(What’s Left of) Our Economy: An End to a U.S. Trade Winning Streak?

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Advanced Technology Products, China, consumption-led growth, dollar, economic growth, exchange rate, exports, Federal Reserve, goods trade, imports, inflation, interest rates, Jerome Powell, manufacturing, monetary policy, non-oil goods, services trade, Trade, trade deficit, yuan, zero covid policy, {What's Left of) Our Economy

Today’s official U.S. monthly trade data (for September) signal an end to an encouraging stretch during which the national economy both exported more and imported less – and engineered some growth at the same time. (See, e.g., here and here.)

That’s been encouraging because it means expansion that’s powered more by production than by consumption – a recipe for much more solid, sustainable growth and prosperity than the reverse.

But the new trade figures show not only that the total trade gap widened for the first time since March (to $73.28 billion), and reached its highest level since June’s $80.88 billion. They also revealed that the deficit increased because of lower exports and higher imports for the first time since January.

The discouraging September pattern also indicates that American trade flows are finally starting to feel the effect of the surging U.S. dollar, which hurts the price competitiveness of all domestic goods and services in markets at home and abroad.

Some (smallish) silver linings in the new trade statistics? A bunch of (biggish) revisions showing that the August improvement in America’s was considerably better than first reported.

At the same time, two new U.S. trade records of the bad kind were set – all-time highs in services imports and in imports of and the deficit for Advanced Technology Products (ATP). But services exports reached an all-time high as well.

The impact of the revisions can be seen right away in that combined goods and services trade deficit figure. The September total was 11.58 percent higher than its August counterpart. And it did break the longest stretch of monthly drop-offs since the May-November, 2019 period. But that new August figure is now reported at $65.28 billion, not $67.40 billion. That’s fully 2.55 percent lower.

The August total exports figures saw a noteworthy upward revision, too – by 0.72 percent, from $258.92 billion to $260.79 billion. In September, however, these overseas sales decreased for the first time since January, with the 1.07 percent slippage bringing them down to $258.00 billion. That’s the lowest level since May’s $254.53 billion..

As for overall imports, they were up in September for the first time since May. The increase from $326.47 billion to $331.29 billion amounted to 1.47 percent.

As with the total trade deficit, the August figure for the goods trade gap was revised down by a sharp 1.67 percent, from $87.64 billion to $86.17 billion. And also as with the total trade shortfall, its goods component in September rose for the first time since March. The 7.63 percent worsening, to $92.75 billion, brought the gap to its highest since June’s $99.26 billion.

Goods exports for August were upgraded significantly, too – by 0.75 percent, from $182.50 billion to $183.86 billion. But in September, they shrank on month by 2.01 percent, with the $180.17 billion level the lowest since May’s $179.76 billion.

Goods imports for their part climbed for the first time since May. Their 1.09 percent increase pushed these purchases up from $270.04 billion in August to $272.92 billion in September.

The revisions worked the opposite way for the longstanding service trade surplus. August’s total is now judged to be $20.49 billion – 1.24 percent higher than the originally reported $20.24 billion. And in September it sank for the second straight month, with the 5.01 percent decrease representing the biggest monthly drop since May’s 9.69 percent, and the resulting in a $19.47 billion number the weakest since June’s $18.38 billion.

Services exports for August were upgraded by 0.67 percent, from $76.42 billion to $76.93 billion. They climbed increased further in September – by 1.18 percent to a fourth straight record of $77.83 billion.

The August services import totals were also revised up, with the new $56.44 billion level 0.46 percent higher than the original $56.18 billion. Their ascent continued in September, with the 3.42 percent surge – to a record $58.37 billion – standing as the biggest monthly increase since February’s 5.13 percent.

Domestic manufacturing had a mildly encouraging September, with its yawning, chronic trade gap narrowing by 1.74 percent, from $131.71 billion to $129.41 billion.

Manufacturing exports slumped from $113.34 billion in August (the second best ever after June’s $114.78 billion) to $110.688, for a 2.34 percent retreat.

Manufacturing imports tumbled by 2.02 percent, from August’s $245.05 billion (the second highest all-time amount behind March’s $256.18 billion) to $240.10 billion.

Due to these figures, manufacturing’s year-to-date trade deficit is running 18.17 percent ahead of 2021’s record level (which ultimately came in at $1.32977 trillion). In fact, at its current $1.13974 trillion, it’s already the second highest yearly manufacturing deficit in U.S. history.

Since manufacturing trade dominates America’s goods trade with China, it wasn’t surprising to see the also gigantic and longstanding merchandise trade deficit with the People’s Republic declining in September for the first time in five months.

The small 0.39 percent monthly decrease, from $37.44 billion in August (this year’s top total so far) to $37.29 billion no doubt reflected the effects of Beijing’s continuing and economically damaging Zero Covid lockdowns.

Indeed, however modest, this decrease is noteworthy given that China allowed its currency, the yuan, to depreciate by 11.29 percent versus the dollar this year through September.

U.S. goods exports to the People’s Republic were down in September for the first time since June, with the 7.39 percent fall-off pulling the total from $12.91 billion (a 2022 high so far) to $11.95 billion. The monthly decrease was the biggest since April’s Zero Covid-related 16.25 percent, and the level the lowest since June’s $11.68 billion.

America’s goods imports from China were off on month in September as well – and also for the first time in June. The contraction from August’s $50.35 billion (the second highest all-time total) to September’s $49.25 billion was 2.24 percent.

On a year-to-date basis, the China deficit has now risen by 21.98 percent. That’s important because it continues the trend this year of growing faster than its closest global proxy, the non-oil goods trade deficit (which has widened during this period by just 17.21 percent).

Moreover, this gap has widened overwhelmingly because of China’s feeble importing. Year-to-date, the People’s Republic’s goods purchases from the United States are up just 3.05 percent. The non-oil goods counterpart figure is 15.88 percent.

Finally, the U.S. trade deficit in Advanced Technology Products (the U.S. government’s official name for these goods, hence the capitalization) surged by 18.79 percent sequentially in September, from $20.47 billion to a new monthly record of $24.32 billion. That level topped March’s previous high of $23.31 billion by 4.35 percent.

ATP exports rose a nice 5.39 percent on month in September, from $32.60 billion to $34.33 billion. But imports popped by 10.50 percent, from August’s $53.08 billion to a record $58.65 billion – which surpassed the old record (also set in March) of $56.71 billion by 3.41 percent.

Moreover, year-to-date the ATP deficit is up 29.65 percent, from $137.31 billion to !$178.01 billion. That’s already equal to the third highest total annual total ever, behind last year’s $195.45 billion and 2020’s $188.13 billion. So look for another yearly worst t be hit in these trade flows.

