Monday, January 16, 2012

U.S. Exports to China Have Increased by 21% per Year Since 2005, Twice the 11% Growth in Imports

As much as we continually hear about China's currency manipulation to artificially increase its exports to the U.S., the chart above shows something very interesting. When: a) monthly U.S. exports to China, and b) monthly imports from China, are both normalized to equal 100 in January 2005, we can see that U.S. exports to China have actually grown much faster (about 21% per year) than imports from China (about 11% per year). Over the 7-year period from January 2005 to November 2011, U.S. exports to China have increased almost four times while imports from China have only doubled.

Another way to describe the trend: in 2005, there were about $6 of imports from China for every $1 of exports to China, and by 2011 the ratio of Chinese imports-to-U.S. exports to China had fallen to less than 4.  Conversely, the ratio of U.S. exports-to-Chinese imports has risen from 17% to 26% since 2005. 

Also, the current level of monthly imports from China (about $36-38 billion) is only slightly higher than the $34 billion peak in 2008 during the recession, while the current volume of U.S. exports to China (about $10 billion) is more than 50% above the $6.5 billion peak as the recession started in late 2007.

Although we still have a trade deficit with China, its relative size (in relation to the total volume of trade with China) has been shrinking over time.  As disposable incomes increase in China and as more Chinese enter the new middle class there, their purchases of American goods have increased at a faster rate than our purchases of their products.  That's a trend that we can expect to continue.   

19 Comments:

At 1/16/2012 3:59 PM, Blogger W.C. Varones said...

Apostrophe catastrophe:

Although we still have a trade deficit with China, it's relative size (in relation to the total volume of trade with China) has been shrinking over time.

 
At 1/16/2012 4:41 PM, Blogger Mark J. Perry said...

A terrible and humiliating mistake, "its" been fixed now.

 
At 1/16/2012 4:50 PM, Blogger Benjamin said...

BTW, Scott Sumner points out that the combined Nordic countries run larger trade surpluses than China.

The round-eyed Nordics also have larger militaries than China, and have attempted to take over the world in the not-so-recent past, while committing horrible genocidal atrocities.

 
At 1/16/2012 5:07 PM, Blogger Tom said...

How about re-valuing the Chinese imports? As CD has pointed out, about half the nominal value is actually earned by Americans, not the Chinese. That would bring the 4:1 ratio of imports to exports to about 2:1.

 
At 1/16/2012 6:28 PM, Blogger Buddy R Pacifico said...

"...Twice the 11% Growth in Imports"

"How about re-valuing the Chinese imports? As CD has pointed out, about half the nominal value is actually earned by Americans, not the Chinese. That would bring the 4:1 ratio of imports to exports to about 2:1."

China's foreign currency reserves also increased 11% in 2011 to $3.2 trillion USD.

What are the U.S. reserves? About 5% of China's at ~$150 billion.

Ratio of reserves China:US -> 20:1.

 
At 1/16/2012 7:28 PM, Blogger PeakTrader said...

Buddy, so, China has been exchanging valuable goods for worthless paper to maintain employment.

What's your point?

 
At 1/16/2012 7:37 PM, Blogger PeakTrader said...

It was inevitable China's export growth to the U.S. would slow:

China Exports to the U.S. (selected years)

1985 $3.8 billion
1990 $15.2 billion
1995 $45.5 billion
2000 $100.0 billion
2005 $243.5 billion
2010 $364.9 billion

 
At 1/16/2012 7:40 PM, Blogger PeakTrader said...

I should've stated worth less paper instead of worthless.

 
At 1/16/2012 7:50 PM, Blogger PeakTrader said...

U.S. Exports to China

1985 $3.9 billion
1990 $4.8 billion
1995 $11.8 billion
2000 $16.2 billion
2005 $41.2 billion
2010 $91.9 billion

 
At 1/17/2012 8:47 AM, Blogger Rufus II said...

Well, of course, we're making "some" progress. We've been fighting them tooth, and nail on their currency the whole time. Threatening, cajoling, begging, threatening some more, rinse, repeat.

IIRC, the Yuan was about 8.30 to the Dollar in '05, and, now, we're at around 6.30.

Meantime, Median Family Disposable Income is steadily declining in the U.S, 40 someodd Million are on Food Stamps, and the Unemployment Rate is 8.5%.

 
At 1/17/2012 9:49 AM, Blogger VangelV said...

Buddy, so, China has been exchanging valuable goods for worthless paper to maintain employment.

What's your point?


I don't know his but let me make mine. When I brought up the same issue to a Shaanxi government economist who was trying to get me to pay more attention to Mises, Hayek, and Rothbard while warning me to avoid Keynes and Samuelson he pointed out that it was very presumptive to believe that the Chinese government did not understand the risks of holding worthless US paper as part of its reserves.

He pointed out that the Chinese have used their reserves to build infrastructure or to guarantee loans that have been used to build infrastructure. All those nice airports, railway stations, highways, road networks, sewer systems, power plants, schools, bridges, etc., were financed one way or another by those reserves. In effect, the Chinese traded their products for much needed housing and public infrastructure at home, and a number of projects abroad.

You forget that the Chinese have worked hard to build railways and ports in China and have used their treasury to come to a number of agreements that will ensure a steady supply of commodities for decades. They financed mines and plantations and purchased commodity producers with plenty of USD denominated debt on their balance sheets.

