Unexpectedly Intriguing!
October 8, 2019

Something surprising showed up in the international trade data between the U.S. and China during August 2019. For the first time since the end of March 2018 when both nations entered into a tariff war with each other, the year over year growth rate of U.S. exports to China has turned positive, indicating growth rather than shrinkage.

You can see for yourself in the following chart illustrating the year-over-year exchange rate-adjusted growth rate of U.S. exports to China and of China's exports to the U.S. from January 1986 through August 2019.

Year Over Year Growth Rate of Exchange Rate Adjusted U.S.-China Trade in Goods and Services, January 1986 - August 2019

It would be nice if that were a genuinely positive development, sparked by a resurgence of organic growth in China's domestic economy, but it reflects two other things instead:

  • The effectiveness of China's deliberate strategy of targeting goods such as soybeans produced in states where President Trump won narrow margins in the 2016 election with punitive tariffs, which succeeded in lowering U.S. exports so much by August 2018 that it takes relatively little to show positive year over year growth.
  • China's dire need to deal with the impact of the African Swine Flu epidemic on its domestic hog production, which was amplified by unintended consequences arising from its leaders' tariff war strategy.

We drilled down into the Census Bureau's detailed trade data, where we found two major positive contributions to August 2019's year-over-year export growth:

  • U.S. exports of soybeans to China were 20.6 times higher in August 2019 than August 2018, rising from $46 million to $945 million.
  • U.S. exports of pork meat to China rose by a factor of 8.5, from $10.5 million to $89 million.

In mid-September 2019, China announced it would lift its punitive tariffs on U.S.-produced soybeans and pork. In late-September 2019, China's government confirmed its "importers have agreed to buy American soybeans and pork".

References

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 4 October 2019.

U.S. Census Bureau. Trade in Goods with China. Accessed 4 October 2019.

U.S. Census Bureau. U.S. Trade Online. Accessed 4 October 2019. 


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