At this point, the trade deficit’s future is especially hard to predict. On the one hand, if the chances of a U.S. recession before too long seem to have increased due to the Federal Reserve Chair Jerome Powell’s hawkish remarks yesterday on inflation and interest rates. Normally, that would force the deficit down as tighter monetary policy depressed consumption – and imports.

On the other hand, higher interest rates could well keep strengthening the dollar and keep the deficit on the upswing. So could the still enormous levels of savings (and spending power) that Americans have amassed since the CCP Virus pandemic struck.

The only thing that seems certain, unfortunately, is that the sweet spot that American trade flows have found themselves in recently looks like it’s gone for the time being.

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(What’s Left of) Our Economy: Two Needed Changes in U.S. China Policy

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auditing, Biden, Biden administration, China, currency, dollar, Donald Trump, fraud, investors, national security, SEC, Securities and Exchange Commission, stock market, stocks, tariffs, Trade, Wall Street, yuan, {What's Left of) Our Economy

Although I’ve been pleasantly surprised by how much of former President Donald Trump’s China policies have been retained by President Biden (like the tariffs and tech-related sanctions and tighter export controls), two recent developments reveal how much room for improvement remains – on permitting Chinese entities to list on U.S. stock exchanges, and on those Trump tariffs.

Regarding the stock market issue, Washington incomprehensively keeps giving these entities (they shouldn’t be called “companies” or “businesses” becauuse they have nothing in common with organizations meriting those labels in largely free market economies) the kind of special treatment afforded to members of its stock exchanges from no other countries – including America itself.

Specifically, these Chinese entities continue to be able to raise vital capital in U.S. markets even though they haven’t yet been required to comply with the standards for opening their books fully that are mandatory for every single one of their domestic and foreign counterparts. Therefore, investors can’t make informed decisions, and regulators can’t discover much fraudulent activity.

It’s true that U.S. authorities have just struck a deal with Beijing that potentially gives them the access to Chinese records that they need. But that’s the problem. It’s still “potential.” And the U.S. Securities and Exchange Commission (SEC) may still be bending over backwards to coddle China. Why else would it have agreed with its Chinese counterparts to keep the text of the deal secret? What devils lie in the always crucial details? Full disclosure here is especially important because of Beijing’s long record of violating signed agreements (see, e.g., here) and because the Chinese government’s statement describing its interpretation of its obligation differs significantly from Washington’s – which is virtually guaranteed to produce protracted further bickering.

This typical bobbing and weaving, in fact, raises the question of why the United States has engaged recently – or ever – in any negotiatons in the first place. After all, Washington has been seeking adequate access to the entities since 2007. China has resisted American demands by citing the important national security and other state secrets that unfettered audits might reveal. But as the SEC itself has pointed out (see the preceding link), more than fifty other countries have required their companies to turn over all records as a condition for listing. China clearly has the right to withhold any information it wishes. The U.S. response from the beginning should have been that if a Chinese entity’s operations are so critical to China’s national security, it doesn’t belong in the U.S. financial system, and able to win U.S. and other investment attracted by the Good Housekeeping seal provided by being listed,to begin with.

Washington’s position all along also should have been that there’s literally nothing to talk about. The United States should have declared listing to be a take-it-or-leave-it proposition for China, and that it will serve as judge, jury, and court of appeals (as it is in all cases). As of this past spring, America’s long failure to do so has permitted these entities to amass a market value of $1.3 trillion. And because all of them are always subject to all of Beijing’s whims, that means these valuable resources have been put at the disposal of the Chinese regime.

What to do now?  Ditch the diplomacy stuff and tell Beijing that unless each of its listed entities turn over to U.S. auditors every scrap of information demanded by date certain (meaning real soon), they all get kicked off Wall Street immediately.

When it comes to trade issues, the Biden administration’s mistake is much simpler – and easier to correct. The President deserves considerable praise for the September announcement that the Trump tariffs will be kept in place for the foreseeable future. But China’s predatory trade policies have not remained in place, and in at least one vital respect, have gotten worse – on the value of its currency, the yuan.

For many years, especially in the first decade and a half of this century, Beijing kept the value of the yuan versus the U.S. dollar artificially low. As known by RealityChek regulars, this practice gave goods made in China (including by offshoring-happy U.S.- and other foreign-owned multinational companies) big price advantages the world over for reasons having nothing to do with market forces. The result were equally artificial boosts to Chinese exports and artificial reductions of Chinese imports.

This year, China has doubled down (not literally!) on this tactic, depressing the yuan’s value versus the greenback by fully nine percent. So the American response should be obvious: The tariffs on each of the roughly $370 billion worth of Chinese goods intended each year for the U.S. market should be raised by nine percent also. And each future Beijing move to devalues the yuan another one percent or more should be matched by another equivalent U.S. tariff hike.

This American retaliation isn’t likely to fuel inflation at home, because of falling U.S. demand due to a slowing economy and a shift in consumer spending to services. So importing U.S. companies won’t have the pricing power to pass on their higher costs. But it will put further pressure on a Chinese economy whose other growth engines (like the real estate sector and the domestic consumer market) are faltering mainly because of the deflation of a ginormous Chinese housing bubble and dictator Xi Jinping’s politically inspired crackdown on his own tech companies and his over-the-top Zero Covid policies.

P.S. If China starts strengthening the yuan again, I wouldn’t lower the tariffs in response. For the aim of U.S. policy toward the People’s Republic now can’t afford to be an indulgence like fairness, but weakening this increasingly hostile and dangerous government, and maximum U.S. economic disengagement (often called “decoupling”). But I’d be amenable to some easing of economic pressure and decoupling if I saw major evidence of big, concrete improvements in Beijing’s economic and military policies – say over a five- or ten-year period for starters.

(What’s Left of) Our Economy: Why Cutting China Tariffs to Fight U.S. Inflation Looks More Bogus Than Ever

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Biden, China, consumer price index, CPI, currency, currency manipulation, Donald Trump, import prices, inflation, non-oil goods, Section 301, tariffs, yuan, {What's Left of) Our Economy

As RealityChek readers may have noted, I haven’t followed the U.S. government data on import prices for a while. That’s been because global trade has been so upended for the last two-plus years by the CCP Virus pandemic and the supply chain turmoil it’s fostered. Three big recent developments warrant returning to import price numbers, though.

