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More bad trade data from Asia

by Brad Setser
January 9, 2009

Taiwan’s December exports are down over 40% y/y — largely because of a huge fall in exports of electronic components to China. The fall topped expectations. It adds to the mounting evidence that the current global deceleration is quite sharp and quite deep.

Taiwan’s imports are also down by around 45%. Thank the big fall in commodity prices. Taiwan managed to post a trade surplus in December even with the enormous fall in its exports.

Korea’s exports were also down in December — though the 17.4% y/y fall in December wasn’t quite as large at the 19% fall in November. Imports though fell by more — over 21%. And Korea also posted a (small) trade surplus.

My guess — based on the fall in Taiwan’s exports to China and the fall in commodity prices — is that China’s December trade data will show a quite significant fall in imports, keeping China’s surplus large even as China’s exports fall sharply.

The large fall in Germany’s November exports highlights that the slump in trade is global. Japan’s exports fell by more (in percentage terms) than Germany’s exports in November. US exports are almost certain to start shrinking too.

Expectations have been revised down dramatically, but most data points still seem to be worse than expected. That worries me.

18 Comments

  • Posted by bsanchez

    So this increasingly looks like a global recession rather than a global deceleration… The chances of zero or negative growth in China and neighbours are increasing.

  • Posted by Albion

    Brad
    Your post is illustrating the on going intra trade between Asian economies where components are produced in Taiwan, Japan, Korea, sold to China, Vietnam, and Indonesia as to become export goods assembled in low wages labour intensive industries. The intra Asian trade statistics are blurring a reality, economies that are export dependant and remaining frugal in their domestic consumption.
    If not December, January statistic should reveal the yawning gap. As much for the tenant of disconnected economies and « Chindia » becoming the growth engine of the rest of the world.

  • Posted by Indian Investor

    I’m waiting and hoping for some sledgehammer protectionism from the new Obama administration, consisting of, say a 48% Obama Tariff on all imported merchandise,especially electronics and garments; and perhaps a complete ban on offshoring any kinds of IT or BPO services to India.
    :-)
    It will be an event followed by an era most Americans will remember for far longer than the mythical Great Depression. It will then take a couple of generations for Americans to emerge from the ‘Credit Crisis of 2008′.
    Consider, for instance the garments exports industry in a city like Bangalore. Most of the tailors who stitch the export oriented garments are half literate seamstresses. Their only real industrial skill is running a tailoring machine, which is mostly likely a Savio machine imported from Italy. Very little is known about their actual working hours. My estimate is that they go into the garment factory by around 8 am and they are probably working till around 9 pm. The salary they get is very close to around Rs. 4,000/=. Translate that to USD and try to understand its actual purchasing power.
    INR 4000 is equivalent to around USD 83 at today’s exchnage rate. The most liberal estimate of purchasing power would be to multiply by ten. So the garment seamstresses earn around USD 833 per month in US equivalent purchasing power. The actual purchasing power might be slightly above or below this number but it’s a good enough indication for the purpose of this analysis. Usually these seamstresses have around Rs. 100/= left in their foreign bank accounts at the end of each month. My data comes from observing them withdrawing money from the ATM at the beginning and end of the month, an exercise which they find quite complicated.
    I’m not sure what and how much these people are supposed to be saving. As far as I know most of them have to work for a few years to be able to afford starting a family.
    Now imagine a whole battery of American Madame Antoines working on a tailoring machine all day, and getting a real wage similar to today’s $800 per month! I’m not even sure $800 a month is actually more than the much reported social security unemployment dole.
    (the Madame Antoine reference is from ‘A Tale of Two Cities’ and isn’t meant to offend the uninitiated)
    So what we have is a whole cohort of Macroeconomics geniuses from Harvard, Princeton, Yale, Oxford, etc loudly clamoring for the rebalancing of current account imbalances in all the major newspapers and media of the world.
    You get them advising the ‘Emerging Market’ policy makers to give up the ‘Currency Mercantilism’ and ‘Stimulate Consumption’.
    The relevant industry association in India projected in December that over the next 4 months, around 150,000 of the garment workers are likely to be fired.The Government of India promised ‘measures to address labor intensive export sectors’, and these ‘measures’ are not expected to make a single paisa of difference to the unemployment numbers.
    Once these uncounted seamstresses are all fired, the Government can keep building new highways but I have little hope for the Macroeconomic recovery posited by the brilliant Oxford-Cambridge-Harvard trio at the country’s helm.
    On the other hand it will be truly amusing to watch Americans working more than 80 hours a week for peanuts.
    Irrespective of any price control gimmicks, real wages are going to so low that we’re going to see a plethora of striking workers associations, with huge disparities between the Import Certificate Warren Buffetts and the Working Seamstress Association.
    It would be like a 1970s Indian movie come alive. The heroes will be the popular representatives of the workers associations and the villians will be the evil capitalist factory owners. Strikes followed by ‘Lock Outs’. With a happy ending for the workers when the owner finally has a change of heart and re-opens the factory.

