(What’s Left of) Our Economy: No Great Reset Yet in the Makeup of U.S. Trade

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aerospace, Boeing, CCP Virus, computers, coronavirus, COVID 19, exports, facemasks, Great Reset, healthcare goods, imports, jewelry, masks, personal protective equipment, phamaceuticals, pharmaceuticals, PPE, semiconductor manufacturing equipment, semiconductor shortage, semiconductors, stay at home economy, Trade, trade deficit, trade surplus, vaccines, Wuhan virus, {What's Left of) Our Economy

Throughout the CCP Virus period, I’ve refrained from posting on detailed, industry-by-industry trade figures. My reasoning? Pandemic distortions rendered them all but meaningless in terms of what they revealed about the fundamentals of U.S. trade flows and in particular the competitiveness of domestic manufacturing.

Of course, now it looks reasonable to suggest that the pandemic is ending – or at least that the end might really be in sight this time. So I spent some of my weekend comparing the trade flow details from 2019 (the last full pre-pandemic year) with those of 2021 (the last full data year, and whose figures have just been released). And the results surpised the heck out of me. Because if you look at trade deficits and surpluses and how they’ve changed, the best description seems to be surprisingly little.

To start, let’s check out the twenty sectors of the economy that have racked up the biggest trade surpluses in 2019 and 2021. They’re presented below according to the categories created by the U.S. government’s North American Industry Classification System (NAICS), which has become official Washington’s main system for slicing and dicing the U.S. economy. To the right of the actual dollar figure (in billions), you’ll find its rank for that particular year.

And for data junkies, these groupings are those at NAICS’ sixth level of disaggregation – one I like because in many cases it permits distinguishing between final products and the parts and components that make them up. Since for decades, so much U.S. and global trade today takes place in those inputs (because the manufacturing process has become so fragmented because creating complex worldwide supply chains became a premier business model), this distinction has mattered crucially in understanding trade flows.

                                                      2019                             2021

civil aircraft & parts:               $125.953   1                 $79.510   1

natural gas:                                $21.823   4                 $54.923   2

soybeans:                                   $18.493   6                 $27.110   3

other special class provns:         $24.499   3                 $27.019   4

petroleum refinery products:      $30.583  2                 $26.245   5

waste and scrap:                         $13.065  7                 $21.362   6

plastics meterials and resins:     $18.803   5                 $18.771   7

corn:                                             $7.620  11               $18.674    8

semiconductor machinery:          $1.408  43                $11.971   9

semiconductors/related devices: $5.994  14                $10.326  10

non-anthracite coal/petroleum gas:  $9.312  8              $9.250   11

used/second hand merchandise:  $8.805  10                 $8.604  12

non-poultry meat:                        $7.364  12                 $7.898  13

wheat:                                          $5.898  15                 $6.891  14

motor vehicle bodies:                  $9.201  9                   $6.886  15

cotton:                                         $6.225  13                  $5.789  16

copper, nickel, lead, zinc:           $4.402  18                 $5.471   17

tree nuts:                                     $5.096  16                 $4.712   18

prepared/preserved poultry:        $3.745  20                $4.554   19

misc basic inorganic chemicals: $4.169  19                $4.081   20

Some reshuffling of the order of these biggest trade flow winners has taken place. Most stunningly, semiconductor manufacturing equipment jumped from the industry with the forty third widest trade surplus in 2019 to number nine in 2021. Computer parts was in 17^th place in 2019 and fell all the way to 52d place (and out of the Top Twenty) in 2021. And motor vehicle bodies dropped from number nine to number 15. But otherwise, the two lists look remarkably similar. In fact, the seven biggest trade surplus industries of 2019 were also the seven biggest in 2021, though the order changed sllghtly.

What has seen much more major change during this two-year period have been the absolute numbers themselves, and these movements do seem pandemic related, though in different ways. Commodities like natural gas and corn (and to a lesser extent, wheat) appear to have been dramatically affected by inflation.

Trade in semiconductors and the machines that make them clearly reflect the increased importance of the “stay at home economy” – both in terms of leisure and the workplace. (The skyrocketing of the semiconductor machinery surplus, however, is also a reminder of how many of the world’s semiconductors are made outside the United States these days – although the microchip industry has also been decidedly cyclical for many years).

Meanwhile, the nosedive in the aerospace surplus has of course resulted from the woes of Boeing, both because of the CCP Virus-related global slump in air travel, and the company’s own manufacturing and safety problems.

Did this pattern repeat for the twenty sectors that ran the biggest trade deficits in those two years? Here are those lists, with the actual figures again in the billions of dollars:

autos & light duty vehicles:    -$126.272  1                -$96.250   1

goods returned from Canada:    -$91.240  2               -$96.124   2

broadcast & wireless comms equip:  -$72.231  3       -$80.075   3

computers:                                 -$59.443  6                -$79.209   4

crude petroleum:                        -$62.006  5                -$63.495  5

pharmaceutical preparations:     -$62.236  4                -$63.477  6

female cut & sew apparel:         -$42.088  7                -$41.028  7

audio & video equipment:         -$22.184  12               -$34.349   8

male cut & sew apparel:            -$30.889   8                 -$29.851  9

misc motor vehicle parts:           -$23.242  11               -$29.055  10

dolls, toys & games:                  -$17.285   14              -$26.789   11

printed circuit assemblies:         -$16.709   16              -$26.588   12

iron & steel & ferroalloy:          -$16.954   15              -$26.294   13

footwear:                                    -$25.597  10              -$26.037   14

major household appliances:      -$14.128  19              -$20.849   15

misc plastics products:                -$12.886 20              -$20.566   16

jewelry & silverware:                   -$3.476  68             -$17.819   17

motor vehicle electrical equip:   -$14.418  17             -$16.151   18

curtains & linens:                       -$12.134   22             -$15.256   19

aircraft engines & engine parts: -$25.670   9               -$14.070   20

The patterns revealed on this list closely resemble those made clear from the Top Twenty surplus list – some reshuffling but – with just a few exceptions like jewelry and silverware, (Home Shopping Network lines burning up?), and aircraft engines and engine parts – little major change. Indeed, the order of the top three hasn’t changed a bit, and as with the biggest trade surplus sectors, the makeup of the top seven is identical (though the order has been slightly modified).