First, President Biden has confirmed that he and his administration is seriously considering lowering tariffs on imports from China in order to help fight inflation. Second, since early March, China has dramatically driven down the value of its currency, the yuan. Since the yuan’s value is controlled by the Chinese government, rather than trading freely, Beijing has been giving its exports price advantages over all the competition (and in the U.S. and other foreign markets as well as in its own) for reasons having nothing to do with free trade or free markets. Third, new import price statistics just came out this morning.

And developments number two and three make clearer than ever that blaming the China tariffs for any of the torrid price increases afflicting American consumers or businesses is the worst kind of fakeonomics.

In a previous post, I explained why the scant actual tariffs imposed by former President Donald Trump on Chinese-made consumer goods and remaining on them, and the negligible portion of the Consumer Price Index (CPI) they represented, couldn’t possibly move the inflation needle notably.

Further, there’s the timing issue: The Trump tariffs imposed under Section 301 of U.S. trade law were slapped on in stages between March, 2018 and August, 2019. And by their nature, each of them could only generate a one-time price change. Yet consumer inflation in America didn’t take off until early 2021. Obviously, something(s) else was (were) responsible.

China’s currency moves, moreover, show that any Biden tariff-cutting will only add more artificial price edges to those Beijing is already creating for itself – thereby recreating some of the predatory Chinese pressure that competing U.S. employers and workers had long endured before the relief granted by Trump’s tariffs.

Since early March, the yuan has weakened by fully 7.75 percent versus the dollar. And with China’s leaders facing a substantial economic slowdown that could challenge the Communist Party’s political legitimacy, don’t expect Beijing to abandon quickly any practice that could prop up growth and employment.

Those new U.S. import price data reveal that the yuan’s depreciation hasn’t much affected China’s (government-made) competitiveness yet. But as indicated by the chart below, it soon will. As you can see, for years, the prices of Chinese imports entering the American market and the yuan’s value have risen and fallen pretty much in tandem.  

In addition, according to the new import price statistics, over the past year (April to April), import prices from China have risen much more slowly (4.6 percent) than the prices of the closest global proxy, total American non-fuel imports (7.2 percent). And the Trump tariffs should be singled out as a meaningful inflation engine?

Of course, these price trends could be cited to argue that these tariffs had no notable impact on U.S. competitiveness at all. But U.S. Census data show that, between the first quarter of 2018 (when the first Section 301 Trump tariffs were imposed), and the first quarter of this year, goods imports from China fell from 2.44 percent of the U.S. economy to 2.26 percent. (And this despite a big surge in American purchases of CCP Virus-fighting goods from the People’s Republic due to Washington’s long-time neglect of the nation’s health security and the secure supply chains it requires.) During this same period, total non-oil goods imports (the closest global proxy) increased as a share of the economy from 11.35 percent to 12.41 percent. So the Trump policies must have had some not-negligible effect.

The case for reducing the China tariffs is feeble enough even without these inflation points. After all, the Chinese economy is running into significant trouble due to its over-the-top Zero Covid policy, the deflation of its immense property bubble, and dictator Xi Jinping’s crackdown on the country’s tech sector. So the last thing on Washington’s mind should be throwing Beijing a tariff lifeline. Boosting China’s export revenue also means boosting the amount of resources available to the armed forces of this aggressive, hostile great power. And none of the tariff-cutting proposals is conditioned on any reciprocal concessions from China.

Citing bogus inflation arguments is the icing on this rancid cake, meaning the tariff-cutting proposal can’t be dropped fast enough.

Our So-Called Foreign Policy: Why Biden’s China Tariff Cutting Talk is So (Spectacularly) Ill-Timed

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Biden administration, CCP Virus, China, coronavirus, COVID 19, currency, currency manipulation, exports, Our So-Called Foreign Policy, tariffs, Trade, Trump administration, unemployment, Xi JInPing, yuan, Zero Covid

If the old adage is right and “timing is everything,” or even if it’s simply really important, then it’s clear from recent news out of China that the Biden administration’s public flirtation with cutting tariffs on U.S. imports from the People’s Republic is terribly timed.

The tariff-cutting hints have two sources. First, and worst, as I noted two weeks ago, two top Biden aides have publicly stated that the administration is considering reducing levies on Chinese-made goods they call non-strategic in order to cut inflation. As I explained, the idea that the specific cuts they floated can significantly slow inflation is laughable, and their definition of “non-strategic” could not be more off-base.

The second source is a review of the Trump administration China tariffs that’s required by law because the statute that authorizes their imposition limited their lifespan. The administration can choose to extend them, eliminate them entirely, reduce all of them, or take either or both of those actions selectively, Some tinkering around the edges may justified – for example, because certain industries simply can’t find any or available substitutes from someplace else. But more sweeping cuts or removals could signal a stealth tariff rollback campaign that would be just as ill-advised and ill-timed.

And why, specifically, ill-timed? Because this talk is taking place just as the Chinese economy is experiencing major stresses, and freer access to the U.S. market would give the hostile, aggressive dictatorship in Beijing a badly needed lifeline.

For example, China just reported that its goods exports rose in April at their lowest annual rate (3.9 percent) since June, 2020. Exports have always been a leading engine of Chinese economic expansion and their importance will likely increase as the regime struggles to deflate a massive property bubble that had become a major pillar of growth itself.

It’s true that dictator Xi Jinping’s wildly over-the-top Zero Covid policy, which has locked down or severely restricted the operations of much of China’s economy, deserve much of the blame. But Xi has recently doubled down on this anti-CCP Virus strategy, and low quality Chinese-made vaccines virtually ensure that case numbers will be surging. So don’t expect a significant export rebound anytime soon without some kind of external helping hand (like a Biden cave-in on tariffs).

Indeed, China seems so worried about the export slowdown that it’s resumed its practice of devaluing its currency to achieve trade advantages. All else equal, a weaker yuan makes Made in China products more competitively priced than U.S. and other foreign counterparts, for reasons having nothing to do with free trade or free markets.

And since March 1, China – which every day determines a “midpoint” around which its yuan and the dollar can trade in a very limited range (as opposed to most other major economies, which allow their currencies to trade freely) – has forced down the yuan’s value versus the greenback by an enormous 6.54 percent. The result is the cheapest yuan since early November 3, 2020.

It’s been widely observed that such currency manipulation policies can be a double-edged sword, as they by definition raise the cost of imports still needed by the Chinese manufacturing base. But the rapidly weakening yuan shows that this is a price that Beijing is willing to pay.       

Finally, for anyone doubting China’s need to maintain adequate levels of growth by stimulating exports, this past weekend, the country’ second-ranking leader called the current Chinese employment situation “complicated and grave.” His worries, moreover, aren’t simply economic. As CNN‘s Laura He reminded yesterday, Beijing is “particularly concerned about the risk of mass unemployment, which would shake the legitimacy of the Communist Party.”

