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