The May trade data (abbreviated)
I am a bit pressed for time today, so I won’t be able to do a full analysis of today’s trade data.
US imports were higher in May than in April. Non-oil imports rose by $2.5b; petroleum imports rose by $1.5b. But y/y growth in non-oil imports is still pretty subdued – 5.6% in May. I wouldn’t say non-oil imports are flat right now, but they aren’t growing that fast either.
Oil, well, is likely to continue to be a drag. The May import price was around $59.4 a barrel. That could easily go up.
Export growth picked up though – the q1 export slump doesn’t look to have been sustained in q2. May export growth was a bit over 11% y/y, and the y/y change in the three month moving average was only a bit less. And later in the year, Boeing may even start exporting a few 787s along with its 777s and 737s.
The strong global economy is having an impact. As is the weak dollar. Too bad the yen and the RMB are even weaker – the yen because it has fallen in nominal terms, and the RMB because its rise against the dollar hasn’t been fast enough to offset China’s strong productivity growth.
If oil does not rise much further, if non-oil goods imports continue to grow at 5-6% y/y and if exports continue to rise by 10-12%, the US trade deficit should fall slowly over time. (BWS Note: edited — I initially left a "not" out)
US imports from China rose by 13.5% in May, and for the year-to-date, they are up 16.8%. US imports from the rest of Asia are flat, so total imports from Asia are up 8.1% ytd. That is more than the 5.4% increase in non-oil imports ytd. Asia’s overall surplus is still rising relative to US GDP – and Asian producers are gaining market share relative to other suppliers.
Still, sales to the US haven’t driven China’s 2007 export boom. Chinese exports to Europe are growing much faster – the RMB is really weak v the euro. And China is selling a lot of goods to the world’s commodity exporters as well.
I don’t have the data in front of me, but Russian imports rose by something like 40% in the first half of 2007. The Gulf probably won’t be that far behind. The oil exporting economies are among the big engines of global demand growth right now …
p.s. I also have been working on something on China's q2 reserve growth, but encountered some computer-related difficulties and wasn't able to post it on the road. Valuation gains likely explain around $5b of China's $130b in reserve growth, so $125b is real. Stephen Green's forecast of $500b plus in Chinese reserve growth looks pretty good right about now.
From Bloomberg,
http://www.boston.com/business/globe/articles/2007/07/11/china_trade_surplus_hits_record_269b/
The Chinese trade surplus widened 87 percent from a year earlier due to exporters rushing to beat cuts in export tax rebates.
Exports surged 27 percent to a record $103.27 billion, or more than New Zealand’s annual economic output. Imports rose 14 percent to $76.4 billion, the slowest growth in four months.
Overseas sales powered the world’s fastest-growing major economy to an 11.1 percent expansion in the first quarter.
From Asia Times,
http://www.atimes.com/atimes/China_Business/IG12Cb01.html
The United States and the European Union also need to adjust their domestic economies to help rebalance global trade, said Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation: “In this era of globalization, China’s big trade surplus and trade deficits of developed countries, in particular the US, are actually the two sides of the same global economic imbalance.”
Mei said China’s fast-growing exports are driven in part by the demand of developed countries, and it requires not only China’s efforts but those of developed countries to achieve a new balance.
“If the US fails to address its ‘low savings, high consumption’ problem at home, it will be hard for China and other Asian countries to absorb the trade surplus,” he said.
For all of the complaints by US Economists about the Chinese unfair competitive exchange rate advantage and low quality products, with Americans lining up to purchase 700,000 iPhones in the past weekend alone, where does everyone think the trade deficit come from. Each sale of the iPhone adds $200 to the US trade deficit. If the Chinese yuan were revalued another 20%, that would add $40 to the price tag so instead of selling 700K iPhones, Apple would probably sell 600K at the higher price. The increase in price would more than cancel out any drop in iPhone sales resulting in little change in the overall US trade deficit. The Apple iPhone is manufactured in China not only because of low cost assembly labor, but because critical components including the glass touch screen and high resolution display are only available from suppliers based in China. The entire global consumer electronics industry is now clustered around Dongguan City in the Pearl River Delta region of China. The Chinese yuan revaluation argument is merely a canard by “ivory tower” economists to explain why their stupid economic theories don’t work in the real world.
“If oil does rise much further,”, do you mean if oil doesn’t rise much further? With the recent price moves and the new IEA forecast, I’d say the odds are against a reduction in oil prices. There is also an interesting dilemma, that is if the rest of world continues its strong growth and the exports continue to grow 10-12% y/y, then there will be more demand for oil, which suggests oil price doesn’t stabilize, which suggests bigger deficits….
LC put his finger in the middle of the wound, precisely.
Good correction, LC.
LC — yes, i meant doesn’t go up further, and your analysis is exactly right. now that the us imports a lot more oil than it used to, stronger world growth helps on the export side but hurts on the import side b/c of higher oil prices.
Th US Census Bureau also has a foreign trade statistics. They give rather different numbers for the export and import than BEA. Eg. BEA gives the May goods export 93.3 billion, while the CB gives something like 98 billion. Does anyone know what the origin of the differences are.
The CB page is: http://www.census.gov/foreign-trade/statistics/highlights/top/index.html
An added question to the above: which data of the BEA or CB is to be compared to the Chinese trade numbers, which are custom-based (e.g. the 103 billion goods export in June; I don’t remember the May number, but it was something like 93 billion)?
The customs data tends to include freight, the BoP data treats shipping as a service — so for China, the BoP merchandise trade surplus is, if memory serves, bigger than the customs trade surplus (with an offsetting deficit in services –i would need to check this tho).
the biggest difference between the us and the chinese data tho is that the US data is seasonally adjusted and the chinese data is not — as a result, i tend to use the readily available data series (customs for china, bop for the US) for comparisons.
Unbelievable!
Not immediately relevant to the present topic, but clearly of interest to most of those who regularly debate here. Apparently the US government is urging China to buy Ginnie Mae bonds, because they carry an explicit government guarantee.
U.S. Urges China to Buy Mortgage-Backed Securities
http://www.bloomberg.com/apps/news?pid=20601009&sid=aE7I.0mnjrSY&refer=bond
REcon — i had the same reaction. it is hard to square with the assertions of my friends at the Treasury that they don’t rely on China to fund the us deficit, and constantly ask china to buy less, not more (by letting the exchange rate move).
but look for anyone short on cash –or wanting lower rates — to trek to Beijing. you go where the money is ..
Maybe its diversionary asset protectionism - attempting to steer China into the next most liquid asset after Treasuries - and implicitly discouraging an overly aggressive shift into equity investments.
Sorry Brad,
Maybe this is very uncorrect…
I wept reading your post to Velma.
It’s the kind of letter that one regrets not writting it before, and have sent it in hand written letter.
My deep condolence, and keep your roots.
Thank you.
koteli — thanks