Unexpectedly Intriguing!
07 July 2021

According to trade data published by the U.S. Census Bureau, the year-over-year growth rate of trade between the U.S. and China slowed dramatically in May 2021.

Year Over Year Growth Rate of U.S.-China Trade, January 1986 - May 2021

A large portion of that year-over-year decline was expected, because it follows the trade recovery that began after the volume of trade between the two countries bottomed in March 2020 as the first wave of the coronavirus pandemic ended. However, the just-released data on imports and exports between the two countries fell significantly below projections for May 2021. Consequently, the gap between the trailing year average of the volume of trade between the U.S. and China and a "no coronavirus pandemic" counterfactual barely changed from the previous month:

Combined Value of U.S. Exports to China and Imports from China, January 2008 - May 2021

The size of that monthly gap peaked at $10.6 billion in October 2020 and had fallen to $7.5 billion through April 2021 as the trade recovery gained steam. May 2021's gap however was $7.4 billion, changing little from the previous month as the growth in the volume of trade stalled.

The following analysis discusses several of the major factors that contributed to May 2021's figures:

China's trade growth showed slower exports but faster imports. What's behind this divergence?

Exports in May 2021 grew 27.9%YoY, which is slower than the consensus expectation of 32% growth.

The main reason for the shortfall is that all export items related to semiconductor chips have slowed.

Auto processing products and parts, the biggest export item, fell 4%YoY in terms of export value. This is most likely the result of the semiconductor chip shortage.

The analysis also points to a new wave of coronavirus infections in China, which also negatively impacted trade logistics:

Since the end of May, there have been around 10 Covid cases daily in Guangdong, where most electronics factories are located.

Shipments from the port in Shenzhen that process most of the electronic throughput have been affected by Covid. Port workers now have to have Covid tests and port operations have been disrupted.

Some factories in Guangdong were also affected by Covid, mostly caused by workers queuing up for testing.

These factors are expected to continue negatively impact the data for June 2021, which will be published early next month.

References

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 5 July 2021.

U.S. Census Bureau. Trade in Goods with China. Accessed 5 July 2021.

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