For years, I’ve been part of a chorus of China policy critics urging Washington to stop “feeding the beast” with trade and broader economic policies that for decades have immensely increased China’s wealth, improved its technology prowess, and consequently strengthened its military power and potential. The clouds now gathering over China’s economy mustn’t lead to complacency and any easing of current American tariff, tech sanctions, or export control pressures. Instead, they’re all the more reason to keep the vise on this dangerous adversary and even tighten it at every sensible opportunity.

Im-Politic: New Signs that Biden Will Lift the China Tariffs – & That Beijing is Counting on It

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China, China tariffs, currency, election 2020, exchange rates, Im-Politic, Joe Biden, Kamala Harris, Mike Pence, Susan Page, tariffs, Trade, trade war, Vice Presidential debate, Xi JInPing, yuan

Between wall-to-wall coverage of the fly and the smirks, it was easy to lose sight of one of the most important reveals of Wednesday’s vice presidential debate: There’s now more reason than ever to believe that if Joe Biden becomes President, he’ll lift President Trump’s tariffs on China. And just as important, there’s now more reason than ever to believe that this is exactly what China is expecting.

Whether you believe that Trump-type China trade policies have been needed and/or have worked (two closely related but not identical matters), the likelihood that the tariffs would be toast is incredibly important because it begs the questions of whether the Democratic nominee has a coherent alternative China trade poicy in mind that can adequately serve U.S. interests (along with alternative investment and tech policies) and whether he’s capable of developing one.

As known by RealityChek regulars, I believe that on both scores, the answer is an emphatic “No.” But what’s more important right now is making clear that Biden running mate Kamala Harris’ debate performance strongly indicated that a major course change is coming.

First, though, a deserved swipe at moderator Susan Page’s China question. Page, the Washington Bureau Chief of USA Today, inadvertently reminded viewers (and should have reminded the Commission on Presidential Debates that organizes such events) why veteran campaign and White House reporters are almost uniquely unqualified to serve in these roles – at least if you’re looking for some minimally satisfactory discussion of issues.

For these journalists tend to be preoccupied with politics, not policy – and with the most superficial horse race or gossipy dimensions of politics at that. As a result, their substantive background is even less impressive than that usually boasted by colleagues who are supposed to know something about the issues they cover (a low bar).

So although Page deserves some credit for even bringing up the topic of China policy, no one should have been surprised by the Happy Talk nature of her question. I mean, here’s a country that’s been blamed across the American political spectrum for destroying huge numbers of American jobs with its wide-ranging trade predation, whose tech companies have been just as widely deemed as dangers to U.S. national security and American’s privacy rights, which increasingly is threatening U.S. allies and other countries in the “Indo-Pacific” region (foreign policy mavens’ latest name for the Asia-Pacific region, due to India’s, and which is treating its own population ever more brutally.

And Page’s question was dominated by claims that China is “a huge market for American agricultural goods” and “a potential partner in dealing with climate change and North Korea”? Not to mention suggesting that its role in bringing the coronavirus to the nation and world is nothing more than a charge leveled by President Trump?

All the same, Harris’ answer was what counted:

“Susan, the Trump administration’s perspective, and approach to China has resulted in the loss of American lives, American jobs and America’s standing. There is a weird obsession that President Trump has had with getting rid of whatever accomplishment was achieved by President Obama and Vice President Biden. For example, they created, within the White House, and office that basically was just responsible for monitoring pandemics. They got away, they got rid of it.”

Previously that evening, she argued that:

“You, [Vice President Mike Pence] earlier referred to, as part of what he thinks is an accomplishment, the President’s trade war with China. You lost that trade war. You lost it. What ended up happening is, because of a so called trade war with China, America lost 300,000 manufacturing jobs. Farmers have experienced bankruptcy, because of it. We are in a manufacturing recession, because of it. And when we look at this administration has been, there are estimates that by the end of the term of this administration, they will have lost more jobs than almost any other presidential administration.”

Let’s leave aside the accuracy or relevance of any of these points – like the 300,000 manufacturing jobs claim loss claim that apparently comes from an economist who admits his 2016 predictions about economy’s performance during the Trump era were completely off-base; or the plainly nutty insistence that the Trump China policy cost American lives.

If Harris believes any of this, and especially that the trade war has been “lost,” then clearly the only important question about the China tariffs isn’t whether they’ll be lifted by a President Biden, but how fast.

Moreover, there’s abundant evidence that Biden fully agrees that these Trump measures have been seriously counter-productive. When asked in August if he’d “keep the tariffs,” he responded, “No. Hey, look, who said Trump’s idea’s a good one?” said Biden. “Manufacturing has gone into a recession. Agriculture lost billions of dollars that taxpayers had to pay.” In other words, most of the main anti-tariff arguments in two pithy sentences.

An aide to the former vice president tried to walk back these remarks, shortly afterwards, but Biden’s words perfectly fit journalist Michael Kinsley’s epic definition of what’s usually mischaracterized in American politics as a “gaffe”: an instance “when a politician tells the truth—some obvious truth he isn’t supposed to say.”

Equally interesting and important with regard to the Biden-Harris China policies – one clear and one possible new sign that Beijing is actively rooting for their success, and assuming the tariffs’ removal. The first came during the vice presidential debate, when Chinese authorities censored some of Pence’s critical comments on China just as Chinese audiences were about to hear them, and then restored the signal in time for Harris’ rejoinder.

The second came last night, when in its first announcement since the end of its Golden Week holiday of a new exchange rate for China’s currency, the yuan, versus the U.S. dollar, Beijing revalued (i.e., made it more expensive compared with the greenback) by the greatest amount in four and a half years. The main reason – at least as I see it: China believes that Biden will win, and is permitting its currency to strengthen because any competitiveness loss by its exports resulting from this and even significant further revaluation will be more than offset by the removal of U.S. levies that have typically hit 25 percent.

Of course, I could be wrong about Biden. So could China. But keep in mind that the former Vice President boasts that he knows Chinese dictator Xi Jinping well because of all the time he’s spent with him. Does anyone seriously think that, by the same token, Xi hasn’t learned a thing or two about Biden as well?

(What’s Left of) Our Economy: More Trade Derangement Syndrome – on China & Currency Wars

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China, currency, currency manipulation, currency wars, Financial Times, Martin Wolf, Paola Subacchi, Project Syndicate, renminbi, Trade, Trump, yuan, {What's Left of) Our Economy

Trade issues’ ability to completely muddle the thinking of supposed experts has never been more prominently displayed than in this recent column, from a leading European economist, on China’s manipulated currency.

