Brad Setser

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The June US trade data

by Brad Setser
August 12, 2008

In July, China posted rather impressive export growth — all things considered. US imports from China in July aren’t known, but US imports from China were only up 2.9% y/y in June. During the first half of the year, US imports from China are only up 4.2%. The US hasn’t been driving Chinese export growth — Europe has.

And in June, US exports were up 21.1% y.y ($164.4b v $135.7b). Non-petrol good exports were up 17.7% y/y — so it wasn’t all driven by higher prices on the United States (small) petroleum exports. Real goods exports were up 11% in June, and 9.6% for the first half of the year. And real non-oil goods imports aren’t growing. Real non-petrol goods imports in June 2008 were 2.7% lower than in June 2007 — and for h1, real non-petrol goods imports are down by a bit less than 1%.


Exports of corn, beans (and other oilseeds) and wheat are up 90% in nominal terms, rising from $13.6b in the first half of 2007 to $25.9b in the first half of 2008. It isn’t all just higher prices — real exports of foods, feeds and beverages are up 10%. The United States’ financial capital should be grateful it is linked in a currency union to the agricultural Midwest; think where the dollar would be if the US only exported repackaged residential mortgages. Quips about flyover country should stop …

Not so long ago, important voices often argued that exchange rates had little effect on trade — and particularly no effect on US-Chinese trade. I though would challenge anyone to explain — credibly explain — how both China and the United States experienced strong export growth in the first half of this year without mentioning exchange rates. Dollar depreciation is having the expected effect on US exports. And the RMB’s depreciation against the euro has had the expected effect on China’s exports to Europe.

There is only one problem with this story. Bringing the US deficit down, it now is clear, required dollar depreciation, stronger demand growth outside the US than inside the US and stable oil prices. Strong global growth in particular cuts both ways — as it pushes up the price of oil and thus the US oil import bill even as it pushes US exports up. Falls in the dollar also cut both ways, at least to the extent that dollar weakness pushed oil up. I personally find the argument that high oil pushes the dollar down a bit more compelling, but there is a big debate on this.

In the first half of the year, the US non-petroleum goods deficit fell by $51 billion. But the petroleum deficit increased by $69 billion, pushing the goods deficit up. The services surplus improved by $25b — bringing the overall deficit down a bit, but only a bit.

The good news here is that the current future price of oil is now below the June import price ($112 v $117 a barrel), which suggests that the deterioration in the oil balance may almost have peaked. July will be painful — and maybe August too. But a fall in the monthly import bill is now in sight. The bad news is that the current market price is still higher than the average price of imported crude in the first half of 2008 ($96.4 a barrel), so there is still a bit of bad news to come. If petrol imports stay at their June level for the rest of the year ($45b), the US energy import bill would rise from $319b in 2007 to $495b in 2008 — a $175b deterioration. That could be too high if oil continues to fall — it is likely an upper not a lower bound. But it indicates that it is a bit too soon to project a huge improvement in the 2008 trade balance.

Remember, the same factor that has pulled oil down — a slowing global economy — should also pull US export growth down.

A few other interesting tidbits:

In June, real imports of industrial supplies — a category that includes oil — are down 9.2% relative to June 2007. Real imports of autos are down 6.6%. That hurts Japan (and Canada) more than most countries. Real imports of consumer goods are only up 1% — which isn’t great for China. Real exports of capital goods (airplines, turbines and the like) are up by 10% — less than real exports of industrial supplies. Real exports of industrial supplies are up an impressive 17.4%. The US still has a decent sized economy based around the extraction of natural resources.

Real petrol imports are down 8.3% in June (v June 07) — while real petrol exports are up by 65%! Net petrol imports in June were down an amazing 17.4%. For the the first half of 2008, real (net) petrol imports are down 11.1%. Prices up, demand down.


