US Trade Numbers Are In

So are the China trade surplus ones. Dave at MacroBlog has the details on China. I’m waiting for Brad Setser to post, but he must be either doing his sums, or having a late breakfast :). Before we get some blog analysis (even Brad Delong is quiet today) you can get the basics here. In fact the rise in the April CA deficit to $57bn, from $53.6bn in March, is supposed to be good news, since the increase wasn’t as big as expected.

Essentially I am outside the Atlantic blog consensus here, since I think the US dollar will hold, and that it is the euro which is in trouble. I have a little post on this here. Logically if the other major alternative as a reserve currency is in trouble under Bretton Woods Mark I, everyone goes home to Daddy. I think that is how it will be.

Update: Well Brad still isn’t there but Stephen Roach is. I think his view is the dominant one on the US blogging scene, and shared by non-blogging economists like Paul Krugman. I’m sorry, I think it’s wrong, and by a long way.

Update 2 I’m getting a little tired of waiting (incidentally General Glut has just passed by in comments, and he *does* have a post on the topic). Now the politically sensitive US trade gap with China widened $14.0 percent in April to $14.7 billion. This means it was $12 billion in March, or that it rose $2.7 billion. Now China’s surplus widened to $8.99 billion from $4.59 billion. Doing the arithmetic the surplus rose $4.4 billion. $4.4 billion minus $2.7 billion gives $1.7 billion, a hell of a big chunk of which was probably with Europe. I wish someone who really knew about this would write something, but my educated guess is that Chinese import penetration in Europe is now big and getting bigger by the month. Hence the row about globalisation in the French referendum. Basically what I am saying is that having this kind of issue in the Free Trade US of A is one thing, having it in the more anti-globalisation European core is going to be quite another. China the global imbalance to end all (im)balances.

Now if you want to understand something about China:

this article is well worth the trouble.

Basically steel production is a pretty dreary matter. But if you are increasing capacity at rate of 22% a year, then sometime or other your capacity outstrips potential demand, and there is a crisis. This is where the banks come in, since they lend the money to the steel mills to subsidise the prices necessary to sell. This is where the problem of non-performing loans comes in, and this is why the Chinese banking system is normally in trouble, and will continue so to be for some time to come IMHO.

I think what people need to get their minds round is the immensity of all this. We are talking about an economy which could be five times the size of the US one when it is all up and running, which is of course years away, but I’m sure you get the point. And as we run up to these levels of economic activity, then fluctuations in capacity, and output, and prices will be large, and the financial consequences of these fluctuations will be too. And note from the FT article the extent to which China is still a state planned economy in the non-export sector.

The Chinese surplus is increasing rapidly. Since the US deficit didn’t rise so fast, this leaves me wondering what is happening to Europe.

We know about shoes, and T-shirts, and bicycles, but what else is there? The French trade deficit rose last month too.

The Euro is falling fast, it is now at $1.2138, down over a cent today.

In comments Antoni Jaume asked me this:

“Edward, I follow the ?/$ rate of exchange for fun, trying to understand which news causes which changes. Sometime it is only that Greenspan has insinuated, or not, the rates could go up, and suddenly exchange rates jump. Then after a few days things return to where they were before.”

I replied:

“Then after a few days things return to where they were before.”

Yea, well at the moment the euro’s been dropping for about a month. (Actually looking at the chart in Antoni’s link – below – make that three).

(Incidentally, those of you who want to join the game of ‘watching’, this is the best page I’ve found:

the number in the bottom left of the top left box is the one you want, and wow… it just dropped to 1.2155. Just refresh from time to time and you can see for yourself. )

Ok on antoni’s point, it is a fair one. If the currency is balanced then it will keep reverting to its old value.

But this is not where we are, the euro at the moment is assymetrically balanced, what I mean by this is that good news doesn’t help too much, and bad news sends it down, while… bad news from the US maintains the value, and good news sends it down.

On good pages to follow the value fluctuations, Antoni replied with this:

usually I prefer:


if only because they have graphics that help gauging the changes.

Incidentally to get an idea of relative currency values, New Economist has a post on the Big Mac Index.

