Saturday, 11 June 2005

Trade data from around the world

Yesterday, the big economic news was trade.

In China, the trade surplus reportedly doubled in May to US$8.99 billion from US$4.59 billion in April. Exports rose 30 percent from a year earlier to US$58.4 billion and imports increased 15 percent to $49.4 billion.

While many observers focus on China's exports, Bloomberg's report on the news points out the effect of import substitution as well.

The problem of China's widening trade surplus "is not so much about exporting, it's more about import substitution," says CSFB's [chief regional economist] Tao [Dong]. "In the chemical industry, we see quite clear evidence that domestically-made materials are replacing materials imported from Korea and Taiwan. Twelve months down the road this may also happen in the steel industry."

China's textile exports to the European Union, though, may moderate after an agreement was reached between the two parties to limit shipments of 10 types of textiles to the latter through 2007, according to a Bloomberg report. The agreement limits 10 products, including T-shirts and flax yarn, to import growth in the region of 10 percent a year, according to an EU statement.

This agreement should relieve some pressure on the EU's current account, which recorded a deficit of 15.7 billion euro in the first quarter of 2005, as compared with a deficit of 3.9 billion euro in the first quarter of 2004 and a deficit of 2.3 billion euro in the fourth quarter of 2004.

And the EU's current account does not seem to be improving. After the worsening of the UK trade deficit in April reported the previous day, yesterday, France reported a record trade deficit of 3.22 billion euros for April from a revised 2.34 billion euros in the previous month. This news came on top of a reported fall in French industrial production by 0.3 percent in April.

North America, however, had some better news yesterday.

Canada added twice as many jobs as expected in May, the trade surplus widened for a third month to C$5.1 billion in April -- the biggest since August -- and the Conference Board of Canada's confidence index rose 1.5 points to 122.6 in May.

Across the border to the south, the US Commerce Department reported that the US trade deficit widened to US$57 billion in April -- its fourth-highest level ever -- amid record-high imports and exports. However, the deficit was not as large as expected, and the March deficit was revised down to US$53.6 billion from US$55.0 billion previously.

Simultaneously, the Labor Department reported that prices of goods imported into the US fell 1.3 percent in May while prices of goods exported decreased 0.1 percent.

Reuters reported some positive reactions to the US trade data.

"The trade numbers are a little more moderate. The rate of deterioration is slowing. That's good news for the economy. It's being less of a drag," said Dana Johnson, chief economist with Comerica Bank in Ann Arbor, Michigan.

Bloggers are not as impressed. General Glut emphasised that so far this year, "the US trade deficit is a whopping 22% larger than in 2004", while Ben Carliner at Cynic's Delight asks: "Why is the US running a sustained trade deficit on 'Advanced Technology Products?'"

Edward Hugh also has some things to say about the US -- as well as Chinese -- trade numbers at A Fistful of Euros. And David Altig at macroblog, who also posted on the Chinese trade surplus and the US import/export prices, provides a comprehensive round-up of what the experts said of the US trade data.

But let's give the last word to Federal Reserve chairman Alan Greenspan, who had said on Thursday in his testimony to the US Congress: "[A]lthough prices of imports have accelerated, we are, at best, in only the earliest stages of a stabilization of our current account deficit -- a deficit that now exceeds 6 percent of U.S. gross domestic product."

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