Brad Setser

Follow the Money

Cross border flows, with a bit of macroeconomics

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This really doesn’t look good

by Brad Setser
January 11, 2009

Words don’t really do justice to the brutality of recent downturn in Korean and Taiwanese exports.

These look a lot like charts of financial variables after a bubble bursts, not charts of the level of exports. That isn’t good.

Looking just as the monthly data risks being misleading. There is a lot of seasonality in Taiwan’s exports. They usually dip in February. It is a short month, it often corresponds with the Chinese new year and the data isn’t seasonally adjusted. A small dip in December after the end of the Western holiday season also isn’t unusual. But such a big dip in December is most unusual. Plotting the rolling 3m sum eliminates the big February dip. The current downturn is real.

The data do not look much better if plotted as a percent change. The y/y change in the 3m rolling sum isn’t quite as bad as it was at the depth of the tech bust. But give it time. The 40% fall in Taiwan’s December exports is worse than anything observed then.

Almost all of Taiwan’s exports seem to go to China for final assembly. Korea though exports to both China (electronic components, steel, no doubt other products) and the US (cars). And there has been a very sharp fall in both Korean shipments to both the US and China. Then again, it seems that exports are down across the board. Europe doesn’t look much different.*

Korean and Taiwanese imports are down too. Korea’s trade balance is actually improving even as its exports fall off a cliff. Imports from the Gulf are following the trajectory one would expect.

What of China? Well, the official data isn’t out — but if the data leaked to Dow Jones is accurate, China is following a similar trajectory but with one difference: its imports are down more than its exports. In December, year over year exports were down close to 3% and year over year imports were down 21%.

Why is the fall in China’s exports lagging the fall in Korean and Taiwanese exports? Is China taking market share in the downturn? Or does the regional supply chain mean that the fall in China’s export will take longer to materialize, fewer imported components from Taiwan in December could just mean lower Chinese exports in January and February. It also sure seems like China’s own internal downturn is adding to the global contraction in trade.

Incidentally, China’s 2008 trade surplus (custom’s basis) should come in at close to $300 billion in 2008 — up from about $260 billion in 2007, even with the big run up in average commodity prices.

Korea and Taiwan aren’t the global economy. But they both report their trade data quickly – and they both export a ton. I wish I could say that I thought they were sending a deceptive signal ….

Three other points:

a) The trajectory of this downturn looks much worse than the trajectory of the 2000 recession. That isn’t news. But it is still worth noting. Korea and Taiwan export a lot of electronics, so they were among the hardest hit by the tech bust.

b) It is striking that neither Taiwan nor Korean exports seem to have been impacted by the (modest) slowdown in US imports that started in 2006. They made up for slower export growth to the US – counting both their direct exports to the US and their indirect exports through China – with strong growth in their exports to Europe, China and the Gulf. Y/y export growth rates for Taiwan and Korea were actually up a bit earlier this year, during the peak of “decoupling.” No more …

c) Policy choices matter. From 2002 to 2004, the won depreciated significantly v the euro. After 2004 the won rose the RMB – -and China slammed the brake on domestic demand growth. That too had an impact on Korea’s exports to China. These trends show up more easily on a graph that shows the percentage change in the rolling 12m sum of Korean exports (a variable that moves slowly but capture big trends) than in the monthly data.

But right now the sheer severity of the global downturn dominates all other variables. Everything is shrinking.

Thanks to Paul Swartz of the Council on Foreign Relations for help with the data downloads and the graphs.

* To flesh out the November and December data for Europe, I used the the fall in Korean shipments to France to extrapolate the fall for smaller European economies. Using the fall in exports to Germany would have produced an even sharper fall. But this data should be taken with a grain of salt.


  • Posted by JC

    Seven fat years, seven lean.

    Enough to make one turn quite Old Testament Christian.

    Form an orderly queue for the Ark…

  • Posted by Howard Richman

    I do not believe that the United States should wait for the mercantilist countries to end the global depression, we can get out of the depression any time we want to, simply by balancing trade through Warren Buffett’s import certificates.

  • Posted by James Davison

    Interesting post. I am the admin over at the World Bank’s East Asia & Pacific blog, and thought your readers might be interested in a similar post by the Bank’s China country director David Dollar.

    David writes about China’s macroeconomic policy options in light of the financial crisis. Check out the post at


  • Posted by bsetser

    James — thanks for highlighting Dr. Dollar’s post. I will link to it in a forthcoming post.

  • Posted by ccombs

    太好。This is quite distressing. One can only guess how bad it will be when the US under
    哦吧马 (Obama) turns protectionist and Europe and the rest of the world perhaps follow suit and import less. Asian economies will be devastated. I am American but I can’t stand people gloating over for instance China’s slowdown in the West- these are real people that are losing their jobs and livelihood, with more and more being added to their number daily. This will only hurt the US in the long run, especially if it has geopolitical ramifications.

  • Posted by James

    What worries me most is not the inevitable cyclical nature of the market, but the ability of nation states to absorb these cycles from a political point of view.

    Speaking only of Asia, the “free” countries have the advantage of experiencing boom and busts, and while these have caused political upheaval to be sure (Korea, Philippines) over the past decades, there is at least some past point of reference for the populace to take some measure of solace.

    However, China in the past several decades has generally been very very poor, followed by steadily increasing standards of living, but with no real experience (at least in the modern era) of dealing with a giant “shock” of say, a quick extra 5% unemployment over a 12 month period. Not only do the poeple not have this experience, but more importantly the political structure doesn’t have the tools, experience or even will to deal with this looming crisis.

    Hang on to your hats everyone!

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