from Follow the Money

The US and Chinese trade data

September 11, 2007 9:32 am (EST)

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China reported a large $25b trade surplus for August.

The US reported a roughly $60b trade deficit for July, with strong exports offsetting a rise in the US oil import bill.

Same old, same old. 

Chinese exports were up 22.7% in August, down from the very high 34% in July.   I think it is too early though to argue that there is strong evidence that Chinese export growth is slowing – the weak August might be payback for the strong July.    The three month average y/y growth rate has stayed around 27-28%.

Imports were up 20.1%, a bit less than in July, and right in line with the three month average. 

Project the current three month average growth rate for imports and exports out for the full year, and Chinese export will reach about $1240b – with imports at around $950b.   The resulting $290b goods trade surplus (customs basis) is consistent with a $350b or more current account surplus.    

It is pretty hard to argue that net exports haven’t been a key force pushing Chinese growth up to its current stratospheric (12%) levels.    

Indeed, I have been surprised that China’s leadership has continually prioritized export growth over domestic macroeconomic stability.    The persistently undervalued RMB is a big reason why China now has a very frothy stock market, 6% inflation and negative real rates. 

The way China has opted to integrate into the global economy is a real issue.  Its continued prioritization of export growth has had a huge impact on the global economy, not just the US economy.  Lots of other emerging economies now fear letting their exchange rate rise because they fear Chinese competition. Something will have to give soon though.   China’s exports are on track to rise from $265b in 2001 to $1240b in 2007.   That is a huge -- $ 1 trillion – increase.   If you project current (3m average) export growth rates out for two more years, China’s exports will reach $2 trillion; project out three years and it is $2.6 trillion.    

I really don’t think that is possible.  The law of large numbers will kick it.   I thought that back in 2004, and was wrong.   But the sheer scale of Chinese exports now is really so big that sustaining very high growth rates seems next to impossible.

US petroleum imports rose to $27.2b in July – close to where they were last summer.   The average price of imported oil was around $65.5 a barrel.  

Non-oil goods import growth also picked up a tad, to 6.3% (y/y).   But export growth was very, very strong (close to 16%), pulling the non-oil deficit down – and keeping the overall deficit stable.

The three month average growth rate of exports is about 12.5% -- well above the 5.5% average for non-oil goods imports (I haven’t calculated non-oil goods and services imports, sorry).  That is a combination that, if sustained, will bring the non-oil deficit down over time. 

The same forces propelling Chinese export growth – the weak dollar and still-strong global economy – are also propelling US export growth.    Those same forces are also a key reason why oil is high.  Take away strong global growth and both US export growth and the price of oil would be lower.

The overall US trade deficit has been pretty stable at $60b a month this year ($720 or so for the year) while China’s trade surplus has been rising.   The same is broadly true for the US current account deficit and China’s current account surplus.  I would be a lot happier if the US deficit was falling and China’s surplus was stable.

By following the dollar back down over the past two years (against many currencies) China has boosted its own economy when it didn’t a boost.   And it has put itself in a position where it singled handedly will finance about ½ of the US current account deficit.

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