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November 10, 2005
More Chinese Trade Surpluses -- And U.S. Deficits
The attention getting news morning is that, yes indeed, those Chinese trade surpluses started growing again -- and ours keep shrinking. From Bloomberg:
China's trade surplus swelled to a record $12 billion on a jump in exports that's strained ties with the U.S. before a visit by President George W. Bush.
The surplus widened in October from $7.56 billion in September, the Beijing-based customs bureau said in a statement today. Exports rose 29.7 percent from a year earlier, led by electronics, outpacing a 23.4 percent gain in imports...
Shipments of electrical appliances and electronic products jumped 34 percent, and machinery exports surged 29 percent.
Clothing exports rose 21 percent to $61.1 billion and the nation sold yarn and fabric abroad worth $34 billion, 25 percent more than a year earlier.
Along with this comes the inevitable suggestions that China rethink the scope and pace of policy reforms. But it is useful to place Chinese developments in a broader global context. From the Wall Street Journal (page A2 in the print edition):
China's trade surpluses to a large extent are the result of the globalization of manufacturing. Companies from the U.S., Japan, South Korea and Taiwan have all shifted production to China, where goods are assembled for export using mainly imported parts. Lately, exports have been boosted as a result of overinvestment in everything from steel to furniture making, which has prompted Chinese factories to sell some of their surplus output overseas.
I'm not exactly sure why "overinvestment" and "surplus" are the right words -- in other words, I'm not sure why we should think of this export activity as a mistake (as the language implies) rather than an exercise in comparative advantage. Neither am I sure why we accept the implication that the bulge in the surplus is a temporary development (absent changes in existing controls on the yuan and financial capital flows). In fact, the WSJ article warns otherwise:
A dip in the trade surplus last month, when imports grew more strongly than expected, was seen by many economists as further evidence that domestic demand was picking up, and that surpluses would start trending lower.
However, it now looks like the September figure might have been just a bump in the road for the Chinese export juggernaut. For the first 10 months of this year the trade surplus has hit $80.4 billion, compared with $32 billion for the whole of 2004. Most economists believe the full 2005 surplus will reach $100 billion, an all-time record.
That may make this morning's trade report all the more dramatic. From MarketWatch:
The U.S. trade deficit widened by 11.4% in September to a record $66.1 billion, the Commerce Department said...
As is often the case, though, it's not just China:
The trade deficit with China widened to a record $20.1 billion in September from $15.5 billion in the same month last year. The trade gap with China rose to $146.3 billion in the first nine months of the year, up from $114.3 billion in the same period last year.
The U.S. also set record trade deficits with Canada, South/Central America and OPEC.
That said, these numbers, like all those in the immediate aftermath of the summer energy-price spike and hurricane disruptions, are a bit hard to read:
A surge in energy imports needed after Hurricanes Katrina and Rita laid waste to the energy infrastructure along the Gulf Coast in September boosted imports. At the same time, a strike a Boeing Co. sharply cut the number of airplanes exported in the month.
Even though economists had anticipated these factors, the trade deficit in September was well above expectations.
The October surge in the Chinese surplus might suggest that it is not so clear that we would want to take much solace in the possibility that things will look better on the other side of the "temporary factors." On the other hand, this morning also brings this news from the Bureau of Labor Statistics:
Import prices declined 0.3 percent in October, the Bureau of Labor Statistics of the U.S. Department of Labor reported today, after increasing 2.3 percent in September. A downturn in petroleum prices more than offset higher nonpetroleum prices. The U.S. Export price index rose 0.6 percent in October following a 0.8 percent advance the previous month.
That may, in the end, be the bigger story when we finally see the October trade numbers.
UPDATE: Calculated Risk agrees that September was a difficult month to forecast.. Brad Setser is not totally surprised, and eagerly awaits the October report on Chinese reserve accumulation. The Skeptical Speculator also notes that energy-price effects are moving in the opposites direction, and,
along with Edward Hugh reports,that the French economy is showing signs of life.
UPDATE JR: More good stuff, from Menzie Chinn a now official member of the Econbrowser team.
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