As with the big surplus winners (though on the consumption side, not the production side), the advent of the “stay at home economy” is evident from the large increases in the absolute trade deficits for computers and audio and video equipment (though not so much for the broadcast and wireless gear category, which contains cell phones).

The damage done by the worldwide semiconductor shortage can be seen in the dramatically lower motor vehicle trade deficit. And aerospace woes come through loud and clear from the even steeper drop in the aircraft engines deficit.

Another take on the trade balance figures is provided by examining the sectors where trade balances have improved the most (either because surpluses have expanded or because deficits have shrunk), and worsened the most (either because surpluses have shrunk or deficits expanded). Below are the biggest trade balance “improvers” by percentage change among the sectors that have either run the fifty biggest trade surpluses or the fifty biggest trade deficits. The sectors with “deficit” to the right of the percentage change are those where trade shortfalls declined.

miscellaneous grains:                                     +1,021.72 percent

semiconductor manufacturing equipment:        +750.18 percent

Jewelry and silverware:                                     +412.65 percent   deficit

sawmill products:                                               +270.45 percent   deficit

storage batteries:                                                +168.67 percent   deficit

natural gas:                                                         +151.67 percent

corn:                                                                   +145.07 percent

surgical appliances & supplies:                          +134.60 percent   deficit

sporting & athletic goods:                                    +86.13 percent   deficit

artificial/synthetic fibers/filaments:                     +74.73 percent   deficit

semiconductors/related devices:                          +72.28 percent

small electrical appliances:                                  +71.87 percent   deficit

waste and scrap:                                                    +65.50 percent

animal fats/oils/byproducts :                                 +63.15 percent

motor vehicle steering &suspension & parts:       +60.49 percent   deficit

misc plastics products:                                          +59.60 percent   deficit

printed circuit assemblies:                                    +59.13 percent   deficit

cooling, heating, & ventilation equipment:          +55.91 percent   deficit

dolls, toys, & games:                                            +54.86 percent   deficit

audio & video equipment:                                    +54.84 percent   deficit

One trend that should jump out right away: Thirteen of the twenty sectors that have improved their trade balances the most are still in deficit – which reflects the nation’s continuing huge trade gap.

Since some of the greatest changes in the order of sectors with the biggest trade deficits and surpluses have come in pandemic-related sectors, it’s not surprising that such industries are prominent on the list of improvers. Hence the appearance of semiconductors and their manufacturing equipment, and commodities like miscellaneous grains, corn, and natural gas.

As for sawmill products, their results owe largely to U.S. lumber tariffs. In sporting and athletic goods, can the deficit’s shrinkage be due to a pandemic-y dropoff in physical activity?

Totally puzzling, though – the improvement in electrical appliances and audio and video equipment, where so much production has migrated overseas in recent decades, and because imports of the latter would seem to have jumped to serve so much of the stay-at-home demand.

But on the encouraging side – the big decrease in the trade deficit in surgical appliances and supplies, which includes all the personal protective equipment (like facemasks, gloves, and medical gowns) that have figured so prominently in the nation’s pandemic response, along with ventilators.

Now the twenty major sectors whose trade balances have worsened the most:

oil & gasfield machinery:                                  +54.65 percent

aircraft engines & engine parts:                         +45.23 percent   deficit

civilian aircraft, engines, & parts:                      +36.87 percent

railroad rolling stock:                                         +35.04 percent

turbines & turbine generator sets:                      +33.09 percent

non-diagnostic biological products:                   +31.84 percent   deficit

in-vitro diagnostic substances:                           +31.10 percent

cyclic crude & other intermediate chemicals:    +31.05 percent

guided missiles & space vehicles:                      +30.07 percent

fibers, yarns, & threads:                                     +29.32 percent

motor vehicle bodies:                                          +25.16 percent

paper bags/coated & treated paper:                    +23.26 percent

autos & light duty vehicles:                               +23.78 percent   deficit

petroleum refinery products:                              +14.19 percent

misc animal foods:                                              +10.35 percent

aircraft:                                                                  +9.98 percent   deficit

paints & coatings:                                                  +9.07 percent

tree nuts:                                                                +7.54 percent

cotton:                                                                    +7.00 percent

male cut & sew apparel:                                        +3.36 percent   deficit

Interestingly, although the nation’s huge and chronic trade deficits means that many more industries run them than surpluses, fifteen of the twenty sectors listed above as leading trade deficit losers are surplus industries. So during the pandemic period so far, their surpluses have shrunk. Moreover, the degree of shrinkage has only been kept relatively low because the surpluses weren’t that big to begin with.

For the aforementioned reasons, the aerospace cluster is well-represented among the big deficit losers. But it’s strange that, during the pandemic so far, the U.S. trade shortfall in the non-diagnostic biologic products category that contains vaccines has gone way up.

Overall, however, the weaker export performance even among big U.S. net export winners points to the global economic slump that’s been created by the CCP Virus and the curbs on business and personal activity it’s spawned – which have combined to drag down growth abroad, in U.S. export markets, more than at home. But the remarkably stable makeup of U.S. surpluses and deficits strongly suggests that any new post-virus normal in American trade will strongly resemble the old one.