For the first half of the year, nominal exports to the Eurozone are up 15%. Nominal exports to China are up 20%. But in dollar terms in the increase in exports to the eurozone ($12.6b) significantly exceeds the increase to China ($6.1b). The big driver of US export growth though has been Latin America. Exports to South and Central America are up $17.7b (h1 08 v h1 07), or 36%.

Thank the populist governments in Latin America than the US financial sector doesn’t exactly like: Exports to Argentina are up 49% in the first half of the year and exports to Venezuela are up 41%. Exports to Brazil are up a more modest 33%. On current trends, total exports to South America should soon top exports to Mexico.

No doubt there are more nuggets that can be found in the details of the trade data …

UPDATE: Calculated Risk has a nice chart showing the petroleum and non-petroleum deficits over time. The contrast between the source of improvement in the deficit during the last recession and the current source of improvement are instructive. Last time around, the dollar was strong and almost all the improvement came from a fall in oil prices (when IT spending fell, it also cut into both US imports and exports — producing a more symmetrical fall in non-oil imports and exports). This time around, the dollar is weak (at least against Europe, not so much v Japan and China) and the improvement in the non-oil balance accounts for all of the improvement.


  • Posted by Dave Chiang

    There is no doubt that the US has “comparative advantages” in agriculture and high-tech manufacturing, but the US financial services industry consists mostly of “rent seeking” activities that hardly contribute to “real” GDP growth. Wall Street has turned the soundest product in financial markets, the home mortgage, into an obscene speculative casino, causing trillions of dollars in capital misallocation. Instead of properly regulating the US financial markets, Paulson and Bernanke invoke “moral hazards” while socializing Wall Street financial losses to the US taxpayers even as they scapegoat the Chinese and other foreigners.

  • Posted by ndk

    … and wheat are up 90%…. Quips about flyover country should stop…

    The crusts are the worst part of the bread.

    For anyone who may have missed it, Russia has announced in its latest geopolitical escalation that it will be adding two or three new currencies to its central bank reserves, but I’m not sure which currencies are big enough that they don’t hold already. CNY or AUD, perhaps? It also continues to shed agency holdings in a move it describes as political rather than economic, which I thought quite interesting in light of Brad’s “too Chinese to fail” analyses.

    Minus (a small) two for the petrodollar recycling flows and the silent bailout.

  • Posted by bsetser

    interesting. i would bet on the AUD/ CAD and maybe SEK … the Russians have been quite conservative to date, so i have a bit of trouble seeing them move out of the G-10. But I may lack imagination. Right now their basket includes USD/ EUR/ GBP/ JPY and apparently CHF …

    incidentally india now has around 10% of its reserves in non-SDR currencies — i.e. currencies other than USD/ EUR/ GBP and JPY. So Russia is lagging a few others here.

  • Posted by S

    Trade balance is a small contributer to GDP relativilyspeaking. A 1% downtick in consumer spending would more than offset any improvement from here. That said the begger policy is being hurt by dollar rebound and the rest of the world is cratering. German, Singapore, Japan, China etc..Who exactly is buying all this stuff. As for the petro deficit, even if we went back to the 2002 level it is a $20B pickup. Every little bit helps, but we are unlikley to go back to oil at those levels, so the number is smaller. The hit to consumer expenditures is far larger and will dwarf the trade pickup which is both a numerator and denominator issue. The only thing left to pad GDP is inventories and government spend. Warm up the presses a second stimulus is assured. That said as the gov moves to print, can they hold the bond market? This all comes as the gov prints a $100B deficit number ($1T annualized!) The Treasury is madly handing out money. Ironic that the NY Fed line now has created a derivative option to draw. Maybe that is what Greenspan meant when he said derviatives play an important part in laying off risk and stabalizing the system. Anyway, the bond market will not be quiet forever. The Fed will eventually go lower as they come to accept the depth of this crisis and they get freed when ECB/other begin to cut rates. If the dollar can rally on these rate differentials (notwithstanding forward look on rate cuts elsewhere) what is to say it would crater if the current rate differentials are maintained? The question I guess is whether to short the entire curve or just the long end?

