Michael Pettis (via RGE Monitor) has an interesting piece titled 'Squeezing Out the Exporters". Michael makes the case that Europe and the U.S. will likely take a tougher stance on imports from China because of the perception that China is subsidizing their exports. However, the data he lists to support that view seems highly misleading.
Below is a chart of a table of data he references from the Economic Policy Institute (a group he admits is not noted for its commitment to free trade).
This is where I believe the data may be flawed. Michael states (bold mine):
Perhaps as a consequence of a fiscal stimulus aimed at boosting investment and production, China’s share of the US trade deficit has grown significantly. Since the US trade deficit is shrinking quickly, this means that other exporters are getting killed. As I have argued for a while, this is not sustainable and will almost certainly cause trade tensions to erupt.All exporters are getting killed, but that's because all exports are down, not because China is taking a massive amount of share. One needs to look at TOTAL imports by China vs. TOTAL imports, not TOTAL imports by China vs. TOTAL Net Imports (the ignoring of oil is fine with me).
Why? Lets look at an example. Assume we import goods from four countries, each representing 25% of all imports, and totalling $100 billion, while we export $50 billion per year. In this case (Scenario 1), each country's exports makes up 50% of the trade balance.
Fast forward to scenario 2. Imports from all countries are down an equal amount (in this example 40%), while exports are down only 10%. The result, each country's exports makes up 75% of the trade balance (up from 50%).
Did all counties take market share? Impossible, yet this is the reason why it may appear that China took a ton of market share. The actual figures show that Chinese did take market share in what the U.S. imported, but it was much smaller (from a bit less than 20% to a bit more than 20% excluding oil imports). My thoughts is that was likely due to the decline in cheap goods imported from China being less than the decline for broader goods. It completely ignores the fact that imports from China are down 17%+ year over year.
So... is China squeezing out other exports to the U.S.? Yes, but not any more than they have been doing over the previous 20-30 years. They just import the cheap goods we are less likely to cut out of our lives, thus everyone is taking notice.
I am pretty sure you haven't actually looked at any export numbers before coming to your conclusion. China's trade suprlus is largely unchanged while total trade deficits are sharply down, and the surpluses of nearly every one of its Asian neighbors have collapsed. Chinese exports have declined by less than half of the decline in their neighbors. And Chinese policymakers have been urging Chinese exporters to conintue expanding their market share of the export market.
ReplyDeleteYou might be the only person who has made the claim that China has not increased its share of exports, and I suspect that can only be because you haven't checked the numbers. Pettis may or may not have his math right (I think he does), but he is certainly right about the export picture. Why do you think other Asians are complaining so much about China?
My post was likely (actually definitely) too U.S. centric. While I do understand they are taking share, it has been incremental in the U.S., not near the 3x jump implied by Pettis.
ReplyDeleteYour post added some nice perspective. I think what Pettis was getting at is that China's surplus *looks* larger than it previously did. More of a matter of perception, and in keeping with the point of the post that trade tensions will be rising. Pettis's broader point, made across multiple blog posts, is that China is hardly exporting demand(on net), which it would need to do in order to drive a global recovery. When economic suffering is prolonged and trade tensions rise, obviously the country with the huge trade surpluses and manipulated currency is going to be targeted. And they are are also the country likely to be most hurt in a trade war, as the US was in the Great Depression.
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