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(What’s Left of) Our Economy: A Record Number of Records in U.S. Trade I

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Advanced Technology Products, ATP, China, goods trade, Made in Washington trade flows, manufacturing, non-oil goods trade deficit, services trade, Trade, trade deficit, trade surplus, {What's Left of) Our Economy

As made abundantly clear by today’s official U.S. report, which brings the story up to December, 2021 and therefore the full year – last year was one for the books when it came to U.S. trade flows – and specifically the record books. The same goes for the month of December. I can’t remember ever seeing data revealing so many monthly and annual bests and worsts in terms of exports, imports, and trade balances.

There’s no question that the responsbility rests with the continuing and wildly fluctuating impact on the entire U.S. and world economies of the CCP Virus and the related lockdowns and other curbs on business and consumer activity. But the records are so numerous that they’re definitely worth listing.

Let’s start cover the December monthly figures today, and save the annual data for tomorrow – just to break things up into digestable pieces. The month’s combined goods and services trade deficit came in at $80.73 billion, a modest increase of only 1.76 percent from November’s $79.33 billion that may have reflected a U.S. economic growth slowdown toward the end of the fourth quarter.  And that November number was revised down by a noteworthy 11.05 percent. The December total wasn’t an all-time monthly high, but it did trail only the $80.81 billion level of September.

A record was set by the monthly goods deficit, and at $101.43 billion, it was the second straight, and an increase of 3.21 percent over November’s $98.27 billion.

For a change, the total December trade gap was held down by the $20.70 billion services surplus – the highest since May’s $21.33 billion.

As known by RealityChek regulars, the portion of U.S. trade flows that best reflects the effectiveness of past and present U.S. trade policy decisions is the non-oil goods deficit – which strips out services trade because liberalization efforts here are still in their infancy, and trade in energy-related petroleum products because they’re rarely the objects of trade diplomacy.

And this “Made in Washington” trade shortfall hit its second straight record in December, with the $100.54 billion level 4.48 percent higher than November’s $96.23 billion.

Turning to some trade flows followed by RealityChek with special interest, the manufacturing trade deficit in December retreated by 1.14 percent from the all-time monthly high of $124.06 billion set in November. But the latest $122.65 billion level now stands as Number Two.

The trade gap in Advanced Technology Products (ATP) dropped on month in December, too – by a steep 8.98 percent, from $21.76 billion to $19.80 billion. The record is November, 2020’s $21.90 billion, leaving the new December total as the third highest on record.

The huge and longstanding goods deficit with China hit its second highest level of the CCP Virus era in December – $36.25 billion. (September, 2021’s $36.50 billion was the highest.) The total was a robust 11.86 percent higher than November’s $36.22 billion, but well short of the October, 2018’s record of $42.89 billion, set when U.S. importers were tying to “front run” new anticipated Trump administration tariffs.

December’s $228.14 billion worth of combined goods and services exports were a third straight record, and topped November’s $224.73 billion figure by 1.52 percent.

Goods exports of $158.27 billion in December were 1.25 percent higher than November’s $156.25 billion level, but were 0.47 percent shy of the record $159.01 billion set in October.

The $69.88 billion in services exports in December were far from an all-time high in a sector that’s been especially hard it during the pandemic period, but they were 2.03 percent better than November’s $68.48 billion. They also represented the best performance since December, 2019’s $73.18 billion and the third straight sequential high of the CCP Virus era.

As for non-oil goods, their December exports of $138.48 billion topped November’s $135.60 by 2.09 percent, but October’s $139.15 billion still stands as the monthly record.

In the manufacturing sector, exports improved on month in December by 1.68 percent, from $98.49 billion to $100.14 billion. They have a ways to go, however, before matching the all-time high of $105.61 billion, set in March, 2018.

Interestingly, though, that December manufacturing exports advance came despite a 16.70 monthly nosedive in U.S. goods exports to China – still often touted as a promising market for American industrial products. The swoon from $16.07 billion to $13.38 billion was the worst since the 26.83 percent plunge in February, and the monthly figure the lowest since September’s $10.91 billion.

ATP exports performed better in December, jumping 12.03 percent from November’s $30.76 billion to a record $34.46 billion. The new level is fractionally better than the former all-time high of $34.26 billion set in October.

On the import side, combined U.S. purchases of foreign goods and services of $308.87 billion in December was a fifth straight monthly record and a 1.58 percent increase from November’s $304.07 billion.

Also a fifth straight all-time high were December goods imports of $259.70 billion. And they were 2.03 percent higher than November’s $254.52 billion.

December’s services imports of $49.18 billion were actually 0.74 percent below November’s $49.54 billion, but were still the second best performance of the pandemic period.

The December non-oil goods imports total of $238.98 billion, however, were a fourth straight monthly record, and beat the November figure of $231.82 billion by 3.09 percent.

December imports of $222.79 billion in the manufacturing sector represented a third straight record, but only a 0.11 percent increase from November’s $222.55billion.

And four straight monthly records are now on the books for ATP imports, which climbed by 3.31 percent, from $52.52 billion in November to $54.26 billion in December.

Finally, as far as December is concerned, at $49.53 billion, U.S. goods imports from China set a fourth straight CCP Virus-era record, and stood 2.38 percent higher than November’s $48.39 billion. But that December total has been topped three times before, including the record $52.08 billion set during the tariff front-running days of October, 2018.

Tomorrow we’ll examine those annual 2021 trade results – which you’ll see are just as records-rich! 

 

(What’s Left of) Our Economy: U.S. and Other Foreign Investors Keep Funding the China Threat

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bonds, China, decoupling, delisting, FDI, Financial Times, foreign direct investment, investment, Joe Biden, pension funds, Phase One, portfolio investment, Steven A. Schoenfeld, stock markets, stocks, Trade, trade surplus, Trump, Wall Street, {What's Left of) Our Economy

Here’s one of the most depressing articles I’ve read in a long time, and it deals with a (big) piece of U.S.-China economic relations to which I haven’t paid enough attention so far:  flows of financial investment.