Sorry if all this is very bitty, but it has been written on the fly during a hot hectic afternoon :).

This entry was posted in A Fistful Of Euros, Economics and demography and tagged , , , , , , by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

9 thoughts on “US Trade Numbers Are In

  1. I find it odd that anyone could think of the euro being “in trouble”. There was a time not so long ago when the euro was in parity with the dollar. It’s now gone from 1.35 to 1.25 to the dollar and people are worried. The Eurozone economies are not performing brilliantly so a small depreciation is sensible but “in trouble” is a joke.

  2. “The Eurozone economies are not performing brilliantly so a small depreciation is sensible but “in trouble” is a joke.”

    I think the problem is a litle bit bigger than you are imagining. I can only suggest you have a poke around my posts on this blog over the last month.

    Of course anyone is entitled to disagree, but if I’m right you’ll need a pretty sick sense of humour to find all this a joke.

  3. Edward,
    If you were to use the Yahoo charts for two-year periods to compare the USD and Euro exchange rates against a bunch of the non-Euro currencies of Europe; CHF,DKK,SEK,CZK,HUF.

    you would find that the USD exchange rate has been the picture of volatility, while the Euro exchange rate has been extremely stable.

    Could it possibly be that EURUSD volatility is largely the product of USD volatility rather than a sign that the EURO is falling apart ?

    A rational flight to safety, at this point, would not be towards the US Dollar, but to the Euro, constitution or no constitution.

  4. “Could it possibly be that EURUSD volatility is largely the product of USD volatility rather than a sign that the EURO is falling apart?”

    This is not my story. Look lets go back. After the Nasdaq crash there was a deflation scare in the USA. There was also a problem with the CA deficit. The USD was ‘steered/talked’ down by John Snow and others to get the US out of the deflation zone. Since there are not too many alternative currencies, and the Japanese are prepared to vigorously fight a yen which rises above circa 105 to the dollar, the euro was pushed up. If you look at all my posts since the beginning of Afoe, and earlier on Bonobo you will find I have been pointing out all along that this upward movement was not a strong euro story, but a weak dollar one. This is still the case, but meantime the european economies have weakened, for what I consider to be demographic reasons.

    Plus the fact that one size doesn’t fit all doesn’t help.

    Now, there is a problem of the direction of causality: I am not arguing that the euro is in trouble because it is coming down, but it is coming down because, following the French referendum vote, it is seriously wounded. The debate about whether Italy can, or will comply with the SGP only compounds this. You have system overload, and the only way is down.

    Of course this will not be all at once. We will probably stop for a break at around $1.20. The point is, as I suggest in the post, we will then be driven assymetrically downwards by the good news/bad news cycle.

    How long all this will take? I have no idea, but a euro in the range $1.00 – $1.10 by the end of the year wouldn’t surprise me at all.

    The consequences of this for the US and global economy will become clearer as we go along.

  5. The Chinese are doing a lot more then shoes, T-shirts. I remember reading in a recent issue of Fairplay, the international shipping magazine. That the Chinese are rapidly ramping up their shipyard capacity. In 5 years they’ll be able to construct the supersize containercarriers.

    And if you can build those you’re part of the big boys.

  6. The 5 year yahoo chart is worth looking at, since you can see we started to go up in the second quarter of 2002. Then if you look at the two year chart, you will se we more or less peqaked at the end of 2004. Since then we are on the ride down again.

    The volatility as such isn’t the issue, it is the secular trend which is important.

  7. Edward,

    For better information you could go straight to the source. The ECB website has some excellent records:

    Look at the development of the Euro since 1999

    But more interesting may be the Daily nominal effective exchange rate of the euro in the recent month: from 103.5 to 101.5 in 2 weeks.

  8. Edward,

    You can always stop by General Glut’s Globblog for trade data analysis. And you don’t have to wait for me to finish my breakfast.

    Gen’l Glut

  9. actually, i am on your side of the pond, and have not had time (conference and all) to look into the data closely … seems like US exports are up, which is good news, tho i wonder how sustainable the increase will be if $ continues to rise.

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