So Does The Spike In Chinese Exports Mean A Comparable, And GDP-Reducing, Surge In US Imports?

Tyler Durden's picture

In a normal world, last night's surge in China's trade surplus would mean that, in a "normal" world, someone should be importing more (normal vs centrally planned - the two are not very comparable, just ask the USSR). So, assuming someone among the centrally planned proletariat actually took math 101! (the factorial sign is there due to fractional reserve mathematics, so according to a Keynesian this is really 9.3326215444×10157), does this mean that tomorrow US import data will surge, which by implication, will result in another steep cut to Q2 GDP? Well, logic would say yes, although the headline scanners on TV and in NYSE collocation boxes would beg to differ. Oddly enough, Citi also says yes. Below is Stephen Englander's note explaining why "US trade is at risk of an import surge."

The market and Cit expect a modest widening in the US trade deficit tomorrow to a deficit of USD47bn from USD45.8.  Most of this expectation reflects the gap between the 2.6% m/m March import price increase and the 1.5% export price gain. If we exclude energy, march import prices were up 0.3% m/m and excluding US agricultural exports 1.3%, so on a non-crude materials basis terms of trade seem to be shifting in favor of the US. The consensus is heavily concentrated in the USD45/49bn range.

One implication is that the consensus view expects the widening of the US trade deficit to be driven almost entirely by higher energy prices. Some of the incoming data suggest a risk of a surge non-energy imports. For example the countries that report early show the largest surge in our data's history (which goes back to 1990) in March exports to the US. These exporters are not energy exporters to a significant so there is a risk that non-energy exports surge. Such a surge would complicate the aftermath of US-China Strategic and Economic dialogue.

The Chinese data suggest a significant increase in the Chinese surplus in March after the February drop which reflected the Chinese New year. While the correlation of the US and Chinese data has been less than stellar in recent months there is nothing in the Chinese data to suggest that there is a major downward trend in the trade balance.

Moreover the US import price data continue to show that the price of Chinese imports lag CNY exchange rate moves, even though they have begun to move in recent months. While the lagging of prices can reflect productivity gains and margin cuts, it is not likely that US officials will be satisfied with the limited gains in US competitiveness that the data show.

The caveats are: 1) we are taking a close look at a limited, albeit important, corner of US trade. What happens elsewhere, in other imports and in exports could derail the analysis 2) there is slippage whether because of delivery times or definitional difference, so what an exporter calls a March export to the US may be different than what the US calls a March import from the exporter; 3) we are seasonally adjusting data that are released on a NSA basis and translating it into an impact on the overall (seasonally adjusted) trade balance -- again there is the risk of slippage. So it probably be more prudent to view this as suggesting the risk of an important surge over the next couple of months. Nevertheless, it is hard to ignore such a spike.

Trade numbers have not had major USD impact in recent years. They are not like payrolls or retail sales which can have an immediate impact through the fixed income or equities market. More likely the impact of a surprise widening of the trade deficit would be to reinforce the view both of investors and reserve managers that the need to diversify reserves will be ongoing. As such it is most likely to contribute to a USD negative environment even though in the near term, news on the EUR is likely to be the bigger FX driver.

And since at some point math will matter, look for more unrighteous indignation from the DC peanut gallery about how China is stealing US jobs, and other blah blah.

And here is the chart indicating US-China trade, at least from China's perspective:

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Robslob's picture

It's called the boomerang trade.

morkov's picture

trade surplus does not mean market exports...

Bindar Dundat's picture

Very solid analysis! Simply the best site I have ever been part of!


oogs66's picture

Wasn't QE2 supposed to help our exports? 

camaro68ss's picture

QE2 is only supposed to help the bankers up top, we get the inflashion beat down at the bottom

lizzy36's picture

Well according to Janet Yellen FRBSF it was supposed to create 3m jobs.

But i have a theory that in order to be a member of a Federal Reserve Board, one first has to graduate (with a Ph.D) the "school for people who can't do math good".