It’s depressing because it shows that, although the Trump administration has (rightly, in my view) begun to decouple America’s economy from China’s, and made impressive progress in trade and foreign direct investment (purchases of “hard assets,” like factories and labs and enterprises and real estate), portfolio investment (purchases of stocks and bonds) into China from around the world is not only continuing – it’s booming. And these capital flows, including resources from Americans, are already much bigger than direct investment flows and are  rapidly approaching even the mammoth scale of trade flows.

According to this Financial Times piece, in total, investors outside China this year have bought about $150 billion worth of Chinese stocks and bonds – including Chinese government bonds. (Not that the debt of Chinese entities practically speaking differs fundamentally from national and local Chinese government debt, since there’s no private sector worthy of the name in China.)

The Financial Times reports that the vast majority of these inflows are bond purchases, meaning that investors outside China are lending to all manner of borrowers inside the People’s Republic. But buys of stocks in the Chinese entities commonly and misleadingly described as “companies” that presumably closely resemble their counterparts in genuine free market systems matter as well, because they, too, make new resources available to the Chinese regime. And after suffering from net outflows earlier this year, when Beijing locked down much of the country’s economy after the CCP Virus broke out, Chinese stocks are enjoying net inflows once again.

Moreover, China is starting to enjoy this foreign capital windfall just as its own ability to generate the savings needed to finance the huge debts that have fueled the latest phase of its ongoing economic expansion has begun weakening. Indeed, the need to replace faltering domestic capital sources with foreign capital is exactly what’s behind Beijing’s recent spate of decisions to reduce the barriers to overseas investing in China’s financial markets.

Foreign purchases of Chinese financial assets are still dwarfed by China’s global trade surplus (i.e., its profits) this year, which stands at just under $500 billion through November. But they’re now twice as great as global direct investment in China (about $115 billion through October, Beijing reports).

Obviously, the Trump administration can’t directly control non-U.S. foreign investment into China. But capital coming from the United States hasn’t exactly been chump change. I haven’t been able to find official data, but Steven A. Schoenfeld of the investment research and advisory firm MV Index Solutions, who has been investigating this issue for several years, has written that, in 2019, “nearly $400 billion of new foreign investment into Chinese equities was driven by changes in allocations within benchmark indexes, with American investors accounting for more than a third of these massive portfolio flows.” In addition, he has estimated that the 30 largest U.S. public workers’ pension plans had invested more than $50 billion in Chinese entities as of the beginning of this year. (Full disclosure: Steven is a long-time close personal friend.)

The Trump administration belatedly has tried to curb American portfolio investment in China, and has both forced a big federal workers’ pension fund to halt a planned great increase its China holdings, and has ordered a ban on all U.S. financial investment in dozens of companies linked to the Chinese military.

But unless more comprehensive curbs are enacted, the decisions by Wall Street research firms to boost China’s presence in the stock indices they construct, and which both government pension and private fund managers generally try to track, will still ensure that these investors’ exposure to China keeps rising. And the lure of expanded opportunities in China’s already huge and potentially huge-er financial services market, and its still healthily growing real economy, will continue fueling American and other foreign investors’ appetite for both Chinese stocks and bonds. Ironically, the President’s Phase One trade deal could help sustain and even increase U.S. investments in China via the commitments China has made to ease barriers to entry for American finance companies.

In fact, Steven Schoenfeld’s research makes clear that overall, despite these Trump administration curbs, total foreign holdings of Chinese stocks and bonds could approach and even exceed the half trillion dollar level in the next two or three years. These sums would equal several percentage points of China’s total economy.

Nor does the foreign financial support for China stop there. Although the Trump administration and Congress have been working to tighten the standards Chinese entities must meet to list on U.S. stock exchanges, their presence in the three biggest such financial markets as of October had allowed them to achieve total market capitalization of $2.2 trillion.

Of course, the Trump years seem to be nearing a close, raising the question of whether apparent President-elect Joe Biden will try to tighten the clamps on U.S. capital flows further and even encourage American allies to do the same, or whether he’ll simply let current trends continue, or open the flood gates further.  Something we do know for sure:  Investors in Chinese markets seem awfully confident that Washington will let them continue with their version of selling Beijing the rope with which it can hang the free world.  Why else would Chinese stock prices be way up since his apparent election? 

(What’s Left of) Our Economy: A Great Oil Month and Still the July Trade Deficit Worsened

Tags

Canada, China, EU, European Union, exports, high tech goods trade, imports, Made in Washington trade deficit, manufacturing, merchandise trade, NAFTA, North American Free Trade Agreement, oil, recovery, South Korea, Trade, trade deficit, trade surplus, Trump, {What's Left of) Our Economy

The combined U.S. goods and services rose sequentially in July (by just 0.33 percent) for the first time in three months even though America’s oil trade improved so much that in inflation-adjusted terms, oil exports set a new record high ($10.87 billion), and the oil trade deficit set a new record low ($6.80 billion). Moreover, in current-dollar terms, July’s $3.09 billion oil trade deficit was a 30.78 percent drop from June and the smallest since May, 2016’s $3.03 billion.

Nonetheless, not only did the monthly overall trade deficit worsen slightly; the seven-month year-to-date total ($319.10 billion) is up 9.60 percent from last year’s level, and the highest such figure since 2012 ($324.83 billion). Moreover, most of the bilateral goods shortfalls with countries that have drawn President Trump’s ire on trade rose on month, including Canada (where it more than doubled), South Korea (up 4.26 percent, partly on a 3.71 percent U.S. exports drop), and China (up 2.99 percent to a post-August, 2016 high). In addition, America’s goods sales to Canada sank on month in July by 13.85 percent – their biggest such decline since July, 2006’s 20.38 percent. The merchandise deficit with Mexico, however, fell steeply for the second straight month.