Writing for the Project Syndicate website (which bills itself as “the world’s opinion page”), Paola Subacchi insists that China is not likely to turn the recent slide in the value of its renminbi (also called the yuan) into an “’engineered’ competitive devaluation” because “a weak renminbi has more costs than benefits” for the People’s Republic.

Of course, the case for worrying about a Chinese drive to weaken its currency stems from fears that a cheaper renminbi/yuan would give Chinese goods wholly artificial price advantages over U.S. and other foreign counterparts in markets the world over. The result would be a big trade lift for the Chinese economy at the expense of its competitors — and for reasons that have nothing to do with either free trade or free markets.

Anyone pretending to know what Chinese leaders are really thinking about such vital economic (or other) matters is blowing smoke. But it’s nothing less than absurd to suppose that the considerations Subacchi cite for her China currency optimism are taken the slightest bit seriously in Beijing.

For example, the author argues that “by increasing import prices and bolstering export sectors, a weaker renminbi would undermine the Chinese government’s goal of shifting away from export-led growth and toward a model based on higher domestic consumption.” But although it’s true that Beijing has long talked about this goal, it’s highly doubtful that China’s are prioritizing these days – if they ever have.

After all, as made clear in this new column from the Financial Times‘ Martin Wolf, China in recent years has been relying on domestic purchases (especially investment spending) supercharged by official stimulus policies to keep growth at satisfactory levels. This shift, however, has scarcely been voluntary. The choice was essentially forced on China by the sharp downturn in global trade triggered by the last global financial crisis and recession, which pummeled foreign markets for Chinese products. The results, Wolf shows, have not been a healthily rebalanced Chinese economy, but one that’s growing more slowly, and whose growth is dangerously reliant on an explosion in the country’s indebtedness. Is it really plausible that China is seeking more of the same?

According to Subacchi, “a weaker renminbi could [also] invite renewed US complaints about currency manipulation.” President Trump has just revived this charge. But the Chinese so far seem to be counting on blunting the new U.S. trade offensive by imposing their own retaliatory tariffs on American products (especially from politically important states and Congressional districts), and thus prompting a decisive counterattack by vulnerable political and economic interests. A continuingly weakening renminbi/yuan would plainly help, too. 

Moreover, Subacchi herself clearly regards Trump-ian U.S. trade policies as a major mistake, describing them (as well as China’s currency policies) as “not good for anyone.” Yet for those renewed U.S. complaints about currency manipulation to matter to Beijing, they’d need to be followed up with a credible threat of tariff responses – and, if needed, actual levies. Is she therefore suggesting that playing trade hardball makes no sense unless the target is China? Maybe she’ll explain in her next article.

“Finally, and more crucially,” the author writes, “a weak renminbi at the same time that dollar-denominated assets become more attractive could cause China to suffer capital flight.” She’s correct  – but oddly overlooks Beijing’s option of tightening capital controls – a policy that’s not exactly unprecedented for Chinese leaders.

Subacchi does deserve praise for spotlighting major actual and potential weaknesses in China’s economic and financial position. Unfortunately, the response she says she favors to the prospect of a full-fledged Chinese-launched currency war – “the world should call its bluff” – is wishful thinking. For the world as a whole – which remains heavily dependent on growing by selling to America’s gargantuan, wide open market – has displayed much more interest in protecting this convenient, though dangerously unsustainable, arrangement from vigorous U.S. responses than in imposing any significant disciplines on China.

In other words, the odds remain high that unless the prospect of a China-launched currency war is met with unilateral – i.e., Trump-ian – American counter moves, it won’t be met at all.

(What’s Left of) Our Economy: The Case for Keeping it Simple with China Trade Just Got Stronger

Tags

China, currency, currency manipulation, exchange rates, Great Recession, import prices, imports, Labor Department, Robert Lighthizer, Trump, U.S. Trade Representative, yuan, {What's Left of) Our Economy

I haven’t been closely following the Labor Department’s import price data lately, and that’s been an oversight. As is clear from this morning’s figures (for August), they keep telling a fascinating and important tale about China’s ongoing manipulation of its currency and how it does and doesn’t impact U.S. trade with the People’s Republic. More specifically, examining the data over time reinforces a strengthens a point I’ve posted on previously – that as important as this currency protectionism is, it’s far from the only predatory Chinese practice that’s been shafting domestic companies and workers exposed either directly or indirectly to Chinese competition.

Just as a refresher, unlike most other trading countries and regions, China prohibits the free buying and selling of its currency. For most of the previous decade, Beijing’s aim has been to keep the value of the yuan artificially low versus most other currencies and especially the U.S. dollar – in order to give its goods and services price advantages over foreign rivals in markets everywhere. As a result, China’s exports got a government-aided boost worldwide, and its domestic industry was able to undersell imports in its home market – all for reasons having nothing to do with free trade or free markets generally.

Since the latter part of that decade, and especially earlier during the current economic recovery, the story has been more complicated. The main reason: China was getting worried about wealthy Chinese concerned about political stability or the economy’s future spiriting too much of their wealth out of the country, for stashing in countries (like the United States) considered a lot safer. These capital outflows began depressing the yuan’s value much faster than Beijing wanted, and even threatened to cause a worldwide crisis of confidence in the currency – and the broader Chinese economy. So for much of this latter period, China has been trying to prop up the yuan’s value to some extent – even as its wary that an overly strong yuan would jeopardize the exports on which its growth still heavily relies.

Trade policy critics have rightly focused much and even most of their anti-China ire on currency manipulation, and that’s been understandable for two main reasons. First, this policy affects the relative prices of everything sold back and forth between the United States and China; and second, currency manipulation is one of the few protectionist practices that even some of the globalization-happy economics and business establishment (and the latter’s political hired guns), can be convinced to combat. (Much of the rest of this group, though, will simply grandstand against this form of protectionism.)

Nonetheless, the import price numbers, coupled with the oscillation in China’s currency priorities, the consequent roller-coaster ride of the yuan’s value versus the dollar, and the actual trade flows, show that the cost of Chinese goods and services aimed for the American market stems from many other causes.

The Labor Department’s import price data for China goes back to 2004, and it shows that, in the 13 years since, on an August-to-August basis, the prices of purchases from China Americans can make has fallen in eight years and risen in five. As for the yuan’s value, it’s strengthened versus the U.S. dollar in nine of those 13 years, and weakened in four.

