Unexpectedly Intriguing!
July 9, 2014

After noting the role of health care spending in producing the largest negative shift from first to third estimate for quarterly GDP in modern U.S. history, Jim Hamilton notes the role of falling U.S. exports as the second biggest contributor to that outcome:

The second most important factor in the revision is that the Q1 deterioration of exports is now seen as even worse than originally reported, with lower exports subtracting 1.2 percentage points from the GDP growth rate. Part of this may be payback for unusually strong export numbers for 2013:Q4. But if it signals a weakening in China or other key trading partners it could be more worrisome.

So how worrisome is the level of U.S. exports to China?

To answer that question, let's take a very close look at the year-over-year rate of growth for the value of goods traded between China and the U.S. since January 2012 through the trade volume data most recently reported by the U.S. Census Bureau for May 2014. In the chart below, the blue line with diamond shaped data points represents the annual growth rate of China's exports to the U.S, while the red line with the square data points represents the annual growth rate of the U.S.' exports to China:

Closeup: Year Over Year Growth Rate of U.S.-China Trade, January 2012 - May 2014

This chart shows the surge in U.S. exports to China in the fourth quarter of 2013, which coincides with the exporting of the record bumper crop of soybeans and other agricultural products from the U.S. to China following their harvest in the third quarter of 2013, as the U.S. agricultural industry effectively sold out all of its inventory during the fourth quarter in response to Chinese demand.

As such, since the bumper crop and subsequent trade in these goods represents a unique situation, the decline in U.S. exports following the fourth quarter of 2013 cannot be considered to be "payback", which won't affect the year over year growth rate data until the fourth quarter of 2014. The volume of U.S. exports in the periods preceding and following the fourth quarter of 2014 is therefore more indicative of the relative health of the Chinese economy.

With that in mind, we find that China's economy is presently growing fairly slowly - it's not contracting, which would be the conclusion we might draw if we observed a negative year-over-year growth rate.

But it's also not growing anywhere near the pace that many would associate with the robust economic growth of China's economy in the preceding decades:

Closeup: Year Over Year Growth Rate of U.S.-China Trade, January 1986 - May 2014

The bottom line then is that while not likely to act as a negative drag on U.S. export growth, the relative health of China's economy is unlikely to provide much of a positive impact on the U.S. economy in the second quarter of 2014.

And that lack of impact is perhaps the most worrisome thing about the current state of health of the Chinese economy where all nations that trade with China are concerned.


Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 6 July 2014.

U.S. Census Bureau. Trade in Goods with China. Accessed 6 July 2014.


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