  • Posted by AC

    Brad – In the Chinese statistics (which you use for the total Chinese export data), the January-July export to the US is up 9.9% y/y (Jan-Jun up 8.9%). I know that you don’t trust much the Chinese data, but then you also should question the total Chinese export data. In the January-July period most of the growth in Chinese export came from export to the EU (up 27.1%), Korea (39.4%), Russia (28.5%), India (49%), the latter two are small in absolute value. Exports to those countries not specified in the Chinese customs data (representing roughly 30% of the total) were also up more than the average 22.6% in the Jan-Jul period. These are according to the Chinese data.

  • Posted by AC

    The above are goods export data.

  • Posted by Dave Chiang

    Chinese consumers go on spending spree with retain sales soaring 23% year-on-year. It demonstrates that the Chinese don’t need the worthless political advice from Hank Paulson and Ben Bernanke on how to manage their sovereign economy. [EDITED]

    Chinese Shoppers Go on Record Spending Spree

    Chinese shoppers turned in a gold-medal performance in July as annual growth in retail sales accelerated to a record 23.3 percent on the back of rising incomes.

    Financial markets had expected a dip in sales growth to 22.2 percent from June’s record pace of 23.0 percent.

    The increase was all the more impressive because the figures are reported in value terms, not by volume, and consumer inflation dropped to 6.3 percent in the year to July from 7.1 percent in June.

    “In real terms, retail sales are still very strong,” said Paul Cavey, an economist with Macquarie in Hong Kong. “This is very consistent with household income and wage growth being strong.

    China is striving to stoke consumption in order to reduce the economy’s reliance on exports and related investments, and the strength of retail sales shows the policy is working at the margins.

    But the Chinese still save about 30 percent of their incomes.

  • Posted by bsetser

    AC — the Chinese trade data is reasonably good, and better than most Chinese data. It may slightly overstate exports b/c of disguised capital inflows, but i have never been convinced that this is all that big. The other problem with the Chinese data is that a lot of what China sells to HK is onsold to the US and Europe, so Chinese exports to the US are somewhat understated (in levels) v US imports from china. the same problem also probably applies in reverse — some US exports to HK are onsold to China.

    Given that the data isn’t quite the same, the fact that Chinese exports to the US are showing a bit more growth than US exports to China doesn’t worry me too much. The trend is the same in both data series.

    the growth in China’s exports to India is what really jumps out at me — that continues a trend from last year, and it cannot be sustainable.

  • Posted by Dave Chiang

    I think every law abiding U.S. citizen should be totally outraged at the blatantly corrupt taxpayer bailouts for Fannie Mae and Freddie Mac that primarily serve to bailout Level 3 subprime securities at Goldman Sachs. Hank Paulson opposes any economic reform that would root out financial insider corruption on Wall Street.


  • Posted by bsetser

    DC — the CFR puts a premium on civilized discourse, and they generously host my blog. unfounded personal attacks will be edited.

  • Posted by Dave Chiang


    The American people should be aghast at the Washington Consensus Elite agenda for US Global hegemony over the Middle East, Russia, and China. The American people never signed up for this radical foreign policy plank. Why won’t Washington just leave the rest of the world alone? Hank Paulson and Ben Bernanke have totally crossed the line demanding the Chinese government submission to Washington K-Street financial lobby. As a sovereign independent state, the Washington Elites should respect China’s sovereignty. If the Chinese aren’t permitted to even manage their own monetary policy, then China has surrendered its entire sovereignty. In other words to Hank Paulson, mind your own damn business and butt out of Chinese affairs.


  • Posted by Beau Butts

    Dr. Setser,

    One concern that needs to be kept in mind as the world rebalances is the impact on U.S. food prices of any adjustment that does not involve a massive improvement in the man ufacturing and oil balances. While agriculture is playing an invaluable role in propping up the current account (not just the Midwest but also the South), how much more food can the U.S. export before the country faces roaring food inflation and rising malnutrition? This is yet one more reason why decisive action needs to be taken to bring about an orderly readjustment of world trade before things fall apart.