What happens when the two indicators are paired? The numbers reveal that in five of the 13 years, the prices of imports from China in the American market have fallen while the yuan has strengthened – which isn’t supposed to happen if you believe in currency uber alles. In another year, the prices of those imports rose while the yuan weakened – another counterintuitive result. In seven of the thirteen years, in other words, currency values and import prices seem to have behaved as they should have, but in six (nearly half the time), they didn’t.

Also important : In three of the four years when both import prices and the yuan went up, the yuan’s rise was much greater, most often by a factor of two to one. And in two of the three years when both indicators fell, the change in the yuan again was much greater. So at the very least, even when the relationship is looking like economists tell us it should, it takes a lot of yuan movement to generate significant import price changes. Clearly, therefore, other factors must be at work.

In this vein, the yuan’s value and the changes it undergoes doesn’t seem to have an especially strong relationship with the amount of goods that American imports from China. Of course, they have some effect. After all, all else equal, if U.S. customers buy a certain quantity of items and services from China one year, and the same quantity the next, and the price of those goods and services falls (for whatever reason), the value of those purchases will go down. And naturally, the converse is true as well.

This point matters because purchasing patterns rarely respond to price changes right away, and the lag can mean that the impact of currency changes on import values can take some time to materialize – and often more than a year. But even taking this reality into account produces a fuzzy picture. For example, between August, 2004 and August, 2005, U.S. goods imports from China (which make up the vast majority of American purchases from China) jumped by more than 24 percent even though import prices fell (by 1.10 percent) and the yuan rose versus the dollar (by 2.13 percent). The next year, Americans bought 19.14 percent more products from China, despite their prices falling yet again (by nearly as much – 1.01 percent), and the yuan rising again (also by nearly as much – 1.80 percent).

Between August, 2007 and August, 2008, import prices rose by a very large 4.95 percent and the yuan strengthened by an even greater 9.55 percent. Yet U.S. goods imports from the People’s Republic increased by double digits again (11.96 percent). The following year, however, import prices plummeted (by 3.08 percent), and the yuan weakened by 0.70 percent. And did American imports surge again? Not even close. They nosedived by 18.93 percent.

Sharp-eyed RealityChek readers will realize why: The Great Recession was intensifying in 2008 and lingered well into 2009. So Americans’ consumption of just about everything fell off a cliff for a while. Between the following Augusts, neither the prices of imports from China nor the yuan’s value moved much, and America’s goods imports from China nonetheless soared by more than 37 percent.

Yet you don’t need these kinds of extreme economic events for import prices, import amounts, and yuan movements to confound expectations, lag or not. From August, 2011 to August, 2012, both the prices of Chinese imports and the value of the yuan were up (both by a bit) and American imports from China dipped by 0.25 percent. Even stranger, the American economy grew by a pretty decent 2.39 percent (in inflation-adjusted terms) during that period.

The following year, U.S. growth was down to 1.69 percent, prices of imports from China dropped (by a meaningful 1.24 percent), the yuan rose (by a much greater 3.61 percent), and American purchases from China jumped from a small dip to more than five percent growth.

The point here is not that China’s currency policies don’t matter, but that the prices of Chinese goods and services, and therefore America’s trade performance with the People’s Republic, are influenced by a wide array of factors. Some are legitimate – for instance, if China keeps selling Americans greater amounts of relatively pricey advanced goods (like industrial machinery and high tech products), and less in the way of cheaper, simpler products (like clothing and toys), as has been the case, the price of the average import from China is going to rise. But many reasons are much less legitimate (e.g., changing levels of subsidies like value-added tax rates), and these can be so numerous, so fungible, and therefore so difficult to document that trying to isolate them and attack them piecemeal is a fool’s quest.

Far better is to decouple American tariff policy completely from specific items of evidence of individual predatory trade practices and impose these levies proactively, until they produce the desired effects on bilateral trade flows. In fact, the case for such a sweeping approach was made just yesterday, and is worth quoting at length:

“[T]here is one challenge on the current [trade] scene. It is substantially more difficult than those faced in the past, and that is China. The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer and to distort markets, in China and throughout the world, is a threat to the world trading system that is unprecedented.”

This speaker also argued that “The years of talking about these problems has not worked, and we must use all instruments we have to make it expensive to engage in non-economic behavior.”

His name is Robert Lighthizer, he’s President Trump’s chief trade negotiator, and the devilishly complex relationships between currency values, import prices, and trade flows just add to the case for the administration to start following this advice pronto.

(What’s Left of) Our Economy: Trump’s Real China Currency Blunder

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airstrikes, alliances, America First, chemical weapons, China, currency, currency manipulation, dollar, exchange rates, North Korea, nuclear weapons, predatory trade, Syria, Trade, trade barriers, Trump, Xi JInPing, yuan, {What's Left of) Our Economy

What was worst about President Trump’s decision yesterday to let China off the currency manipulator hook (for now) was not the scrapping of a long-time campaign promise it represented. What was worst about the decision was its geopolitical rationale – that is, Mr. Trump’s judgment that major Chinese cooperation in reining in North Korea’s nuclear program could be secured if his administration moderates or delays various efforts to counter Beijing’s trade predation.

Nonetheless, some recent developments also presage reasons for modest optimism that a sounder approach to currency manipulation by China (and other countries), at least, will eventually emerge if it becomes clear Beijing is welshing on this deal.

The president’s new China policy makes least sense from a pure negotiating tactics standpoint. After all, what course of action could now be more tempting than for China to keep stringing America along with promises to get tough on North Korea, and even with token actions suggesting that meat is being put on these bones? Think “Charlie Brown,” “Lucy,” and “football.” And how will the president decide that his gamble has failed?

Moreover, Mr. Trump’s own views of China’s clout with North Korea seem confused, at best. On the one hand, the president must (logically) believe that China can make much more of a difference in resolving the North Korea situation than it’s so far chosen to. Why else would he offer China the valuable benefit of better terms of trade than it would otherwise receive? On the other hand, Mr. Trump said in an interview with The Wall Street Journal “After listening for 10 minutes [to Chinese leader Xi Jinping at their summit a week ago], I realized it’s not so easy. I felt pretty strongly that they had a tremendous power [over] North Korea. … But it’s not what you would think.” So here he’s indicating that Beijing can’t help decisively at all.

Related Trump statements point to another major negotiating No-No: Rewarding interlocutors for steps they would take anyway. The president is now on record as stating that Xi “means well and wants to help” on North Korea. But this confidence raises the question, “Why?” It’s of course possible that Chinese policy has entered a new, more charitable phase. It’s more likely, however, that Beijing is becoming increasingly worried about the situation in its next-door neighbor spinning out of control and triggering a conflict that could go nuclear right on its borders.