  • Posted by DJC

    The economic situation in China will certainly result in some social turmoil, but definitely not enough to destabilize the Communist Party control of the nation. The Chinese people have been through much worse during the Cultural Revolution in the early 1970′s when 20-30 million starved to death. The Chinese also retain the world’s highest savings rate as a direct result of their collective memory from the Cultural Revolution era which will cushion the financial impact from recession for millions of families.

    While the Chinese labor intensive manufacturers have been clobbered in Guangdong province, my relatives and friends in China inform me that the situation isn’t really so bad for high-tech and capital intensive manufacturing. The reason why China has never developed an software-outsourcing industry for Western multi-national companies is simply because there was always plenty of domestic work available for Chinese engineers. Except for a few Walmarts scattered in major provincial cities, the vast interior of China’s heartland has always been relatively untouched by the outside world. The $600 billion fiscal-stimulus package for infrastructure and railway construction will also help alleviate the global recession.

    The US recession-depression will be much worse than Japan’s lost decade. The Japanese retained the highest savings rate in the world to carry through their prolonged recession. The US Economy doesn’t have that luxury. The National Savings Rate is “rock bottom” zero for the US population. Americans should learn from Chinese and Japanese to avoid debt whenever possible, and to continually increase savings for that rainy day.

  • Posted by bsetser

    Albion — There is an intra-Asian electronic components trade with final production in China (mostly) for sale to the US and Europe. So much of the fall in sales to other Asian economies reflects expected falls in US and European demand. On top of that though i think there is growing evidence that China is importing less for its own account, and thus won’t be able to be the engine of global growth.

    India is certainly slowing.

    DJC — umm if the US joined China and Japan in savings, who is gonna buy all of China’s goods? That is the paradox of thrift. At a global level, there have be both lenders and borrowers ….

  • Posted by Albion

    Source OECD Savings as a pct of GDP

    1960’s Net savings

    U.S. Germany Japan
    10.3 17.7 21.7

    U.K. Italy France Canada

    10.2 17.3 17.9 8.3

  • Posted by DJC

    Brad Setser: umm if the US joined China and Japan in savings, who is gonna buy all of China’s goods? That is the paradox of thrift. At a global level, there have be both lenders and borrowers ….

    DJC: Whether macro-economists like it or not, a higher US savings rate is what we are going to get. American households especially “baby boomers” facing retirement soon, desperately need to rebuild their tattered balance sheets. Consumer confidence has been completely destroyed, and no amount of politico rhetoric from Obama will change the situation. The American Shopping model is history.

    So who is going to buy all of China’s stuff. In the coming future, it will be just the Chinese themselves that enjoy the benefit of their industrial productivity. And do Americans really need to overconsume to fill their McMansions with trinkets that end up in the garbage dump within a few months. Instead of just “buy buy buy” mentality, perhaps the global economy needs a more sustainable economic order that doesn’t waste resources.

  • Posted by bsetser

    DJC. We agree then. I too have argued that the US savings rate is gonna rise, like it or not — allowing the US to finance the rise in its fiscal deficit internally. And for china to enjoy the benefits of its industrial productivity (something i would heartily welcome) it must stop saving and start consuming … so its savings rate implicitly is coming down in your forecast

  • Posted by DJC

    Brad Setser: .. so its savings rate implicitly is coming down in your forecast

    DJC: I forecasted the US Trade Deficit would eventually decline due to the rising bankruptcy of the US consumer. But no, the Chinese household savings rate won’t be falling, but rising further under current economic conditions. In Japan, recessionary conditions precipitated an even further rise in the savings rate. Even under Communist rule, the China PBoC can’t hold a gun to the heads of the Chinese population to spend.

