Wednesday, December 13, 2006

China Surpasses EU -and Canada- as US Goods Supplier

The U.S. trade deficit for October posted another sharp decline in October. If you look at the details, you can see that almost the entire decline is related to falling costs of imported oil. In part, this is related to falling prices, but the volume of oil imports also appears to have fallen. As there is really no reason to expect a permanent decline in oil demand, we should expect import volumes to turn up again in the coming months.

Meanwhile, one little noticed development recorded in the report is that Chinese exports to the U.S. have overtaken both total exports of the EU and the total exports of the country that traditionally have been the biggest goods supplier to the U.S., Canada. Chinese exports in October totalled $29.3 billion, versus $28.3 billion from the EU and $25.4 billion from Canada. Japan, the great boogey man of the 1980s and early 1990s, exports only $13.7 billion, less than half of what China exports.

While this in part reflects the undervaluation of the yuan, it is most importantly a result of the enormous increase in productive capacity in China.

While Chinese exports to the U.S. rose 20% from a year before, Canadian exports to the U.S. was actually lower than in October 2005, most likely reflecting the aforementioned decline in U.S. oil imports.

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