trade surplus Archives - the patient investor

April 21, 2015

US-Asia trade imbalance

Westpac produce a very detailed chart pack on the US economy called Northern Exposure. One item that stands out like a sore thumb is the trade imbalance between the US and Asia:

US External Trade

The trade balance between most countries and the US is close to equilibrium, where imports match exports:

Mexico: 2% surplus
UK: 1% surplus
Eurozone: 1% deficit
Other: 2% surplus

But there are three notable exceptions:

China: 15% deficit
Japan: 3% deficit
Canada: 9% surplus

Any large trade imbalance should cause the exchange rate between the two countries to rise or fall, making the exports of the net exporter more expensive and imports from the net importer cheaper, until balance is restored. But this has not happened with China and Japan. They are manipulating the system: investing a large portion of their trade surplus back in the US through the financial account, so that trade flows in one direction are offset by capital flows in the other. Their actions are clearly visible in the growth of Rest of World investment in US Treasury securities.

Holders of US Treasury Securities

That is the reason why the US consistently runs massive trade deficits and why the manufacturing sector has been shedding jobs for the last two decades. This could be prevented if the US was willing to regulate capital flows on the financial account: “we will open our capital markets to you if you open yours to US investors”.

March 18, 2015

China hot money heads for the exit

Huw McKay at Westpac writes:

“The Jan-Feb FX positions of China’s banks imply that FX reserves fell in the early part of the year, despite back to back monster trade surpluses of $US60 billion. The logical conclusion is that money flowed out in a big way on the financial account.”

There are two reasons why capital would flow out on the financial account. The usual explanation is the PBOC buying US Treasuries, exporting capital to prevent the yuan appreciating against the Dollar. But Huw points out that the PBOC balance sheet shows a slight decline in foreign assets held. This could be a smokescreen, with investments channeled through an intermediary. Otherwise, it could be a sign that private capital is leaving for safer shores. This from the Business Times:

More than 76,000 Chinese millionaires emigrated or acquired citizenship of another country in the decade through 2013 amid global expansion by the nation’s companies.

Australia was among the most favored destinations, broker Knight Frank LLP said on Thursday, citing data compiled by law firm Fragomen LLP. The Chinese accounted for more than 90 percent of applications for the country’s significant investor visa in the two years to the end of January, representing 1,384 people. They also make the most applications for high-net-worth visas in the UK and the US.

Consumer confidence is below 2008/2009 levels and declining.

RT @TomOrlik: One victim of China's falling property prices – consumer confidence pic.twitter.com/d6chuyjh1A

— Patrick Chovanec (@prchovanec) March 18, 2015

February 3, 2013

China’s trade data for November disappoint

Zarathustra writes:

China’s export and import growth on a year-on-year basis were both worse than expected for November.

Export rose 2.9% in November compared with the same month last year, down from 11.6% yoy growth in October, and well below consensus estimate of 9.0% yoy, while import was flat compared to a year ago…..

See YOY chart at China’s trade data for November disappoint.

October 15, 2012

China’s export growth accelerated in September

by Zarathustra

China’s trade data for September show some improvement in growth. Export growth picked up to 9.9% yoy in September, up from 2.7% yoy in August, and better than consensus estimate fo 5.5% yoy…….

via China’s export growth accelerated in September.

July 1, 2012

China’s failed gamble for growth

Zarathustra: The idea of this gamble is simple. With the financial crisis in 2008 hitting the developed world, it naturally affected external demand. The Chinese knew these. At the end of 2007, trade surplus accounted for more than 7.5% of GDP. Currently, the same number is at its low single digit, probably 2% or so. No longer is China’s growth driven by trade. It is now driven largely by domestic demand.

And this is where the gamble lies. The massive stimulus was meant to stimulate domestic demand for a few years, in hope that perhaps the rest of the world will recover, and hence external demand would have recovered. Or else, in hope that domestic demand will become strong enough and sustainable so that the economy no longer depends on the health of the rest of the world…..

via China’s failed gamble for growth.

November 2, 2011

Creditors can huff but they need debtors – FT.com

China already runs its own risk of massive losses on the currency reserves – now worth $3,200bn – it has accumulated. That was a public capital outflow aimed at supporting its trade surpluses. But, in its attempts at managing the currency relationship with the US, it is the latter that controls the central bank. China can huff and puff. But it must either buy the money the US creates, to preserve competitiveness, or stop doing so. If it buys, it throws good money after bad. If it stops buying, it imposes a shock on itself.

via Creditors can huff but they need debtors – FT.com.

October 27, 2011

Europe’s Punishment Union – Ambrose Evans-Pritchard

As Sir John Major wrote this morning in the FT, this does not solve EMU’s fundamental problem, which is the 30pc gap in competitiveness between North and South, and Germany’s colossal intra-EMU trade surplus at the expense of Club Med deficit states.

It is therefore unlikely to succeed. It means that Italy, Spain, Portugal, et al must close the gap with Germany by austerity alone, risking a Fisherite debt deflation spiral. As I have written many times, this is a destructive and intellectually incoherent policy, akin to the 1930s Gold Standard. It risks conjuring the very demons that Mrs Merkel warns against.

Sir John is less categorical, but the message is the same. Europe will have to evolve into a fiscal union to make the system work….

via Europe’s Punishment Union – Telegraph Blogs.