The huge, chronic manufacturing trade deficit rebounded sequentially by 4.61 percent as both exports and imports fell, but stayed 6.19 percent ahead of last year’s record pace, and although the volatile high tech goods gap tra and the volatile high tech goods trade gap dropped on month by 7.51 percent, it’s running 31.12 percent of last year’s rate and looks poised to reach an all-time annual high as well. The trade drag on the current, still sluggish American economic recovery dipped through the second quarter of this year, but has still cut its cumulative real growth by 17.31 percent, or nearly $463 billion.

Here are selected highlights of the latest monthly (July) trade balance figures released this morning by the Census Bureau:

>July saw record U.S. monthly real high oil exports ($10.87 billion), a record low real oil trade deficit ($6.80 billion), and the smallest current-dollar oil trade deficit ($3.09 billion) since last August ($3.03 billion). But none were enough to prevent the combined July goods and services trade deficit from rising slightly on month – by 0.33 percent, to $43.69 billion, from a downwardly revised $43.54 billion.

>The new inflation-adjusted oil exports record represented their second straight all-time high, beating June’s $10.35 billion mark by 4.95 percent.

>The new record low monthly after-inflation oil deficit bested the previous low of $7.56 billion, set in May, 2016, by 9.98 percent. It also represented a 14.10 percent drop from the June total.

>The July current-dollar oil deficit was 30.78 percent lower than June’s $4.47 billion level.

>July current-dollar oil exports rose 4.45 percent on month, to $10.24 billion. That was their highest level since November, 2014 ($11.14 billion).

>July current-dollar oil imports fell 6.58 percent, to $13.33 billion. That was their lowest level since last December ($13.82 billion).

>July also generally saw rising sequential trade deficits with countries identified by President Trump as difficult U.S. trade partners.

>As the second round of talks to redo the North American Free Trade Agreement (NAFTA) concluded, the U.S. merchandise trade deficit with Canada more than doubled on month, from $461 million to $1.01 billion. This represented the biggest percentage worsening of the deficit since July, 2016 – when a $25 million U.S. surplus turned into a $716 million shortfall.

>U.S. goods exports to Canada sank sequentially by 13.85 percent, to $21.88 billion – the biggest such decrease since July, 2006 (20.38 percent).

>It’s true that the July monthly surge in the merchandise trade deficit Canada followed a June plunge of 66.29 percent. But on a year-to-date basis, the American shortfall has nearly quadrupled, to $11.35 billion.

>A contrast was provided by the American trade ledger with Mexico, where the goods trade deficit fell significantly on month for the second straight month. The 17.37 percent sequential decrease drove the shortfall down to $4.92 billion – its lowest level since January’s $3.95 billion.

>U.S. goods exports to Mexico fell by 7.55 percent, to $19.74 billion, from a June level of $21.35 billion that was the second highest ever. But imports fell even faster – by 9.70 percent, to $24.66 billion. That was the biggest such drop since November, 2015’s 15.06 percent.

>All the same, the on a year-to-date basis, the U.S. merchandise trade deficit with Mexico is 11.94 percent higher than last year’s figure.

>All told, the total U.S. merchandise deficit with its NAFTA partners is 32.30 percent higher over the first seven months of this year than during the first seven months of last year.

>President Trump is also seeking to revise the 2012 U.S. bilateral trade agreement with South Korea, where the American merchandise deficit expanded by 4.26 percent on month in July, to $1.93 billion.

>U.S. goods exports to South Korea dropped by 3.71 percent sequentially, to $4.07 billion, and imports fell by 1.29 percent, to $6.00 billion.

>Year-to-date, the merchandise trade shortfall with South Korea is down by an impressive 30.31 percent so far in 2017. But on a monthly basis, it’s nearly 3.5 times greater than in March, 2012, when the trade agreement went into effect.

>Despite the rise of the yuan in recent months, the American merchandise trade deficit with China continued on its long-time upward track. In July, the shortfall set its second straight post-August, 2016 high – $33.56 billion – as it grew 2.99 percent on month.

>U.S. merchandise exports to China increased by 3.45 percent in July, to $10.05 billion. Goods imports from China rose by 3.10 percent, to $43.60 billion. That figure represented the highest such level since October, 2016’s $43.79 billion.

>Year-to-date, the U.S. merchandise deficit with China is up 6.80 percent as of July.

>More bad July trade news came from America’s commerce with the European Union (EU). The U.S. merchandise trade deficit rose by 7.90 percent on month to $13.45 billion – its highest monthly level since last November ($14.80 billion).

>U.S. goods exports to the EU tumbled by 9.80 percent, to $21.44 billion. That’s the lowest such total since January’s $21.29 billion, and the biggest decrease in these sales since July, 2016 (10.01 percent).

>America’s merchandise imports from the EU were off on month by only 3.71 percent. The resulting $34.89 billion total was the lowest since February’s $32.39 billion, and the biggest such drop since January’s 6.68 percent.

>At the same time, on a year-to-date basis, the U.S. merchandise trade deficit with the EU is only 0.95 percent higher than its comparable 2016 level.

>American manufacturing had another poor month in July as well. Its massive and chronic trade deficit rebounded sequentially by 4.61 percent to $79.64 billion.

>Manufacturing exports plummeted by 8.24 percent on month, from $95.41 billion to $87.54 billion. But imports were off only 2.54 percent, from $171.54 billion to $167.18 billion.

>Year-to-date, the manufacturing trade shortfall has widened by 6.19 percent, from $482.13 billion to $512 billion – indicating that it will set yet another annual record. (Last year’s was $853.07 billion.)

>High tech merchandise trade generated some goods news for the United States in July, at least over the short term. The deficit – which can be volatile on month – fell sequentially by 7.50 percent, from $8.82 billion to $8.16 billion.

>High tech goods exports fell by 5.13 percent, to $29.23 billion, while imports decreased by 5.66 percent, to $37.38 billion.

>Year-to-date, however, the high tech goods trade shortfall is up by 31.12 percent, and seems headed for a new annual record of its own.

