The US Commerce Department announced (March 11) that the US trade deficit fell (unexpectedly) to a seasonally adjusted $37.3bn, in January 2010 due to lower imports as well as exports. Thus it was 6.6% below the revised December deficit figure of $39.9bn. It had increased by nearly 10% between November and December 2009. Imports dropped 1.7%, driven by a big fall in imports of oil and foreign cars. Imports of crude oil imports were at the lowest level in almost 11 years!
The US dollar fell against both the yen and the euro after the news were announced, thus helping US exports and making imports more expensive.
On the next day, March 12, the US Commerce Department also announced that in the next month, February, US retail sales showed a surprise rise (in spite of the bad weather)! Retail sales rose 0.3%, the biggest rise since November (December had proved disappointing for retail sales), thus pumping up hopes that economic recovery is gaining momentum and helped to boost Wall Street! Down and up, like a yoyo, economics these days require a strong stomach to deter “sea sickness”!
What made the February US retail sales stats even more impressive was that when one excludes a 2% fall in car sales that reflect, in part, it seems, the recall problems of a certain company,
US retail sales rose 0.8% (on the other hand, in the UK, according to the Society of Motor Manufacturers and Traders, car sales in February were up by 26.4% compared with February 2009).
Now let's back up one day, to March 11, when it was announced that a rise in imports reduced China's trade surplus to a one-year low of $7.6bn for February. China's exports jumped by 46% in February 2010 compared with February 2009, thus raising hopes of a strong recovery in world trade. China's imports also rose strongly, increasing by 44.7%.
The news that the US' trade deficit with China widened to $18.3bn in January, from $18.1bn in December prompted, on March 11 (ie the same day) the US President Barack Obama to urge China to move to a "more market-based exchange rate" so that US exporters are not disadvantaged and to help re-balance the global economy.
Can the WTO do something about that? No, because whereas the TO rules do not permit “dumping” of products in world markets (at prices lower than costs), they do not include exchange rate policies. An argument for more world economic governance (or at least among WTO members)? It seems that intellectual property is another areas that the WTO has difficulty in incorporating into its rules (one of the so called “Singapore” issues in WTO-speak if memory serves me right) thus leading to a group of countries trying to reach their own agreement outside the WTO (ACTA). Plus a great number of bilateral and regional trade agreements that have sprung in recent years, especially since the failed WTO Ministerial meeting in Cancun. Mexico, in September 2003. And a potential new generation of regional agreements that go beyond trade issues (see the Trans Pacific Partnership below).
Whereas China did surpass Germany in 2009 to become the world No. 1 exporter, a day earlier (March 10) the German Federal Statistics Office had announced that in January 2010 German exports fell (against market expectations) 6.3% on a seasonally adjusted basis, compared with December 2009. Imports increased by 6%. As a result, the German trade surplus went down to 8.7bn euros.
It is worth mentioning that reports and analyses this week noted the adverse effect of bad weather (potential but not realised in the US retail sales case in February) on economic growth in the US, Germany and elsewhere. Philosophically speaking, there are two types of “climate” that affect the economy, the “climate” that results from social, political and other human powered factors and the actual climate (which, according to many scientists, is affected by human actions too, see “global warming” etc)!
Less than 3 days after Barack Obama's criticism of China's exchange rate policy, on March 14 the Chinese Premier Wen Jiabao rejected criticism that China is keeping its currency undervalued in order to boost exports arguing that keeping the yuan stable was an important contribution to global recovery (Note: On March 12 the International Energy Agency said that oil demand in China had risen by a whopping 28% in January 2010 compared to January 2009).
He went on to claim that that recent strains in ties with the US were Washington's fault, citing arms sales to Taiwan and a White House visit by the Dalai Lama as “violating” his country's sovereignty!
In the meantime, on March 12, India and Russia signed a series of agreements on nuclear, space and military issues after a visit to India by Russia's Prime Minister Vladimir Putin. Russia is to build 12 nuclear reactors in India. Which pop the question whether nuclear is a wise alternative to CO2 and whether solar and wind and other alternative sources can suffice to create a world free of global warming and with minimum nuclear “concerns”.
The talks re the Trans Pacific Partnership (TPP) is potentially the biggest world trade systemics development since the entry into force of the China RTA with many of the ASEAN member countries on January 1 this year. Even more so, because it may wind up going well beyond a mere regional free trade agreement into (even some basic) economic "governance" territory. President Obama was not enthusiastic about the US joining in this partnership but has changed his mind of late. It is not clear to me whether US participation in the formulation of this partnership will help or hurt it, given the mixed feelings (and views and philosophies) in the US at the moment in terms of trade as well as complications in the balance of political power and the melting pot of policies at stake in the US and the stances of many of the sides (GOP, trade unions, GOP in the Senate, etc etc etc).
An example of the current US “policy melting pot”: A new bill (aka draft legislation) to tighten regulation of US banks was unveiled on Monday by Senator Christopher Dodd (Democrat), chairman of the Senate Banking Committee., but it is unclear whether it will succeed in gaining support in (you guessed it) the Senate! More on the details of the bill next or in coming weeks.
Last (but not least among the US, China, India, Russia, etc?), the European Union (and its much disscussed and debated, recently, in Europe, the US, etc, Eurozone). On March 15 the Eurostat announced that the number of persons at work in the Eurozone declined 2.7 million in 2009 compared with 2008 (thus over-compensating (negatively) for the +1.7 million in 2008 compared with 2007). The EU as a whole, the decline in 2009 over 2008 was 4 million (thus wiping out the 2.6 million gain in 2008 over 2007).
Three days earlier, Eurostat had announced that industrial production in the Eurozone in January increased much more than expected, 1.7%, the largest monthly jump since Eurostat started producing these stats in 1990! The January 2010 figure, when compared with January 2009 was 1.4% higher, which is the first gain since April 2008 (compared with April 2007). Also, December's industrial production was revised, upwards, substantially, now showing a gain of 0.6% over November instead of a drop of 1.7%.
By the way, the European Commission's latest forecast is for the Eurozone economy to expand by 0.7% during 2010 after contracting by 4% in 2009. The Eurozone economy grew by a mere 0.1% in the last three months of 2010 (Q4), it may be revised up in later releases of stats.
Bordeaux, China: Finally, this news from France is indicative of the complexities in trying to use simple model or analysis in today's dynamics and systemics: According to Alain Vironneau, president of Bordeaux's wine trade body (CIVB), March 12, China has become Bordeaux wines' best client (in terms of volume of exports) excluding the European Union (note: yet the US remains No.1 non-EU client in value of exports).