China Exports Are Up, and Why You Shouldn’t Care

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Move along, nothing to see here

Well, whether China’s trade numbers bother you depends on who you are, I suppose. If you live in a country that lives in fear of cheap Chinese imports, you have nothing to worry about. Three reasons:

1. Surpluses Don’t Last Forever. China’s currency is now at less than 6.42 to the dollar, a new high for the RMB. Exports are strong, but as the currency’s value rises, those products become more expensive. Strong trade numbers also bolster the arguments of folks in the government here arguing for continued revaluation, who can say “The export sector is sufficiently resilient to withstand the shock.”

2. The Value Added Reality Check. This is a recycled, but very important topic. Trade numbers are based on country of origin, using prices that do not include where inputs come from or where profits go to. A new report from the San Francisco Fed (h/t Business Insider) has some great (2010) numbers on this:

A full 88.5% of US consumer spending is spent on goods and services made in the US, while China gets only 2.7% of American consumer dollars.

Even when you buy Chinese, 55 cents of every dollar goes to services produced in the U.S.

That first sentence surprised me the most. It has nothing to do with added value, but it does destroy the commonly held belief that everything these days used by Americans is made in China. I’ve never really thought about that before, but if I would have guessed, I’m sure my answer would have been substantially higher than 2.7%.

The second part of the quote contains the value added number. I like the simple “55 cents of every dollar” figure, which is easy for anyone to understand.

One last interesting data point. The SF Fed found that there was only one sector where Chinese manufacturers’ share of US consumption exceeded that of US parties: shoes and clothing. For everything else, the “Made in USA” share was higher.

3. The Demand Side in the US. When domestic demand increases, so do purchases of imported products. The US economy doesn’t look so hot at the moment, and since the US government no longer takes the advice of sane economists, there is zero chance for any significant public stimulus. So aggregate demand looks like it will drop. (I think the same analysis generally holds true for the EU, which is also sickly these days and going down the austerity road.)

The extent to which a drop in aggregate demand will translate to lower China imports to the US (or EU) is complicated. Remember that some of the lower-end manufactured products are cheap, and retail outlets like Wal-Mart and Target in the US that sell those products tend to be attractive during economic downturns.

All this being said, the usual disclaimers apply on the political front. Particularly in the US, which is undergoing some incredibly funky political infighting, China remains an attractive bogeyman, especially when it comes to trade, which is often linked to jobs. Short-term numbers can and will be used by folks looking to foment outrage from a frustrated and unemployed public.

7 responses on “China Exports Are Up, and Why You Shouldn’t Care

  1. Vootle

    First time i felt my non-americanousness excluded me from the conversation. But. . . How could china’s economy have got to where it is off such supposedly low trade fractions?

    1. Stan Post author

      Remember that until recently, the US economy has been significantly larger than that of China. Exports to the US have represented big bucks here.

      1. Renaud

        I don’t have the exact numbers, but the share of Chinese exports that are sent to the US is around 20%. Most Americans think their country accounts for 80% of Chinese exports, I guess.

  2. Tony

    Don’t forget that all big US chains have buying offices in HKG. They route their orders thru the buying offices and drop off profits in lower tax regimes. Therefore, the trade numbers include profits of US corporations operating outside the US. There is a mistaken perception that the entire $20 for a T-shirt sold in the US goies to China. The reality is that the Chinese value added accounts for about 5% of the COST of the product. The cost of a T-shirt is about $1 so the Chinese get a nickel. The rest goes to US company’s marketing costs, transportation, and US workers’ salaries and profits for the US company.