>Thanks to revisions in a separate data series kept by the Census Bureau, the drag on U.S. growth during this so-far weak recovery created by the Made in Washington portion of the U.S. trade deficit dipped as of the second quarter of 2017.

>This deficit consists of U.S. trade flows heavily influenced by trade agreements and other trade policy decisions – thus omitting services and oil trade – that are then adjusted for inflation.

>Between the second quarter of 2009 – when the current recovery officially began – and the second quarter of 2017, the increase in this Made in Washington deficit has cut cumulative U.S. growth by 17.31 percent, or $462.82 billion out of $2.6744 billion in real GDP expansion.

>The previous calculable trade drag figure was $463.97 billion (17.47 percent) cut from $2.6551 trillion in cumulative real recovery era growth.

(What’s Left of) Our Economy: America’s China Trade by the (Industry-Specific) Numbers

Tags

China, commodities, energy, exports, imports, manufacturing, Trade, trade deficit, trade surplus, {What's Left of) Our Economy

Last week, RealityChek analyzed in great industry-by-industry detail new government data illuminating U.S. trade trends for the first half of this year. This week, we’ll see how leading sectors of the American economy have fared versus Chinese competition during that period, and how it compares with their performance during the first half of last year. And we’ll also examine how America’s China trade in these respects compare with the nation’s global trade performance.

As with the global trade data presented last week, the industry categories used are those of the most granular level of the North American Industry Classification System (NAICS), the federal government’s main system for slicing and dicing industry-specific economic data. I like this six-digit level because it draws the greatest number of distinctions between final manufactured products and the parts and components of these products. This distinction is critical because the rapid growth in recent decades of global supply chains (i.e., the rapid growth of American production offshoring) means that a large percentage of U.S. and global trade consists of trade in these manufacturing inputs.

Two other technical notes: First, because trade data for major aerospace products aren’t made public in order to protect corporate information considered proprietary, the six-digit NAICS results in this sector are unreliable, and the five-digit level data are being used. Second, because the release of services trade data lags considerably, these RealityChek reports cover only goods trade (which still comprises the vast majority of U.S. trade flows).

Let’s start with a list of the nation’s top ten goods exports to China for the first half of this year, and how their performance has changed in dollar terms since the first half of 2016:

1. Aerospace: -10.7 percent

2. Autos & light trucks: +26.0 percent

3. Soybeans: +30.6 percent

4. Waste & scrap: +19.2 percent

5. Semiconductors & related devices: -2.7 percent

6. Crude oil & natural gas: +3,250.2 %

7. Plastics materials & resins: +32.3%

8. Semiconductor production machinery: +7.1 percent

9. Pharmaceuticals: +45.2 percent

10. Miscellaneous basic organic chems: +15.7 %

And here’s the list of America’s top ten worldwide goods exports, and how these levels have changed since the first half of 2016:

1. Aerospace: -4.0 percent

2. Petroleum refinery products: +26.1 percent

3. Autos & light trucks: -8.5 percent

4. Special classification provisions: +9.7 percent

5. Semiconductors & related devices: +4.7 percent

6. Miscellaneous auto parts: +1.4 percent

7. Miscellaneous basic organic chemicals: +3.7 percent

8. Pharmaceuticals: +3.9 percent

9. Plastics materials & resins: +6.3 percent

10. Primary smelted non-ferrous metals: +54.0 percent

Both lists contain mainly advanced manufactured products, which is good for the U.S. economy because these sectors are great performers in terms of high wage job creation, innovation, and (historically, anyway) productivity growth. But some important differences between the lists can be seen, too. For example, the year-to-date swings in the China trade flows generally are much greater – both where American exports have risen and where they’ve fallen.

And then there’s the rocket ride taken by American crude oil and gas exports to China. These shipments alone accounted for more than 22 percent of the period’s increase in total U.S. goods exports to China. But how can that pace possibly continue?

Also noteworthy: The big increase in American car and light truck exports to China. Given the PRC’s ambitious plans to become a major automotive production power, (though one whose own output is still dominated by foreign- brand products) how much longer will Beijing remain content to import so many vehicles from abroad?

Speaking of imports, here’s the list of the top ten U.S. goods purchases from China and how they’ve changed between January-to-June, 2016 and January-to-June this year:

1. Broadcast & wireless comm: +26.4%

2. Computers: +7.9 percent

3. Telecomms equipment: +18.2 percent

4. Computer parts: -19.2 percent

5. Games, toys, childrens’ vehicles: +7.1%

6. Printed circuit assemblies: +50.0 percent

7. Audio & video equipment: -15.0 percent

8. Miscellaneous plastics products: +7.1%

9. Institutional furniture: +8.5 percent

10. Metal household furniture: +10.3 percent

And for comparison’s sake, here’s the corresponding list of America’s leading global goods imports:

1. Autos & light trucks: +4.5 percent

2. Crude oil & natural gas: +53.7 percent

3. Pharmaceuticals: +2.3 percent

4. Goods returned from Canada: +4.3 percent

5. Broadcast & wireless communications equipment: +10.3 percent

6. Computers: +6.2 percent

7. Telecomms equip: +8.2 percent

8. Aerospace products: -3.4 percent

9. Petroleum refinery products: +22.2 percent

10. Semiconductors & related devices: -6.4 percent

Unlike the global imports list, the China imports list is entirely comprised of manufactured goods. But they’re hardly all high-value manufactures. Indeed, four of the ten categories consist of relatively simple consumer goods, and three more fall into the consumer electronics area (including that leading broadcast and wireless communications sector, which contains smartphones). The only entry that qualifies as capital- and technology-intensive is telecomms equipment (although the Chinese content of consumer electronics products, and indeed of China’s exports generally, is rising strongly by all accounts).

As with U.S. worldwide trade, however, the big test of America’s competitiveness in China trade consists of the trade balance figures. For mainstream trade theory teaches that products that countries trade most successfully will turn out to be products that countries make most successfully.

