China's Balance of Trade & U.S.-China Trade

Some interesting numbers have been reported recently regarding China's balance of trade and U.S.-China trade totals.

First, after posting a $27.2 billion surplus in January, China posted its first trade deficit in February since February of last year. It was a $31.5 billion deficit. That's an awfully large swing, even for a rapidly changing economy like China's. The deficit results from both a decrease in exports and an increase in imports (mostly due to the rapid increase in the price of oil since about mid-January).

Second, U.S. exports to China in 2011 were up about 13.0% over 2010, while U.S. imports from China were up only 9.4%. The trade deficit with China still grew in 2011, but the trend is a narrowing one. And this occurred despite China having a currency that is, in all likelihood, artificially cheap vis-a-vis the dollar.

Moreover, since 2001, U.S. exports to China are up 441%, while U.S. imports from China are up only 290%. Admittedly, the export figure starts from a much lower base than the import figure, but it does mean that the increase in the trade deficit is slowing down quite quickly. And even since 2005, U.S. exports to China are up 149%, while U.S. imports from China are up only 64%.

China’s performance in February can be partly explained by the Lunar New Year holiday, which takes out a large part of its productive force for a few weeks. The workers go home to visit their families bringing presents. This explains a part of the large swing in exports and imports.

Can you read French? I recently finished La France sans ses usines, about France’s consistent balance of trade deficits. I left a review. France’s situation is compared to Germany’s success. The book explains (some of) the factors behind the disparity. It partly applies to the US also.

Do you know what sectors of the economy explain the rise in exports to China?

I hadn't thought about the Chinese New Year as a reason for its trade deficit in February. You'd think that Chinese companies would account for that and build up inventories in December and January to use in February.

I can't say which goods account for the biggest rise, but I can tell you that, according to the US-China Business Council, the top ten exports to China in 2010 were:

1) electrical machinery and equipment ($11.5 billion)
2) power generation equipment ($11.2)
3) oil seeds and oleaginous fruits ($11.0)
4) aircraft and spacecraft ($5.8)
5) optics and medical equipment ($5.2)
6) plastics and articles thereof ($4.8)
7) vehicles, excluding rail ($4.5)
8) inorganic and organic chemicals ($4.5)
9) pulp and paperboard ($3.0)
10) copper and articles thereof ($2.9)

Total US exports to China in 2010 were $91.9 billion.

You would still want to see more of an analysis. E.g. the delivery of a large order of Boeings may influence the data in a specific period without really being a trend.

It would be good news however. The imbalances are not sustainable in the long run.

China's wages are rising rapidly. Some factories are moving to other countries. This could somewhat reduce China's exports without reducing America's imports.

The good news would be a trend in the rise of America's exports.

Another question to ask is if another supplier of developed economy products (e.g. Europe, Japan, Korea) is suffering a set back. The EUR/USD exchange rate is not moving much, but Japanese products have become more expensive due to the rise of the yen. Maybe America has profited from that. In that case the impact might be temporary.

Bretsky,
It was not clear to me that the list in #3 is the top ten exports to China or the top ten US exports to China.

#4:

It's possible that what is going on is merely trade displacement from one developed economy to another (e.g., China is now importing goods from the US that it used to import from Japan), but given that China's overall imports are surging, it's more likely that the rise in exports to China is a general trend for all developed economies. Although, I haven't been able to find data to show that.

There also might be displacement on the other end, that is, the US is shifting imports from China to some other country, like Vietnam or Indonesia. Even though that's an overall wash for the US economy, it's actually a benefit to it in the long run because the average American's problem with US trade isn't so much that we have a total deficit, it's that we have large deficits with particular countries. If the US trade deficit were more evenly scattered around the globe instead of being so heavily concentrated in a few countries, there would be less call for protectionist measures by Americans because there wouldn't be some supposedly "evil" country out there taking advantage of us.

Total US exports in goods are up as well. In 2001, total US exports in goods were $731 billion. In 2010, total US exports in goods were $1,289 billion. Of course, the US trade deficit in goods went from $421 billion in 2001 to $646 billion in 2010. But that's a slower increase than the rate of increase in exports (53% versus 76%).

#5:

That's just US exports to China, not China's overall imports. Although, the ranking of China's total imports of goods is very similar to its ranking of imports from the US.

Earlier this year I was at a conference attended by macroeconomists. The subject arose of whether China's reports on its GDP figures - circa 10% growth for the last decade or so - were believable. Not one economist there thought so.

Here's a link to the NYT on that topic:

http://www.nytimes.com/2012/06/23/business/global/chinese-data-said-to-be-manipu...

Here's an interesting story from the Washington Post regarding an OECD and WTO effort to recalculate state-to-state trade balances using the concept of "value added" as opposed to the value of the finished product, which is how current trade figures are tallied.

The bottom line? The U.S. trade deficit with China is distorted by the way trade figures are currently calculated, perhaps by as much as 25 percent. The biggest "beneficiaries" of using the value-added approach vis-a-vis the U.S. would be Germany, South Korea, and Japan, three countries that provide high-value components to China that get assembled into much of the things that China then sells to the U.S.