about signs that China’s economy is slowing, and that Southern Chinese manufacturers who produce for export have been particularly hard hit. There certainly is no shortage of supporting anecdotal evidence. And with growing signs of weakness in Europe -- and now signs that US export growth may be poised to slow -- it isn’t difficult to believe that Chinese exports are poised to slow.

But as of now, I don’t see any solid evidence of a slowdown in the actual export data.

On average monthly exports in 2006 were about $17.3b higher than monthly exports in 2005. On average monthly exports in 2007 were about $21.7b higher than monthly exports in 2006. I plotted 2008 exports against the a forecast that assumed that 2008 monthly exports would be on average, $19b higher than 2007 exports. $19b is the average of the y/y increase in 2006 and 2007. Guess what? So far, exports have been above the resulting forecast.


Yes, June was weak relative to May -- but May was unusually strong, as the usual holiday related dip didn’t occur this year. June is still right on trend.

I wouldn’t be surprised if exports do dip below this trend over the remainder of the year. China is too big an exporter not to be influenced by the global cycle -- and the global economy certainly looks to be slowing.

But to me the big surprise is that China hasn’t felt more of an impact of the US credit crunch to date. US domestic demand isn’t growing. Chinese exports to the US are flat. And there still isn’t -- at least in the data through June -- any real sign of an overall slowdown in Chinese exports.

Sure the increase in exports so far this year is a bit weaker than in 2007 -- and with prices up, the pace of increase in real exports certainly has slowed. But the y/y dollar increase is still stronger than the y/y dollar increase in 2006. By any standard other than the huge 2007 increase, that is superb performance.

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