The idea was that if (when) the USD went to money heaven the liability side of their balance sheet would shrink substantially to offset the loss of purchasing power of their reserves. At that time China would still have all those nice new houses, condos, roads, sewers, power plants, airports, railway stations, schools, bridges, etc., to service the manufacturing facilities, mills, foundries, etc., that will be needed to produce goods and services in the real economy.

In effect the Chinese have traded depreciating consumer goods for productive capacity and infrastructure. I don't know about you but that does not seem like the bad trade that you want to portray.

 
At 1/17/2012 10:02 AM, Blogger PeakTrader said...

VangelV says: "the Chinese have traded depreciating consumer goods for productive capacity and infrastructure."

I think, Brian S. Wesbury wrote the following:

"At the end of 2010, foreign investors owned $22.9 trillion worth of US assets. At the same time, Americans owned $20.3 billion of foreign assets.

The Commerce Department reports that Americans have earned $727 billion in income on foreign assets over the past year, a rate of return of roughly 3.6%.

Meanwhile, over the same period, foreigners have earned a much smaller $510 billion in income from their US assets, a rate of return of only 2.2%.

The difference is $217 billion.

Or, another way to think about it is that Americans often buy productive assets abroad – think building a factory in India or China – while foreigners often buy US Treasury securities, which only offer a paltry return.

My comment: Bargains induced U.S. demand for those "depreciating consumer goods."

And what happened to the term you used often before: "Malinvestment," like building empty skyscrapers, offices, and even cities?

The Chinese work hard. They created "productive capacity and infrastructure," but also created a massive amount of waste.

 
At 1/17/2012 11:12 AM, Blogger Hydra said...

3000 Chinese millionaires applied for "investment green cards" last year.

Looks like some of those exports are going to be repatriated.

 
At 1/17/2012 3:07 PM, Blogger VangelV said...

Or, another way to think about it is that Americans often buy productive assets abroad – think building a factory in India or China – while foreigners often buy US Treasury securities, which only offer a paltry return.

I have no problem with this statement. Americans who have capital send it to places where it gets more respect than it does in the US where they are vilified. The problem for the average American is that this transfer leads to capital depletion at home as depreciation is greater than new investment. That productive capital is very useful to Chinese workers and consumers but not so much to the American workers who could have had better job had capital formation been encouraged domestically.

My comment: Bargains induced U.S. demand for those "depreciating consumer goods."

They were bargains compared to goods made at home. But that does not mean that the Chinese who produced them did badly.

And what happened to the term you used often before: "Malinvestment," like building empty skyscrapers, offices, and even cities?

There is lots of it in China just as there is lots of it in the US. But empty skyscrapers, office buildings, and even cities are easy to fill when the costs come down sufficiently. I have stayed in such places before. My wife and I went to a vacation in a small town near the Burmese border. Our hotel was in the new city that sat empty a few km from the older town. That was the second half of the 1990s. From what I hear the new town was being used by businesses that were making fat profits moving goods across the border. When sanctions were placed against Myanmar the extra profits made the town viable. I suspect that when the Mongolian natural resources are developed their new city will recover some of the investment plowed into it. That said, I still prefer to have the free market decide resource allocation.

The Chinese work hard. They created "productive capacity and infrastructure," but also created a massive amount of waste.

Sure they did. But that waste was paid for by USD denominated debt or USD backed currency. As I pointed out, if that currency becomes worthless the infrastructure will still remain and have higher value than the cash. If the USD holds up so will the value of the Chinese reserves.

 
At 1/17/2012 3:09 PM, Blogger VangelV said...

3000 Chinese millionaires applied for "investment green cards" last year.

Looks like some of those exports are going to be repatriated.


I agree. I have friends who have sent their families to Canada and buy $1.5-$7.5 million homes or condominiums for cash. They are simply hedging their bets just as rich Americans buy real estate and other assets abroad.

 
At 1/17/2012 3:35 PM, Blogger Buddy R Pacifico said...

Peak Trader states:

"Buddy, so, China has been exchanging valuable goods for worthless paper to maintain employment.

What's your point?"


All that worthless (worth less) paper that you paid me, I'm going to use to buy commodities, because what your selling I'm not buying.

Peak Trader, your "worthless" argument is not credible but worth less does have some merit -- but an annual increase of 11% overcomes most of that.

 
At 1/18/2012 12:46 AM, Blogger PeakTrader said...

Buddy, China has to absorb foreign currencies (to keep them stronger) to promote exports and maintain employment.

 
At 1/18/2012 5:04 AM, Blogger sethstorm said...


I agree. I have friends who have sent their families to Canada and buy $1.5-$7.5 million homes or condominiums for cash. They are simply hedging their bets just as rich Americans buy real estate and other assets abroad.

The joke's on them when those governments tax them out, US citizens taking their place.

This still doesn't change that the US should be treating China as an enemy on the same level as Iran or Cuba.

 
At 1/18/2012 10:01 AM, Blogger VangelV said...

The joke's on them when those governments tax them out, US citizens taking their place.

Many US citizens are already trying the confiscatory regime in Washington by renouncing their citizenship so that their foreign earnings are not taxed. And many of the homes being purchased by the Chinese today are for a fraction of what their original American owners paid. It will be difficult for the government to 'tax them out' without doing massive harm to American homeowners so I would be careful what I wished for.

This still doesn't change that the US should be treating China as an enemy on the same level as Iran or Cuba.

Spoken like a mercantilist fool who puts the interests of domestic producers above those of American consumers. When are you idiots going to stop protecting inefficient American businesses and start to look to improve the lives of the little guys?

 

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