Indeed, a recent editorial from its own government-controlled press clearly signals that those dire concerns are China’s main motivator: “China…can no longer stand the continuous escalation of the North Korean nuclear issue at its doorstep. Instead of accepting a situation that continues to worsen, putting an end to this is more in line with the wish of the Chinese public.”

Even more revealing, the same editorial made plain as day that official Chinese nerves have been frayed further by Mr. Trump’s willingness to go-it-alone militarily in Syria (when he ordered airstrikes in the middle of his meetings with Xi), by his threat to take a similar course of action against North Korea, and by his dispatch of a powerful American naval force to Korean coastal waters. In other words, the president’s apparent comfort with using force already has caught China’s attention.

Better yet, some concrete evidence of this success has appeared. China seems to be reducing its imports of coal from North Korea – one of Pyongyang’s few major sources of foreign exchange – and it abstained yesterday from voting on a UN resolution condemning Syria’s government for the chemical weapons use that prompted the U.S. cruise missile attack. Until then, China had vetoed similar UN resolutions. Why, therefore, would Mr. Trump sweeten the supposed deal further with trade breaks?

At the same time, these latest Trump decisions are sending signs about the president’s national security strategy and overall priorities that are equally disturbing. Principally, during his campaign for the White House, Mr. Trump displayed a keen awareness of the burgeoning nuclear risks being run by the United States by maintaining its defense commitments in East Asia. In numerous remarks that were pilloried by an ossified bipartisan American foreign policy establishment, candidate Trump quite sensibly suggested that the United States should transfer much of this risk to the local countries (like China) most directly threatened by the North Korean nuclear program. Yesterday, Mr. Trump endorsed America’s longstanding Asia strategy even though the North can increasingly call the U.S. nuclear bluff on which regional deterrence has been based with forces of its own that can strike American targets.

Even more striking, Mr. Trump’s new quid pro quo has demoted policy options that can deliver major economic benefits to his core voters and the entire U.S. economy (more trade pressure on China) back to their longstanding position subordinate to national security strategies that primarily help other countries (the Asian allies covered by the American nuclear umbrella). Far from the type of America First strategy he touted during his campaign and especially in his Inaugural Address, these new Trump moves add up to an America Last strategy.

All the same, Trump’s new approach could set the stage for improved U.S. anti-currency manipulation strategies should circumstances require them. Although unmistakably disheartening to many trade policy critics, this latest American China currency decision was defensible on its own terms. It’s true that substantial evidence continues indicating that China’s yuan is significantly undervalued versus the U.S. dollar – and still enables producers in China (including those owned by or linked with U.S. and other foreign-headquartered companies) to offer their goods for artificially low prices in markets around the world. Nonetheless, it’s also true that China has permitted its (surely dollar-dominated) foreign currency reserves to drop by about 25 percent since 2011 – largely because it’s been selling those reserves and buying yuan in order to curb worrisome capital flight. In other words, Beijing has been trying to support the yuan versus the dollar, and keep its value higher than it would be were it freely traded.

Yet there’s absolutely no reason for trade policy critics – or the U.S. government – simply to conclude that ambiguous circumstances simply force America to accept the status quo. In fact, such shoulder-shrugging would amount to rewarding China currency cheating that the conventional wisdom now admits lasted for years, and whose cumulative effects continue to undercut the price competitiveness of domestic U.S. manufacturers and other producers.

So what to do? According to at least one press report, the Trump administration is considering revamping currency manipulation policy in ways that would appear to abandon the current, blinkered approach in favor of one that takes these cumulative effects into account. Specifically, a Reuters article last week suggested that one option that’s attracted the administration’s attention would involve lengthening “the time period for reviewing currency market interventions from 12 months to several years, capturing more past interventions by China….” At least logically, this shift would signal recognition that the impacts of these interventions (to suppress the yuan’s value) are dynamic, and long-lasting.

Even better, however, would be to recognize that, important as it’s been because of its effects on prices across the Chinese economy, currency manipulation is only one form of trade predation practiced by China, and that such individual policies can easily frustrate current legalistic countermeasures by virtue of the powerful and secretive Chinese bureaucracy’s ability to turn them on and off at will – often with little more than a phone call. More important, China has successfully used these ploys in the past. And P.S.: Other Asian economies are just as skilled as China’s at pulling off these scams.

In other words, the various mercantile measures used by China and others to distort markets are completely fungible. Dealing with them effectively therefore requires Washington to become much more agile and flexible in response. And the critics need to stop focusing so tightly on currency manipulation and keep the much bigger, more important China and global trade picture in mind.

For the entire U.S. economy has a big stake in the Trump administration putting these changes into effect before Chinese and other countries’ trade predation sucker punches even more of its most productive sectors – whether they interfere with the president’s new North Korea strategy or not. So, in all likelihood, does Mr. Trump’s political future.

(What’s Left of) Our Economy: Signs that Chinese Currency Manipulation is Back

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China, Congress, currency, currency manipulation, exchange rates, Obama, TPP, Trade, Trans-Pacific Partnership, yuan, {What's Left of) Our Economy

For several years, China has been the gift that has kept on giving to cheerleaders for current American trade policies, as its currency policies allowed President Obama and his trade supporters to all but declare “mission accomplished” for the decision to address Beijing’s predatory approach to globalization through quiet diplomacy, not punitive tariffs.

Now after letting its currency strengthen versus the U.S. dollar, Beijing, is permitting the tightly controlled yuan weaken once again. So as during most of the previous decade, Chinese goods are once again getting major price advantages over competing products in all global markets for reasons having nothing to do with free markets or free trade. Let’s see if Mr. Obama and his backers will be as quick to admit failure as they were to claim success.

China’s currency policies have had their ups and downs for the last 15 years or so, and throughout the cheerleaders consistently have mis-represented the idea of proper currency valuation. Moreover, some impressive evidence indicates that the yuan has been much more undervalued – and therefore distorting trade flows – to a much greater extent than the standard exchange rate figures (from the Federal Reserve) show.

Nonetheless, it’s still important to note that those standard figures have reported a 20.39 percent increase in the yuan’s value against the dollar since July, 2005. It’s just as important to note that, during this period, the dollar is up versus a broad Fed measure of world currencies by about 7.70 percent, so by this key measure, China has been a big outlier in ways that work to its disadvantage.

And even though the yuan has fallen in value since it hit its peak versus the dollar, in mid-January, 2014, it’s fallen much less than that basket of other currencies – 8.63 percent for the yuan, as of the Federal Reserve’s latest (May 27) figures, versus 19.04 percent.