    The deficit in demand in the Chinese economy is being offset by Chinese fiscal spending especially for railway infrastructure development. Railway construction in China is sorely required. The United States with a smaller population still has more railway trackage than China. Currently, China Railway can only meet 30% of freight demand since the military and passenger trains are given the highest priority, respectively.

  • Posted by Majorajam

    DJC, the savings rate includes all sectors of the economy, and doesn’t distinguish between investment and consumption spending, so Brad’s point is valid. I’m not terribly surprised by that, considering he’s one of the foremost experts on this stuff, not least its elementary applications.

    Brad, is it fair to say we’re (still) not looking at an improving US trade deficit ex petroleum with these numbers, and could be looking at the opposite?

  • Posted by Majorajam

    On a related front, the people who pompously moan about the unsophisticated US politicians that threaten a more protectionist stance are really difficult to listen to. One of Brad’s colleagues, Jagdish Bhagwati, added himself to this list today in the FT.

    Here’s a clue: the United States is alone in the world at having sat by as other, principally Asian, countries subsidized their labor cost to the tune of many trillions of dollars over decades, really since WWII as Bretton Woods exchange rates were set to encourage Japanese manufacturing growth, and increasingly so since the 1980s. The US has sat by as these huge subsidies were being doled out to the foreign competition of its own firms and done nothing to protect them because, apparently, protectionism is retrograde unless it is done by currency intervention of Asian countries. The result has been nothing short of the staggering deindustrialization of this country which has lead to its deep maladjustment of producing way to few tradable goods for those that it consumes.

    No other nation on this bloody blue marble has been willing to tolerate that type of artificial competition against its own firms- they’re just smart like that. Of course, the resulting trade and current account deficits have totally destabilized the world economy and created the afore mentioned deep maladjustments that will weigh on prosperity for decades. All of that ‘enlightened free trade has and especially will show to be remarkably costly to the people of all countries in the final analysis.

    Now, of course our disastrous policies were certainly not the result of altruistic charity toward the world’s workers- they were wrought of misguided ideology, and blind adherence to free market theology (of course, it’s not difficult to convince a plutocracy making money hand over fist on a wayward system that it is actually the best thing for all involved).

    Long story short, if it is the case now that we are belatedly realizing we’ve been busily prepping our own goose for a good cooking all these years, the global mercantilists fingers can fall off for the wagging for all I care. What else can one do but look aghast when Asian partisans get bitter that their own myopic mercantilist policies are coming back to haunt them in the form of losses on their reserves and protectionist sentiment in their trading partners. As the immortal American John Bender so elegantly put it, B O O H O O.

  • Posted by flawed

    heavy u.s. consumption levels were bad for not only the world, but also our environment.

    i agree China needs a stronger internal driver but i really would like the government to implement strict environmental regulation. the country has a horrible pollution problem. Sometimes you need to put guidelines on growth.

    Just take a step back and isn’t the entire system we live in terribly flawed? We are all humans and we are told that “more is better”, “bigger is better”, but does bigger + more=true happiness? Look at the faces of people across the world today. Look at the faces on people in the NYC subway as you take the “6″ up or down.

    Isn’t it true we have lived in an artificial world of materialism? We have destroyed ourselves. Maybe we need to review the entire system and work on a system that perhaps can make us all more happy and feel more genuine about our attributes on earth.

    Life is truly short, we are here today but gone tomorrow. The world would be much better if we had a more balanced system.

    But perhaps, with good luck we can achieve such measures. Natural revolution may balance the equation regardless of the powers our policy makers justify. There is true hope that one day we may have 1 world equlibrium. Where standard of livings across this great planet is balanced. Regardless if you live in Asia or South America, North America or Africa, Europe or India.

    Remember we all come from “1″ continent (Pangea). We may all been broken up over time, but it is my vision that “1″ day we may all come back together.

    We are all stronger together, than alone. Unipolarity was a disaster, nonpolarity is our hope.

  • Posted by bsetser

    Majorajam — at this stage, I tend to think that the combination of:

    a) a stronger dollar
    b) a slowing global economy
    c) more stimulus in the US than in the world

    will likely tend to keep the non-oil deficit constant/ push it up in 09. but we really don’t have enough data points for me to have a lot of confidence on that forecast. it has an embedded forecast that China’s slowdown is deeper than most expect and chinese imports will fall (in part b/c of falling commodity prices but not entirely) faster than its exports, so china’s surplus will rise.

    the only safe forecast right now is that the current account surplus of the oil exporters will disappear and the deficit of the oil importers will shrink. erog, the aggregate us deficit should shrink. watch the nov and dec data — they should start to reflect the impact of lower oil prices.

    moves in the relative position of various oil importers are harder to forecast.