So here are the U.S. goods categories running the biggest trade surpluses with China, and how these surpluses have changed between the first six months of last year and the first six months of this year:

1. Aerospace products: -11.58 percent

2. Autos & light trucks: +14.46 percent

3. Waste & scrap: +17.92 percent

4. Crude oil & nat gas: +3,228.07%

5. Plastics materials & resins: +29.94%

6. Semiconductor production machinery: -1.91%

7. Liquid natural gas: +66.25 percent

8. Sawmill products: +24.96 percent

9. Non-poultry meat products: +2.83%

10. Pulp mill products: +6.09 percent

If you agree that advanced manufacturing’s fortunes are central to the U.S. economy’s fortunes, this list is only mildly encouraging, at very best. Yes, the top two categories merit that label, along with plastics materials and resins and semiconductor machinery. But two of those surpluses have shrunk over the past year. And all the other categories are commodities or low-value products. They’re also the categories that saw the greatest trade surplus improvements.

Here are the biggest surplus sectors in America’s worldwide trade:

1. Aerospace products: -2.03 percent

2. Petroleum refinery products: +33.11 percent

3. Plastics materials & resins: +4.73 percent

4. Soybeans: +28.21 percent

5. Other special classification provns: +7.13 percent

6. Corn: +20.26 percent

7. Waste & scrap: -7.82 percent

8. Liquid natural gas: +56.54 percent

9. Semiconductor production machinery: +64.73 percent

10. Non-anthracite coal & natural gases: +223.22 percent

Interestingly, this global list is even more low-value and commodity-heavy than the list of the biggest bilateral China deficit categories. Moreover, here, too, it’s mainly the commodity and lower value products that have seen the biggest improvements in these surpluses.

Finally, let’s examine the biggest deficit categories in America’s trade with China, and how they compare with the global results. First, the China figures and how they’ve changed on a year-to-date basis:

1. Broadcast & wireless communications equipment: +29.14%

2. Computers: +7.56 percent

3. Telecomms equipment: +19.46 percent

4. Computer parts: -20.75 percent

5. Games, toys, children’s vehicles: +7.05%

6. Printed circuit assemblies: +49.77%

7. Audio & video equipment: -15.52%

8. Miscellaneous plastic products: +6.88%

9. Institutional furniture: +8.61 percent

10. Metal household furniture: +10.28%

The biggest total U.S. goods trade deficit categories and their similar increases and decreases?

1. Autos & light trucks: +10.64 percent

2. Crude oil & natural gas: +45.31 percent

3. Goods returned from Canada: +4.25 percent

4. Computers: +1.16 percent

5. Broadcast & wireless communications equipment.: +11.06 percent

6. Telecomms equipment: +19.10 percent

7. Printed circuit assemblies: +47.12 percent

8. Audio & video equipment: -11.50 percent

9. Institutional furniture: +8.56 percent

10. Iron & steel: +76.28 percent

On the value-added scale, the two sets of figures look pretty comparable. But here’s something revealing: Six of the categories appear on both lists, which certainly squares with the idea that the U.S. trade deficit problem is largely a China trade deficit problem. Something else revealing: Tariffs work. Just look at how important iron and steel are on the worldwide deficit list, but don’t even appear on the China deficit. That’s largely because of the steep punitive duties slapped on Chinese steel starting in 2015.

Next up: Which major sectors of America’s goods economy have seen the biggest year-to-date improvement and deterioration on the China goods front, and what do those figures augur for the nation’s economic, industrial, and technological future?

(What’s Left of) Our Economy: Are China’s Trade Delusions Growing?

Tags

Andrew Browne, China, manufacturing, tariffs, The Wall Street Journal, Trade, trade surplus, trade wars, Trump, {What's Left of) Our Economy

It looks like China’s leaders have been swallowing a lot of their own propaganda about its rise to global prominence and its place in the world economy in particular. And since his election as president a week ago, these delusions of grandeur have surely been fed by tremulous predictions by the usual globalization cheerleaders that the United States – or at least many Americans – will lose big in any bilateral trade war Donald Trump might start.

How else to explain the warning issued by a state-run Chinese newspaper on Sunday that any Trump tariffs on Chinese goods will be met with a “tit-for-tat” response that would include the following consequences:

“A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.”

And how Beijing must have chortled today when it read Wall Street Journal columnist Andrew Browne’s argument that

“Nobody wins in a trade war. If Donald Trump sparks one with China, among the losers will be some of his most ardent supporters: blue-collar workers who helped sweep him to election victory.

“In fact, they’ll stand to lose twice. They’ve already endured stagnant incomes for decades amid withering trade competition from China. Mr. Trump’s threatened tariffs of 45% on all Chinese imports would hit their pocketbooks again by raising the price of pretty much everything on sale in Wal-Mart, from sneakers to microwave ovens.”

“In fact,” if the Chinese newspaper writers really are reflecting their political leaders’ views, then their grip on reality is totally gone. For example, will the United States really be the only country that suffers if iPhone sales in the PRC are limited? Last I checked, nearly all these devices were assembled in China, where Apple and especially subcontractors are mass employers. Further, the Chinese content of manufactured goods across-the-board keeps rising, so Chinese workers across long domestic supply chains would be hit as well.

And limits on Chinese students in the United States? Is that a promise or a threat? First of all, for all of its recent advances, China still lags far behind America in terms of science and technology. China’s therefore clearly the big loser if Beijing denies its people access to that knowledge. Second, if China’s higher education system was such great shakes, why would the country’s plutocrats be so anxious to send their kids of American colleges and universities? Third, as Beijing knows best of all, many of the students it sends here are spies. Like it’s going to cut off such intelligence collection voluntarily? Finally, as I’ve written, as Chinese students have flooded into American education, so have China’s corrupt values.