But the key baseline date Washington and everyone else should be looking at is last August 11. That’s the day the Chinese government clearly decided it had had enough of a stronger yuan, and devalued the currency by a stunning 1.83 percent in one day. And from last August 10 though May 27, the yuan has dropped by 5.67 percent versus the dollar. But that group of major currencies is down only 2.86 percent against the greenback. Moreover, since May 27, the yuan has been permitted to sink another 0.42 percent. (I couldn’t find a comparably recent number for that broad dollar index.)

With the American economy still mired in an historically sluggish recovery, and manufacturing output still faltering, expect all the remaining presidential candidates to start decrying Chinese currency manipulation again. If it continues, Beijing’s apparent gambit could also further diminish the chances that Congress will approve Mr. Obama’s Trans-Pacific Partnership (TPP) agreement, since a U.S. failure to respond adequately coupled with the deal’s own lack of currency disciplines with teeth would arguably turn Congressional approval into a green light for other would-be foreign manipulators. Pity the lawmaker who’d have to answer for that vote.

(What’s Left of) Our Economy: China Import Price Puzzles

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China, competitiveness, currency, currency manipulation, dollar, import prices, imports, Little Murders, manufacturing, multinational companies, productivity, subsidies, technology transfer, Trade, value-added taxes, VAT, yuan, {What's Left of) Our Economy

One of my favorite literary passages of all times comes from “Little Murders.” If you’ve never seen the stage or film version, I strongly recommend both, and for me, the high point of this late-1960s Jules Feiffer 1967 black comedy about life in a rapidly deteriorating New York City comes when Detective Miles Practice exasperatedly describes his frustration at solving a massive ongoing wave of violent crime.

The 345 unsolved homicides he and his colleagues are investigating have three characteristics in common, Practice explains. “A – that they have nothing in common; B – that they have no motive; C – that, consequently, they remain unsolved.”

I’ve felt a little like Detective Practice today as I’ve tried to dig deeper than usual into this morning’s new Labor Department data on the prices of imports bought by Americans in April. And it’s not just that the figures seem to undercut an argument I’ve made consistently during the ongoing debate over U.S.-China trade policy. It’s that the differences among various industries defy anything close to easy explanation.

As many of you surely know, since early in the previous decades, Chinese government policies that determine the value of its currency, the yuan, versus that of the U.S. dollar have been major bones of contention between the two countries. Essentially, many Americans have accused Beijing of keeping the yuan artificially weak, which gives Chinese-made goods unwarranted price advantages over their U.S.-made counterparts in markets all over the world. And if Made in China goods are outselling Made in America goods for reasons having nothing to do with market forces, then American production and jobs will be penalized for reasons having nothing to do with free markets, or free trade, either.

Because this issue has loomed so large for so long, I’ve been following the import prices figure closely in order to see how the yuan’s changing value has affected the actual price of Chinese-made products in the American market. And what I’ve found indicates that, although currency values matter a lot, these prices doubtless change for a variety of other reasons, too – including other forms of Chinese government interference with trade, but not limited to such protectionism.

For example, if the Chinese are making growing quantities of relatively advanced manufactured goods and selling them to Americans, and de-emphasizing less advanced goods, then the effects of Beijing’s currency policies could be (at least partly) masked by the higher prices these more sophisticated products presumably command. And in fact, I’ve shown that precisely this shift in Chinese manufacturing and exporting has been taking place, and argued that, as a result, precisely this masking effect is influencing the prices of Chinese imports. To me, it’s strong evidence that China’s yuan is still too cheap – even though for reasons we needn’t delve into now, China is now trying to prop up the yuan’s value.

Now, however, I’m not so sure. Because the detailed, product-by-product figures kept and reported by the Labor Department show that in many cases, prices of advanced manufactured products sold by China to Americans are falling faster than the prices of less advanced goods. Moreover, the prices of many Chinese products in the U.S. market are falling more slowly than those of comparable imports from other countries – which supports the idea that Beijing’s new currency stance is harming Chinese products’ price competitiveness.

Some caveats need to be made at this point. First, the number of manufacturing industries in which direct comparisons can be made between the prices of Chinese and other imports is relatively small – because the Labor Department issues detailed data for many more U.S. imports overall than for U.S imports from China. Second, some of the missing China data concerns industries where Beijing has encouraged massive overcapacity – notably steel – and clearly helped create significant (and worrisome) deflation.

All the same, most of the statistics I’ve found are real head-scratchers. For example, since the business press has been filled in recent years with articles on strongly rising Chinese wages, it’s not entirely surprising to see that the cost of imports of Chinese garments – a labor-intensive industry – have actually increased a bit since 2012 (the earliest China-specific figures available), whereas overall garment import prices are down.

But why have the prices of Chinese-made clothing been so much stronger, and less internationally competitive, than the prices of Chinese made machinery – an admittedly broad category but one in which the output is very capital-intensive, complex, and (I thought) relatively expensive? (Think boxer shorts versus machine tools.) In fact, on the whole, the more technologically advanced a Chinese product is, the faster its price is falling and the more price competitive it is with foreign rivals.

Rapidly rising productivity could easily explain this trend for Chinese information technology products like computers and semiconductors and communications equipment. But if that’s the case, then why do goods that are less advanced but hardly primitive – like fabricated metal products and household appliances – display the opposite characteristics? This is a special puzzle given that fabricated metal products contain so much steel – which has been so rock-bottom cheap in China for so long. And why are China’s chemical products (another broad category) able to cut prices so impressively and gain on their competition in the U.S. market, but not plastics products – which are a major category within chemicals?

Some tentative conclusions and possibilities:

First, these figures are a valuable reminder that even manufacturing industries that seem closely related can have enough differences to produce widely varying results

Second, some of this variation in Chinese manufactures could reflect their positions on the government’s priorities scale. In principle, the products that perform best price-wise could be the beneficiaries of the biggest government subsidies (including value-added tax rates, which are extremely granular) and research budgets. They could also be the sectors where Beijing exerts the greatest pressure on foreign investors to transfer their best technology.

Third, since much foreign tech transfer in China is still voluntary, the price gap illustrated above also could stem at least partly from different tech transfer approaches taken by multinational companies from different countries. For example, it’s widely believed that American companies that operate in China – and which are especially active in information technology – share their know-how with Chinese partners much more freely than do firms from Japan and Germany.

Even so, however, these import price figures raise many more questions than they answer, and they seem to be telling us that all of us need to be paying a lot more attention to them.