Category Archives: trade

U.S.-China Trade Recovery Slows to Near Stall in May 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.

How Much Has the Coronavirus Pandemic Shrunk U.S.-China Trade?

We skipped it last month, but we have an updated snapshot of how much trade has been lost between the U.S. and China as a result of the coronavirus pandemic.

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

With January 2020's 'Phase 1' trade deal, the volume of trade between the U.S. and China should have begun recovering in February following the truce in President Trump's tariff war with the country. Instead, it plunged through March 2020 with the coronavirus pandemic starting in China before beginning to recover. In April 2021, the volume of trade is $9.7 billion higher than April 2020. The gap between the trailing year average of trade between the two nations and a 'No Coronavirus Pandemic' counterfactual shrunk to $7.5 billion in April 2021. We estimate the cumulative loss is $116.8 billion.

Speaking of which, the Biden-Harris administration has bought into the tariffs on Chinese goods, claiming they saved U.S. jobs, which means they won't be going away anytime soon.

No economists were asked if they agree with the Biden-Harris administration's assessment, though one labor union that endorsed the Biden-Harris administration supports the tariffs.

The thing to watch during the rest of 2021 is how much the gap between the trajectory of the combined value of trade between the U.S. and China and the "no coronavirus pandemic" counterfactual trajectory narrows during the year. The gap between actual and "what if" peaked at $10.6 billion in October 2020 and has narrowed in each of the months since.

One Year of the Coronavirus Pandemic and U.S.-China Trade

How much has the coronavirus pandemic and government lockdowns hurt U.S.-China trade?

With January 2020's 'Phase 1' trade deal, the volume of trade between the U.S. and China should have begun recovering in February 2020 following President Trump's trade war with China. Instead, it plunged through March 2020 with the coronavirus pandemic starting in China before beginning to recover. In February 2021, that recovery is well underway with the volume of trade is $13.8 billion higher than February 2020.

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

The gap between the trailing year average of trade between the two nations and a 'No Coronavirus Pandemic' counterfactual shrunk to $9.2 billion in February 2021. We estimate the cumulative loss of trade between the U.S. and China totals $101.5 billion through its first anniversary.

References

U.S. Census Bureau. Trade in Goods with China. Accessed 10 April 2021.

How Much Time Did the Coronavirus Pandemic Cost in U.S.-China Trade?

One year and one coronavirus pandemic after the U.S. and China agreed to the 'Phase 1' trade deal in January 2020, the trailing twelve month average of the combined value of goods traded between the two countries has returned to its November 2019 level.

At $47.6 billion, this measure is now roughly at the level a "no coronavirus pandemic" projected for March-April 2020. One way to think about that result is that it means the coronavirus pandemic has cost the U.S. and China the equivalent of 9 and a half months worth of lost trade. Here's a chart showing the combined value of U.S. exports to China and imports from China in the period from January 2008 through January 2021, where you can see how different this measure is from what could have been.

The more conventional way to read this chart is to measure the vertical difference between the counterfactual projection and the actual trajectory of the combined value of U.S.-China trade. By that reckoning, the level of trade between the two countries is $9.7 billion less than what we projected for the month of January 2021 nearly a year ago.

Comparing January 2020 with January 2021 shows the year-over-year gain is $11.5 billion in the value of trade between the two nations. Looking forward, we anticipate we'll see some spectacular year-over-year gains compared to the February and March 2020 coronavirus pandemic recession lows.

References

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

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

Meanwhile, on Mars…

Having covered the state of Earth's economy yesterday, we have a unique opportunity to extend our planetary scale analysis to Mars, whose economy is starting to register signs of life after what many scientists believe is a 600 million year recession.

There is, after all, now signs of activity on the Martian surface. The following footage of some of that activity was recorded on 18 February 2021:

With the arrival of NASA's Perseverance rover, we estimate Mars' GDP to now be greater than $0, which is where Mars' economy had been stuck since the Mars Opportunity rover ceased operation in 2019, and which has been Mars' average GDP for millennia.

Although the Perseverance mission itself cost more than $2.4 billion, which does not include an additional $300 million for landing and operating a rover on the surface of Mars. Nearly all of these costs are properly counted toward Earth's GDP however, where nearly all of the mission's activity has occurred to date.

With an active mission on its surface, Mars' GDP is no longer at $0, but is now greater than $0.

Economic development plans are in the works for Mars, which may become the first planetary economy to run entirely on cryptocurrency.

The Perseverance rover will collect samples that will someday be exported to Earth, making the mission the one of the first to begin developing interplanetary trade within the solar system.

Update 25 February 2021: A panorama of Perseverance's view from the Jezero Crater (HT: Michael Wade)

How much do you suppose Mars' first produced exports will be worth?