  • Posted by Lyle B.

    This is from an article on shanghaidaily.com, dated January 7

    CHINA’S central bank said yesterday that it plans to implement a pilot program that would settle overseas trade with the Chinese currency instead of the US dollar.

    The People’s Bank of China will expand financial cooperation with overseas economies and “properly deal with the global financial crisis,” the central bank said. “We’ll actively join international efforts to tackle the global financial crisis while safeguarding national interests,” the central bank said. It pledged to implement a pilot program that the State Council announced last month.

    China will allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta, China’s two economic powerhouses, and the special administrative regions of Hong Kong and Macau, according to the central bank.

    Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations. Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars, analysts said.

    I am puzzled by the reference to settlement between Guangdong Province and the Yangtze River Delta. I would think they would already be using their own currency for internal transactions. The main point is the idea of using the yuan to settle trade payments with ASEAN countries. This is an ominous step.

  • Posted by Lyle B.

    Sorry, I misunderstood. It says “settlement between Guangdong Province and the Yangtze River Delta, China’s two economic powerhouses, and the special administrative regions of Hong Kong and Macau.” So that is not internal.

  • Posted by Twofish

    bsetser: DJC. We agree then. I too have argued that the US savings rate is gonna rise, like it or not — allowing the US to finance the rise in its fiscal deficit internally. And for china to enjoy the benefits of its industrial productivity (something i would heartily welcome) it must stop saving and start consuming … so its savings rate implicitly is coming down in your forecast.

    I don’t think so. Industrial productivity is very low in China, and most people still work in very low productivity agriculture. If you boost consumption now, then you lower future productivity increases.

    I think it is a horrible idea for China to lower its savings rate. What I think China should do is what the US should have done in 2004-2006, and increase demand by government borrowing and redirecting those funds into infrastructure (both physical and human) development.

    People mistake *consumption* with *demand*. It’s important to increase *demand*, but that demand can come from investment rather than consumption.

  • Posted by Twofish

    flawed: Just take a step back and isn’t the entire system we live in terribly flawed? We are all humans and we are told that “more is better”, “bigger is better”, but does bigger + more=true happiness?

    Yes. Like everything, the pursuit of wealth can be excessive, but wealth gives you choices. If you have massive amounts of money, but want to live like a pauper, you can.

    flawed: Look at the faces of people across the world today. Look at the faces on people in the NYC subway as you take the “6″ up or down.

    People on the number “6″ train are pretty glum right now because bonuses are slashed and jobs are being lost. A year ago, people were in much better moods. I think that contradicts the point that you were trying to make.

    Money *can* buy happiness. It can also buy misery.

    It doesn’t always, but if you make wise choices with your money, you will end up happier than if those choices were denied you.

  • Posted by Blissex

    «United States is alone in the world at having sat by as other, principally Asian, countries subsidized their labor cost to the tune of many trillions of dollars over decades, [ ... ] The US has sat by as these huge subsidies were being doled out to the foreign competition of its own firms and done nothing to protect them because, apparently, protectionism is retrograde unless it is done by currency intervention of Asian countries. The result has been nothing short of the staggering deindustrialization of this country which has lead to its deep maladjustment of producing way to few tradable goods for those that it consumes.»

    First, you talk of the “US” as if it were a single entity, not a composite of very different interests. What you describe above has MADE A LOT OF MONEY for USA capital owners and rentiers, and increased their political and bargaining power.

    USA capital owners and rentiers have used subsidized 3rd world labor as a way to earn much greater profits, and to weaken strategically those USA industries where unions were common; 3rd world countries have used subsidized labor as a way to attract large exports of capital from 1st world capital owners and rentiers.

    The US have not “sat by as these huge subsidies were being doled out to the foreign competition of its own firms”, the interests aligned with capital owners and rentiers have supported those huge subsidies as they generated immense rents for them, as “its own firms” were replaced by much more profitable Chinese and Indian offshore production. And “protectionism is retrograde” when it protects the interests of the low paid and working stiff, but it is very good when it results in high returns on exported capital thanks to “currency intervention of Asian countries”.

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