Unexpectedly Intriguing!
December 13, 2007

The U.S. Census released the latest trade data through October 2007 yesterday and, where trade between the U.S. and China is concerned, the U.S. trade "deficit" reached a new peak for the month, breaking the previous record set just a year earlier.

Not that this was much of a surprise. As our following chart indicates, the U.S. trade "deficit" with China typically peaks in October-November each year, as consumer goods produced in China, especially toys and consumer electronics, are delivered to the U.S. in advance of the Christmas shopping season:

U.S.-China Trade Deficit, October 1987 to October 2007

Meanwhile, the growth rate of U.S. exports to China continued to outpace the growth rate of Chinese exports to the U.S. - much as it has since July 2003:

U.S.-China Rolling One-Year Export Growth Rates, January 1985 to October 2007

The faster pace of U.S. exports to China with respect to the growth rate of Chinese exports to the U.S. are reflected in our trade volume doubling period charts. The chart below confirms that the U.S. has doubled in volume again for the second time since January 2001:

Value of U.S. Exports to China - Doubling Rates

The next chart shows the doubling rate of Chinese exports continuing at or near the pace it has maintained since April 1994:

Value of China Exports to U.S. - Doubling Rates

Now for the questions:

  1. Is this the peak for the U.S. trade "deficit" for the foreseeable future? With the U.S. economy expected to slow, the rate of exports from China should slow as well, much as they did back in the March-November 2001 recession in the U.S. and especially if the Chinese economy grows at a faster pace. Combined with a slowly declining U.S. dollar with respect to the Chinese currency, the trade deficit should decline as Chinese exports to the U.S. become more expensive for U.S. consumers.

  2. If you were a Chinese exporter, and you expected both conditions described above to continue well into next year, would you seek to accelerate your exports to the U.S. to attempt to extract maximum value for your goods? Moving an increased volume of goods now might minimize the currency risk to you, but would the tradeoff be that you'll further reduce the amount that you'll export to the U.S. in the future below what you might have if the U.S. economy slows as expected?

Isn't trade fun?


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