  • Posted by bsetser

    uhh DC Wall Street isn’t particularly interested in a revaluation. What they are interested in is managing the CICs’ billions and getting the ability to do deals in china/ buy chinese banks. Main street wants the revaluation. This is Ohio v New York.

    And most crucially, China’s peg means that China has voluntarily handed over its monetary sovereignty. Folks like me want China to have more monetary independence not less.

  • Posted by Dave Chiang


    Oh please, Hank Paulson exclusively represents the narrow economic interests of Goldman Sachs. The federal taxpayer bailouts for Wall Street clearly demonstrate this. It’s privatizing the profits to Goldman Sachs, and socializing the losses to the US taxpayer.

    The Chinese government is still a declared socialist state. The keys to the majority state-owned banking sector which is designated a strategic industry will never be turned over to foreigners.

    And most crucially, China is a victim of US Dollar hegemony. The Washington Consensus is shameless in exploiting the reserve currency status of the US Dollar. The rest of the world exports “real” economic wealth to the US, and the Federal Reserve prints US dollars in unlimited quantities with a fractional reserve banking system.

    Why not remove the US military presence from the Gulf Arab Oil states and the Iraqi oil fields? Let’s replace the petro-dollar with a multi-currency regime that includes the Euro, yen ,and yuan. The rest of the world will finally have “real” financial independence from US Dollar hegemony, but Americans will be forced back to “real work” and no more “free lunches”.

  • Posted by Twofish

    I find DC’s hostility toward Wall Street to be completely bizarre since Wall Street is one of the most avidly pro-China lobbies in the United States. If you just listen to an investment banker talk about China, you can just see the $$$$$ that they are thinking about. The basic theory (which I think is sound) is if China gets rich, Wall Street gets rich, investment bankers make huge bonuses.

    DC: keys to the majority state-owned banking sector which is designated a strategic industry will never be turned over to foreigners.

    Fine. Then Wall Street will settle for minority shares and joint venture agreements. And also Chinese companies are planning on going global. Tens, maybe hundreds of billions of dollars of M&A work.

    Also, don’t forget that not all of China is socialist. Hong Kong is an integral part of the People’s Republic of China, and Beijing has big plans to make Hong Kong the financial capital of Asia.

    Also economic nationalism works the other way. At some point the major Chinese banks will want to set up operations in the United States, and they’ll need the political support and lobbying muscle of American banks.

  • Posted by bsetser

    It also would be nice to have a discussion of the US trade data — tho i realize that it is august and I perhaps contributed to the change in topic by editing out some of DC’s attacks on Paulson and others.

  • Posted by Twofish

    I honestly do not see how you can eliminate the US trade deficit as long as the US remains the world reserve currency, because of the Triffin Paradox. As long as there is expanding demand for US dollars, you are going to have a net leakage out, and if you reduce US trade deficits with one area (say China), it’s going to end up increasing deficits in another area (say the Middle East).

    Now one can reduce the trade deficit by reducing fiscal deficits, but 1) fiscal spending in the US is basically set and 2) if you do improve fiscal stability of the US, this increases the demand for US assets which will increase the demand for US dollars, and you get the trade deficit again.

    Basically economic models for trade deficits break down when you deal with the US because of the dollars status as world reserve currency. They work to some extent if you focus on one part of the equation (say US-China), but I’d argue that even if you bring US-China trade into balance, the structural pressures that cause the trade deficit will just cause the trade deficit to increase somewhere else.

  • Posted by RebelEconomist

    Twofish, the Triffin paradox no longer applies, if it ever did. You do not need a current account deficit to be a net seller of dollar assets; you can use the proceeds to invest in non-dollar foreign assets on the capital account. Either of the US private or public sectors could have (and should have) done this.