Ruffcut's picture

Chiner is not stealing jobs so much as the US is giving them away. Open free market global strategy, and working quite well.

CreditCrumbs's picture

And that's because the elite of both countries benefit from it. US elite benefits from fatter profit margin and exec bonuses when production and jobs move to China. China elite benefits from increasing employment and skimming off the top of disposable Chinese migrant workers. 

Oh regional Indian's picture

Rather than trade partners and MFN's to each other, the US and China are locked in a death-grip, we'll both go down together pact.

Those usually end in tears.

I think the transfer of technology and machinery is now complete.

Perhaps war is around the corner.


101 years and counting's picture

oil imports are down and US exports of gas and distillates are up, which could result in GDP "boosting" decline of the trade gap. 

schizo321437's picture

Move printing presses to China, and they can send goods straight to landfill. Efficient.

Oh regional Indian's picture

Good one Schizo.
The Cradle in Grave solution.


Kayman's picture

"Move printing presses to China, and they can send goods straight to landfill. Efficient."

Schizo    Best summary of the China/US relationship on record.  Top of the class.

Thank you.  Kayman

Hephasteus's picture

Burn thousands of gallons of oil shipping parts to factory to save on labor. Ship them really fast to burn more gas to keep up with demand.

Kayman's picture

American politicians fiddle, China tightens the screws.

Printing paper FRN's and conjuring up credit for the skimming criminals does not an economy make.

This is a painful, long-drawn-out death, but death it is.

Variance Doc's picture

101!~9.4259e+159, not 9.3e+157.  But, it's good enough for Keynesian work.

writingsonthewall's picture

This is the problem with the race to the bottom in the currency wars - everyone is doing it - so from month to month we have a new 'winner' and this is why we get such fluctuations in the trade deficits.

Don't forget we also have Japan, Europe, UK and other nations all playing the same game. You see where these idiots fail is they don't look at past crises and try to relate them to now. They also only have 1 'playbook' for recovery - which is 'devalue and export your way to growth'


Unfortunately the Europeans have taken this privilege from themselves, the Japanese can't go any lower or looser and have been doing this for decades now, the US is the reserve currency and this has massive implications (despite what BB preaches) and the rest are all playing the same game.


If everyones salvation is to export their way to recovery - then who is buying?

This has turned into an interesting experiement in international politics as we see the self inflicting harm that the determination for each nation to follow it's own self interest at the cost of all other interests.

Self interest is a failed ideological solution to our problems - the banks demonstrated this on a business level and now the politico's are going to bring the world to it's knees with the same policy.


We all share this planet - it's time some reckless arseholes worked this out before they collapse the system again and we go back to 1930's protectionism...which is the ultimate form of political self interest over economic reality.

Game theory my friends, it's all game theory....

Lews Therin's picture

Your reasoning is almost exactly the same as my reasoning... for owning Gold!  Its a race to the bottom for all currencies.  Simpler to go with Gold and not bother trying to jump to or jump off "least stinky" currencies.  


All of this currency shit will not end well.  


I confess to reading stuff from Doug Casey.  I don't always agree with him but he did say one thing that stuck with me:  "Nation States have to go, they're obsolte".  Doug Casey didn't say that exactly but that was what he meant.  I do think the idea of "nation states" are part of the problem.  That along with central planning and socialism/fascism/communism...


Mountainview's picture

There should also be a blackmarket for Renminbi. It can only go up. It already exists in Hanoi. North Vietnames

prefer Renminbi over Dollar for blackmarket trades.

LawsofPhysics's picture

This guy is a clown.  If you don't like the funny money, demand payment for oil in something else. 

ExpendableOne's picture

Didn't qadaffy dabble in gold for oil?  Look what it did to his country.

schizo321437's picture

And it all comes a tumblin...

slewie the pi-rat's picture
So Does The Spike In Chinese Exports Mean A Comparable, And GDP-Reducing, Surge In US Imports?



ThirdCoastSurfer's picture

"what an exporter calls a March export to the US may be different than what the US calls a March import"

Add this to list that includes other new phenomena like snow, cold and water.