The value of goods traded between the U.S. and China saw a small increase in April 2023, continuing the rebound that began the preceding month.
While that sounds like good news, in actuality, it's disappointing. That's because the increase should have been much larger, but wasn't. It would seem troubling developments for the world's two largest national economies also continued.
The effect of these developments can be seen in the continued downtrend in the value of goods traded between China and the United States. The trailing twelve month average value of goods traded continued to fall in April 2023.
More importantly, the gap between it and a post-pandemic trade recovery projection based on how trade between the two nations recovered after the 2008-09 recession grew wider. In April 2023, it expanded to $7.1 billion. The cumulative reduction of trade between the two countries since the Chinese government adopted new geopolitical policies in October 2022 has grown to $25.9 billion.
These changes are illlustrated in the following chart:
Now for more troubling developments. We asked ChatGPT to summarize this Reuters article giving a preview for what May's trade data for China will look like. Here are the five bullet points it presented:
- China’s exports shrank much faster than expected in May while imports extended declines with a grim outlook for global demand, especially from developed markets, raising doubts about the fragile economic recovery.
- Exports slumped 7.5% year-on-year in May, much larger than the forecast 0.4% fall and the biggest decline since January.
- Imports contracted 4.5%, slower than an expected 8.0% decline and April’s 7.9% fall.
- The weak exports confirm that China needs to rely on domestic demand as the global economy slows.
- There is more pressure for the government to boost domestic consumption in the rest of the year, as global demand will likely weaken further in the second half.
China's efforts to stimulate its economy to counteract slowing global demand for goods are already underway and are impacting the global environment, even though they're not having the timely effect that China's leaders might have hoped. More on that story soon....
According to Deloitte Insights, global demand is falling because "rapidly tightening monetary policies across industrial economies have led to a global liquidity freeze and tighter credit conditions, making it expensive and difficult for businesses to borrow." That is a consequence of so many central banks hiking rates to combat inflation.
In the United States, the first major economy where inflation was allowed to take hold in 2021, those rate hikes have already contributed to bank failures, with a credit crunch now spreading to other parts of the economy, negatively impacting demand.
There's good reason why economics is called the "dismal science".
References
U.S. Census Bureau. Trade in Goods with China. Last updated: 7 June 2023.
Image credit: Photo by Kurt Cotoaga on Unsplash.