Trade Deficit Expands on China Gap

The trade deficit expanded in August, and the country specific gap with China proved a key driver. With the Treasury report on foreign trading partners due Friday, and with capital controls being discussed privately, and given the fact that the federal government seems to have few bullets left in its traditional expansionary arsenal, this data seems to only provide further impetus to act against the yuan. After all, rising demand for imports could have instead manifested as increased demand for American made goods made by American workers who currently sit on the sidelines of an unfair playing field.

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Trade Deficit Expands on China Gap

With China on our minds, the International Trade Report gets a bit more than its usual attention today. This latest report covering August showed the trade gap expanded to -$46.3 billion, from the -$42.6 billion deficit seen in July (revised). Economists were looking for a trade deficit of -$44.3 billion for August. The expansion came on a greater increase in imports than exports, and an 8.1% expansion of trade deficit with China. The three-month moving average, which perhaps better weeds out noise, also showed the trade deficit expanded to -$46.2 billion, up from $44.7 billion in July. Without a leveling of the playing field, this trend, which has been clear for years now, will only continue, and the unfair divergence will widen.



Exports

Exports increased by $0.3 billion, on a similar increase in the export of services; goods exports remained the same as in July. Exports of consumer goods were relatively unchanged, but this could be a somewhat different story if American made goods stood on fair footing with China.

Decreases in the export of capital goods were offset by increases in the export of food products. Prices were higher for food products though, and thus likely played a role, along with the US filling of the hole left by the Russian export ban. Agricultural goods represent a dynamic area though, with sensitivity to many factors.

Exports of wheat were up 37.9% in August, but exports of soybeans increased 86.3%. While some of this may be on seasonal factors, there is also a replacement demand for food crops that occurs when a shortfall arises in another. We saw this when ethanol demand drew corn, and led farmers to employ more acreage to it, leaving less of other crops and driving an overall increase in the price of foods (due to less corn for food and less other crops generally). This may not be exactly the same case with wheat though, considering it is the main raw ingredient for most breads, and perhaps irreplaceable.

Also of interest, nonmonetary gold exports increased 47.5% in August, as gold prices continued to rise. Civilian aircraft exports decreased by 46.9% in August, but aircraft imports also fell.

Imports

Imports increased by $4.1 billion in August, on a $3.9 billion increase in the import of goods and a $0.2 billion increase in services imports. The increase in imports was largely driven by consumer goods demand, capital goods, and also automotive vehicles and parts. However, we regularly warn investors not to read too much into this, because much of it is likely due to Americans' intensified interest in lower cost items given the economic environment. Thus, it may not be as much a sign of an improving economic environment as it is a fickle shopper with little money to spend.

Increases in fuel and energy imports played a role in aggregate on the general imports rise, but nothing stood out on its own. Crude oil imports rose 1.3%. Industrial metals imports decreased. Imports of semiconductors rose by 22.7% though.

Country Specific Trade

Deficits were recorded, in billions of dollars, with China $28.0 (expanded from $25.9), OPEC $9.0 ($8.0), European Union $8.1 ($9.9), Mexico $6.0 ($5.3), Japan $5.8 ($4.9), Germany $3.4 ($3.6), Nigeria $2.7 ($2.4), Ireland $2.5 ($2.4), Venezuela $2.2 ($1.8), Canada $2.2 ($1.4), Korea $1.3 ($1.0), and Taiwan $1.2 ($1.0).

Clearly, trade with America's largest trading partner, China, is in focus, given the intensification of US government pressure on China with regard to its yuan policy. Imports from China grew 6.1% to a record $35.29 billion. Meanwhile, exports fell $92 million to $7.25 billion.

The August figures show surpluses, in billions of dollars, with Hong Kong $1.9 ($1.8 for July), Singapore $1.1 ($1.2), Australia $1.0 ($0.9), and Egypt $0.4 ($0.4).

President's IT Manufacturing Dream

The President has high hopes that America can expand its exportation of high technology and new technologies, but the US currently has a trade deficit in "advanced technology products," mostly due to American shipping of manufacturing overseas and due to the borrowing of technology by some of our foreign trade partners. This is why we see the sharp increase in the semiconductor commodity; it is a commodity, though, and not generally difficult to produce anymore on average. Of course, advanced semiconductors are mostly developed and produced in technologically advanced nations like ours.

