A Detailed Look At China's August Trade Surplus
Last week the Chinese Customs Administration released its August trade balance details, which came at a hair over $20 billion, slightly short of analyst expectations. The number was a substantial decline from the July surplus of $28.7 billion, which had also resulted in a surge in the US trade deficit to $49.8 billion in the past month, which subsequently declined to $42.8 billion in July, prompting Morgan Stanley's David Greenlaw to boost its Q3 GDP estimate to 2.4% from 2.1%, after it had reduced its economic forecast three short weeks earlier. Notably the decline in the overall surplus was almost exclusively a function of declining exports, which dropped from $145.5 billion to $139.3 billion, which imports increased modestly to $119.3 billion from $116.8 billion. Most interestingly, for all those who considered this month's US trade data as indicative of a moderation in the reliance on Chinese exports, and a preemptive resolution of upcoming US-China trade wars, may want to reevaluate that assumption in the face of the Customs data showing that US Imports declined just marginally, from $27.4 billion to $26.7 billion, which was still the second highest number ever. In other words, with numbers near all time record on the margin, fluctuations at this point are merely noise as exporters and importers shifts shipments temporally: next month's data will most likely demonstrate a continued deterioration in the US trade deficit, putting further pressure on 2011 US GDP expectations, which an increasingly more pessimistic Goldman will likely soon reduce to sub-1%.
Chinese monthly gross imports and exports and net trade balance:
Monthly trade deficit by country:
China-US monthly trade balance:
China-EU monthly trade balance:
China-Rest of World trade balance:
Overall, the last month trade data was sufficiently noisy to not confirm any inflection points in an overall trend of increasing wealth transfer from the US to China. And yes, if China is truly as focused on developing its middle class as it parades, the trade surplus should continue declining. Although the probability of that happening is small at best. As for what will most likely end up happening, once the noise has washed out of the system, Michael Pettis sums it up best:
What does this all mean? I would argue
that the trade imbalances are getting worse, but the rising US trade
deficit is not being driven by another US consumption binge. No matter
what US consumers might choose to do, the US trade defcit will continue
rising as an automatic consequence of events and policies abroad, and as
they do, the US fiscal deficit will probably need to rise even faster
to minimize the employment impact. This will keep on going until the US
retaliates. For me this is not a matter of if, but when.
So what may be driving the increase in imports? This Friday's biggest jump in wholesale inventories (higher by 1.3% on expectations of 0.4%, the biggest surge since July 2008's 1.5%) may provide a clue as to how America is now copying all the tricky moves used by China in pretending the private sector is still viable. Of course, once inventory liquidations pick up once again, and wholeseller margins collapse, the impact on the GDP will be once again materially negative. But by then the S&P should be at A Joseph Cohen's target so it won't matter anyway.