More important, let’s not forget the broader economic context. Although it’s down some since 2015, China is still on course to run a nearly $350 billion trade surplus with the United States this year. And not only is trade more crucial to China’s growth than it is to America’s (and more important than official figures indicate), but that growth in turn is vital to China’s stability – and to the personal fortunes of its dictators and oligarchs. So could we please stop with the claims that these same Chinese leaders are going to launch a commercial attack on its top customer on net by far?

And when it comes to individual contracts, it’s not like the United States lacks options with other countries that would be tempted to seize the opportunity to replace American producers in the ranks of exporters to China. For most of these countries depend heavily on the U.S. market, too. Washington would have ample power to tell them credibly, “If you abet China’s retaliatory tactics, you can forget about trading with us.”

China of course is not devoid of clout. But it clearly still has much less than America’s. Here’s hoping a canny negotiator like President-elect Trump truly does recognize the real balance of global power, and moves vigorously to capitalize on America’s advantages while they last.

(What’s Left of) Our Economy: China’s Urgently Needed Rebalancing is Still MIA

Tags

China, current account surplus, dumping, Europe, European Chamber of Commerce in Beijing, Financial Crisis, Global Imbalances, Great Recession, manufacturing, overcapacity, rebalancing, Trade, trade surplus, {What's Left of) Our Economy

One of the biggest hopes for vigorous, sustainable recoveries in the American and global economies is the widespread conviction that China will show real progress in shifting its growth strategy from one based on maximizing exports to one focused on expanding consumption at home. Recently, three sets of data have appeared making clear that, despite repeated balances by its government, such China rebalancing still remains much more hope than reality.

The first figures show that China’s chronic merchandise trade surplus hit an all-time record last year of $624.89 billion. That’s up from $380.20 billion in 2014 – a 64.36 percent jump. (These numbers come from my monitoring of China’s reported monthly trade figures.)  Since China’s 2015 economic expansion slowed to 6.90 percent – a 25-year low – the contribution to the country’s growth made by net exports by definition is on the rise.  And 2016 promises more of the same: China’s January merchandise trade surplus hit another new all-time monthly high of $63.35 billion.   

China’s broader international surplus – in its current account – is on the rise as well. It surged by no less than 33 percent on year in 2015, to just over $293 billion. More important, as a share of China’s economy, it hit 2.70 percent – the highest level since 2010. It’s true that this surplus compared with the Chinese gross domestic product is far from its pre-financial crisis levels. But it’s also true that global growth is much weaker as well.

Finally, this morning, the European Chamber of Commerce in Beijing has just released a report showing that, contrary to the Chinese government’s promises, industrial overcapacity is getting worse, not better. As a result, China keeps exporting this glut – which the Chamber reminds is the inevitable consequence of Chinese government policies – at artificially low prices.  Therefore, jobs and valuable output keep being taken from China’s trade partners for reasons have nothing to do with free markets, global deflationary forces keep strengthening, and the world economy keeps building up the kinds of distortions that set the stage for the financial crisis and ensuing Great Recession.

According to the Chamber study, six of the eight major Chinese industries it examined not only continue producing far more than the domestic economy can consume: paper and paperboard, flat glass, steel, refining, aluminum, and cement. These levels of overcapacity have worsened in recent years – due largely to cheap credit from state controlled banks and support from local officials desperate to prevent China’s overall slowdown from boosting unemployment and political instability in their backyards.

The European Chamber has warned Chinese and European officials that China’s overcapacity “leads to job loss, which leads to protectionism in Europe” – warnings that sound credible given that they come from the continent’s powerful business lobby. At the same time, the absence of such warnings from America’s powerful business lobbies is likely sending another message entirely to Beijing: that China can remain on the overcapacity course, and keep avoiding economically and political risky real rebalancing, simply by dumping even more of its surplus production in a U.S. economy that can ill afford it, either.

(What’s Left of) Our Economy: Don’t Play Taps for China Just Yet

Tags

China, competitiveness, import prices, labor costs, manufacturing, Trade, trade deficit, trade surplus, {What's Left of) Our Economy

It’s getting to be a familiar pattern: Western analysts add to the mountain of predictions that China is cruising toward a major economic bruising. And data from China at the least sends a dramatically different message.

The China bear meme of the moment has been generated by two Asia-based Merrill Lynch analysts, who argue that the People’s Republic “may be entering an asset-deflation phase” and therefore is in danger of falling into the deflationary trap from which post-bubble Japan has been struggling to escape for two decades. No less than BusinessWeek and TIME have picked up the study.

These claims come on the heels of years’ worth of proclamations that China is rapidly losing its manufacturing competitiveness, largely because its labor costs are rising so fast.

All of this may be true. Certainly, China has its share of big economic problems – and consequently big political, environmental, and social problems, too. But talk about bad timing! The Merrill Lynch report was written up just before the release of new data from Beijing showing that, in August, China’s monthly trade surplus hit its second new record high in a row.

The $49.8 billion excess of imports over exports brought the PRC’s year-to-date surplus to $199.61 – 28.24 percent higher than last year’s comparable total. And although there’s ample reason to be skeptical of all Chinese economic data, China’s July surplus of $47.3 billion tracks well with Census Bureau statistics showing that China ran a record $30.08 billion trade surplus with the United States that month. (The August U.S. figures will be out Oct. 3.)

The second piece of evidence undercutting “whither China” speculation was released today, in the form of U.S. figures on import prices. These Labor Department statistics showed that between July and August, Chinese goods (overwhelmingly manufactures) bought by Americans got cheaper faster (falling in price by 0.1 percent) than all manufactures imports (down 0.09 percent). And year on year, prices of Chinese imports have been rising at only about half the rate (0.19 percent) than manufacturing import prices overall (0.35 percent).

Years of recent official and policy establishment bullishness about the U.S. economy haven’t prevented the current recovery from remaining historically lousy. Don’t count on similar bearishness about China to have significantly greater effects.