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China-US Trade Talks and Trends

August 28, 2020

Have you been following the recent China-US trade talks? Catch our newest TrendsTalk episode with ITR President and Speaker Alan Beaulieu to learn what the data and trends are showing us for these trade relations.

 

 

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Transcript by Rev


Hi, I'm Alan Beaulieu with ITR Economics. I want to talk to you today about something I think doesn't get enough attention these days. We've been talking a lot about COVID, we've been talking a lot about good news, and we've been trying to keep you abreast of all the leading indicators what's going on, but we haven't talked a lot about something that's kind of subtle going on. And what's going on is that there's the China/US trade talks that are receiving some attention, but there's not a lot of numbers involved. And I don't want to bore you to death with numbers. That's the last thing I want to do. So let's just talk about some trends and some, what I hope are interesting facts for you as we go forward. If I wanted to start on what most people would perceive as the negative side, the downer, how things are going wrong, I would tell you that we have a trade imbalance with China and goods and services, and that would set you off feeling bad.

But here at ITR, we want to put it in context. And I want to tell you that in the month of March, so pre-COVID, this has nothing to do with COVID shutdowns, this is all about January, February, March, we have the lowest amount of the least amount of trade imbalance with China that we've seen in almost 15 years. So while there is a trade imbalance before COVID, it was kind of writing itself in many people's minds. We will always have a trade imbalance because we're the consuming nation and we're going to buy lots of things from China, but it's not like we're entirely dominated by China and the prospect.

Now, imports from China, if I want to continue on filling you with things that might fill you with fear, I would say that since March, since that last number, the number of imports from China goods has been rising. And that April there was just tremendous surge and I would just emphasize that. And I wouldn't tell you that in May, while it was a little steeper than normal, it certainly wasn't even close to the surge in April. And June was along the low side of the majority range. June just kind of settled right down. So we're back to importing more from China.

Again, you could consider that bad news, and for some industries it is bad news. But overall, understand that means there's a demand poll. We need what they are selling and there'll be more near-sourcing going on. There'll be more of what a lot of people are looking for in that businesses will see more activity in Mexico, the US and in Canada. North America was here resurgence, but this means there's a demand pull going on in the United States. It certainly is good news.

But let's flip it around. That's the in, let's talk about the out. The out is that US exports to the world have established, they attended the 1/12 low in May. I mean, that's really cool. That means that we're beginning to see the world demand more and more US goods. And as we see the May monthly number, it was a 10 year low. It was like the lowest we've seen in exports in 10 years. That's horrible in many people's eyes, and mine too, because we want to sell goods. It's good for American businesses. But that was followed by the May, June rise on record. 15.87%. It was phenomenal. And we're going to see more rise going on in exports, which is good for US businesses of all kinds. Everything along the supply chain from manufacturer to export and everything in between.

Where did the goods go? That's a really good question. I'm glad you asked. And most people would concentrate, again, on China. And we sell a lot less to China than we import from China. Very true. But the reality is when we look at other countries, we exported a lot and other countries are much more important to us than China. So let's get off China for a minute.

We exported a lot to Canada. 20.1 billion in the month of June. Mexico was 15.8, and all of Europe were 16.2. You combine Canada and Europe, that's almost four times what we exported to China. You want to know where the power is, where the importance is? The power and the importance is in North America. You want to know where the major trading partners are? They're to the North and to the South. You want to know where their good news is? They're demanding more and more US made goods, which is good for the US economy. It's good for the tax base. It's good for people who are looking for a job and it's just good news.

Coming in, it's easy to settle on the bad. Looking out, I'm pretty encouraged by what's going on. We're going to see more and more exports to a busier world as we go forward. And that's good for you and it's good for me because the export of goods, GDP mount to 7.1% of GDP. How can that be anything but good news? Have a great day. Thank you very much.

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