2009 March 14 Saturday
US Trade Volume Plummets

The decline in international trade is far larger than the decline in domestic economies around the world. If domestic economies collapsed as rapidly as trade then we'd be in a depression worse than the 1930s.

The U.S. trade deficit narrowed in January to $36 billion, the lowest level in six years, on tumbling American demand for everything from OPEC oil to Japanese automobiles, Commerce Department figures showed today in Washington. The Labor Department said prices of imported goods dropped for a seventh month in February, another byproduct of the global recession.

Imports fell faster than exports in large part due to lower oil prices. The US trade deficit will therefore shoot up when the economy starts expanding again - and even before then as lower oil production and less oil exploration reduce oil supplies. The decline in the deficit is less remarkable than the decline in overall trade flows. An approximate halving of trade is a massive reduction.

American exports have slumped at a 44 percent annual pace in the most recent six months of data, with imports shrinking 51 percent, probably the most since the Great Depression, according to Morgan Stanley analysts. The figures may add to pressure on the Obama administration to rework international agreements and include protections for U.S. workers and the environment.

The economic deterioration is similar to what happened in the 1970s but worse.

China's exports are down by only a quarter.

HONG KONG — China’s exports plunged by a record 25.7 percent last month, but investment spending surged as the country’s stimulus program took hold, Beijing authorities said Wednesday.

China still expects to run a large trade surplus and achieve a high rate of economic growth in 2009.

Mingchun Sun, China economist for Nomura International, lowered his forecast for China’s trade surplus this year to $155 billion, compared with $295 billion last year. But because so much of China’s exports consists of reprocessed imports — like assembling DVD players from imported computer chips and other foreign components — the Chinese economy may still reach the government’s target of 8 percent growth, he said.

I'm guessing they won't achieve 8% growth though.

The US trade deficit with China grew.

By region in data not seasonally adjusted, the trade gap with Canada, the country's largest trading partner, continued to shrink, to 2.5 billion dollars, its weakest level since May 1999.

The politically sensitive massive gap with number-two trading partner China rose to 20.6 billion dollars in January from 19.9 billion dollars in December.

The US runs few trade surpluses.

The January figures showed surpluses, in billions of dollars, with Hong Kong $1.0 ($1.0 for December), Singapore $0.7 ($0.7), Australia $0.6 ($0.7), and Egypt $0.2 ($0.2). Deficits were recorded, in billions of dollars, with China $20.6 ($19.9), Japan $4.3 ($5.3), OPEC $4.0 ($4.7), the European Union $3.5 ($7.0), Mexico $2.7 ($4.1), Canada $2.5 ($2.8), Korea $1.9 ($1.4), Taiwan $1.3 ($1.3), and Venezuela $1.1 ($1.2).

Advanced technology products (ATP) exports were $18.7 billion in January and imports were $20.7 billion, resulting in a deficit of $2.0 billion. January exports were $3.3 billion less than the $22.1 billion in December, while imports were $3.6 billion less than the $24.3 billion in December.

See this set of tables for some by-country breakdowns of US imports and exports. What leaps out at me: The US exported $4.178 billion of goods to China in January but imported $24.748 billion from China. That is a ratio of over 5.9 dollars of goods purchased per dollar of goods sold. Remember in the 1990s when business leaders and free market economists trumpeted a free trade agreement with China as opening up a vast market for our goods and services? What a joke that turned out to be.

Share |      By Randall Parker at 2009 March 14 12:00 PM  Economics Trade


Comments
Bob Badour said at March 14, 2009 12:25 PM:

Other things to take home from those tables are:

The 2.5 billion dollar deficit with Canada is the difference between $14.5 billion exports and $17 billion imports.
The 4 billion dollar deficit with the EU is the difference between $20 billion exports and $24 billion imports.

While chronic deficits are a problem, a ratio of 1.2 is vastly different from a ratio of 5.9

I strongly suspect the trade deficit with Canada reflects more on the American dependence on foreign oil than on unfair trade practices.

The "Buy American" protectionist attitude in congress is misguided. China has engaged the US in a trade war for many years that the US doesn't want to acknowledge. Canada and the EU are allies in that war. All the triumphalism and jingoism in the world won't make targeting one's allies in a war an effective strategy.

I encourage all Americans to drive that point home with their congress-critters.

A. Prole said at March 15, 2009 7:31 AM:

Smoot-Hawley......SQUAWK!!!....Smoot-Hawley.....SQUAWK,SQUAWK!!!....Smoot-Hawley...SQUAWK.

Thus goes the parrottt cry screeched by those 'clever' people (ie 99% of polticians and their puupet-masters at the WSJ and Economist), whenever the wish to lecture us on the 'evils' of protectionism.
DEATH SPIRAL OF WORLD TRADE....SQUAWK!!!!....DEATH SPIRAL....SQUAWK SQUAWK SQUAWK!!!!!.
NOw, it's funny how 'world trade' is death-spiralling with absolutely no 'protectionist' measures being enacted by anyone, or indeed how the current catastrophe was not engendered by 'protectionism', but on the contrary is the price of the imbalances due to rampant 'free-trade'.

Bob Badour said at March 15, 2009 9:42 AM:

A. Prole,

Price manipulation is not free trade--especially when manipulated by governments and central banks. And as it happens, China's protectionism IS largely responsible for the death spiral.

Randall Parker said at March 15, 2009 10:01 AM:

A. Prole,

You are right that we didn't need protectionist measures in order for world trade to plummet. Also, if protectionist measures had caused trade to cut in half we'd be hearing economists say this is going to cause a depression. So then I gotta ask them: Are we headed for a depression?


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