Take note that the great demand of our developed marketplace, economy and civilization also hungers for and draws advanced goods, and thus will always act as a natural cross-current to the President's dream. Without a fair currency environment though, not only will America never export solar panels into China, but Americans will buy all of theirs from China as well.

Advanced technology products exports were $21.8 billion in August and imports were $30.6 billion, resulting in a deficit of $8.8 billion. August exports were $2.1 billion less than the $23.9 billion in July, while August imports were $0.2 billion less than the $30.8 billion in July. Again, the cross-current mentioned above will always come into play.

Against Last Year

The year-to-year comparison is important in this report, as it offers better insight into trade trends.

Goods:

The August 2009 to August 2010 increase in exports of goods reflected increases in industrial supplies and materials ($7.2 billion); capital goods ($6.4 billion); automotive vehicles, parts, and engines ($2.0 billion); consumer goods ($1.3 billion); other goods ($1.2 billion); and foods, feeds, and beverages ($1.0 billion).

The August 2009 to August 2010 increase in imports of goods reflected increases in industrial supplies and materials ($12.0 billion); capital goods ($8.3 billion); consumer goods ($7.4 billion); automotive vehicles, parts, and engines ($6.1 billion); foods, feeds, and beverages ($1.1 billion); and other goods ($0.5 billion).

Services:

The August 2009 to August 2010 increase in exports of services was $4.4 billion. The largest increases were in other private services ($1.5 billion), royalties and license fees ($1.3 billion), and travel ($1.1 billion). Within other private services, the largest increase was in business, professional, and technical services.

The August 2009 to August 2010 increase in imports of services was $2.8 billion. The largest increases were in other transportation ($1.2 billion), other private services ($0.6 billion), and royalties and license fees ($0.4 billion). Within other private services, the largest increase was in business, professional, and technical services.



Article should also interest investors in Deutsche Bank (NYSE: DB), Banco Santander SA (NYSE: STD), IberiaBank (Nasdaq: IBKC), Barclays (NYSE: BCS), Mitsubishi UFJ Financial (NYSE: MTU), Itau Unibanco Holding (Nasdaq: ITUB), Lloyd's Banking Group (NYSE: LYG), Mizuho Financial (NYSE: MFG), Banco Santander- Chile (NYSE: SAN), Citigroup (NYSE: C), National Bank of Greece (NYSE: NBG), Allied Irish Bank (NYSE: AIB), Credicorp (NYSE: BAP), Westpac Banking (NYSE: WBK), Grupo Financiero Galicia (Nasdaq: GGAL), Banco Latinamericano de Comer (NYSE: BLX), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Nasdaq: MEAFX, Nasdaq: EBASX, Nasdaq: EVASX, Nasdaq: MACSX, Nasdaq: MATFX, NYSE: CZJ, Nasdaq: CHINA, PCX: FXI, PCX: CYB, NYSE: IWM, NYSE: TWM, NYSE: IWD, Nasdaq: AACFX, Nasdaq: GOPAX, Nasdaq: CHUSX, Nasdaq: GCHAX, Nasdaq: BUFCX, Nasdaq: DXHSX, Nasdaq: XHAOX, Nasdaq: NGCAX, Nasdaq: LNGZX, Nasdaq: DPCTX, Nasdaq: EICGX, Nasdaq: EPHCX, Nasdaq: FHKAX, Nasdaq: FHKCX, Nasdaq: IFCAX, Nasdaq: JCOAX, Nasdaq: XCAFX, Nasdaq: MCHFX, Nasdaq: NPCAX, Nasdaq: OBCAX, Nasdaq: UHPIX, Nasdaq: XGCHX, Nasdaq: TCWAX, Nasdaq: HPCHX, NYSE: ACH, Nasdaq: CHINA, Nasdaq: CBAK, Nasdaq: CSUN, NYSE: CHN, NYSE: GCH, Nasdaq: SOLF, Nasdaq: CAAS, NYSE: GE, NYSE: F, NYSE: X, NYSE: PGC, Nasdaq: HPCCX, NYSE: RTP, NYSE: BHP, NYSE: WMT, NYSE: TGT, Nasdaq: COST.

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