Not Winning: Collapse in Global Trade Escalates, Imports -2.7%, Exports -4.0%
Exports rose 1.0% in March with imports up a reported 0.9%. That progress was taken away and then some in April.
Sharp declines in exports are unwelcome headlines in April's advance data on goods trade. The monthly deficit remains very deep, at $72.1 billion with exports falling 4.2 percent year-on-year and with imports also down, 2.7 percent lower. The deficit compares unfavorably with a $71.3 billion monthly average in the first quarter that marks a weak opening for net exports in the second quarter.
Capital goods are the US's largest exports and these fell 6.5 percent in the month to $44.3 billion. Compared with April last year, capital goods exports are down 3.7 percent. Auto exports are also down, 7.2 percent lower to $12.9 billion and 6.7 percent below last year. The only export component showing a gain is food & feeds which rose 0.5 percent to $11.2 billion but which is nevertheless 6.2 percent below April last year.
The decline on the import side is also led by a 3.5 percent decline for capital goods ($55.4 billion) but also includes 3.1 percent and 2.3 percent monthly declines in autos ($30.9 billion) and consumer goods ($54.2 billion) as well as a 1.1 percent drop in foods ($12.8 billion).
Global trade figures have been contracting and the latest US numbers are part of that picture. Today's report gets second-quarter GDP, already held down by contractions for April retail sales and industrial production, off to a slow start.
Note that country balances aren't posted with the advance report but will follow with the subsequent international trade report that will also include data on services.
Evaluating Winning Claims
Yesterday, I saw yet another claim that Trump is winning the trade war.
Last week, I saw claim that Trump "already" won the trade war.
A third person claimed this is all part of 3-D outmaneuvering and that Trump has more resolve than China.
This is not winning and it will never be winning.
- Trump changes his mind every month, if not week, yet he supposedly has more resolve. Yeah, right.
- Trump, a proven piss poor negotiator, is somehow supposed to negotiate magically.
- Trump has an election to win. The Chinese leader, Xi Jinping, doesn't.
- Trump is a braggart who demand the other side admit Trump's prowess.
Dealing With Trump
North Korea figured out how to deal with Trump.
Kim Jong Un gave Trump false praise while knocking Joe Biden.
Problem for China
The problem for China (and the US), is Trump demands China give in on "core" principles.
At that point China walked away. China had no other choice.
Mathematically, the US can likely inflict more pain on China. It is always the case that importers like the US can place more tariffs than vice versa.
But since when does losing less constitute winning?
China does have some serious ways to strike back such as blocking Rare Earth Elements used in weapons, magnets, cell phones, and other sensitive devices.
Once again,we have seen superficial commentary that rare earths are not really rare (a true statement) thus the US can get other suppliers (a falsehood).
The problem is rare earths are extremely polluting and one does not exactly start a mine overnight. We went through this once before and recall what happened.
- China reduced supply of rare earths
- Rare earth prices skyrocketed
- New sources came into production within a couple years
- Price crashed
- China further flooded the markets
- The new Western sources lost money and went out of business.
This is not exactly winning by either side, but the position is the same as before: China supplies 80% of the production as no countries other than China are willing to deal with the toxic, radioactive sludge that producing rate earths entails.
Meanwhile, us weapons manufacturers, cell phone makers, etc. need these rare earths.
For further discussion, please see Trade Hardball: China Threatens to Cut Off US Supply of Rare Earth Elements.
Those who downplay the rare earth angle because there is plenty of "supply" have not thought things through.
Yes, it is a short-term thing. But it's short-term pain for the US at election time.
Bond Market, Stock Market
The bond market, the stock market, and the global trade numbers all tell the same story: Trump isn't winning.
Trade War Over Quickly?
The joke of the week, last week was Trump's blowhard comment Trump Says "Trade War Could be Over Quickly".
I asked: Why should anyone believe Trump?
The only way the trade war will be over quickly is if Trump, not China, caves.
Meanwhile, the yield curve flashes a bright red recession flag.
Good luck with that.
Mike "Mish" Shedlock