U.S.-China Trade and Inflation

Imports from China surged in September 2021 to their second highest level ever recorded for the month of September in the United States. At $47.4 bllion, the value of U.S. imports from China are topped only by five months with higher dollar amounts of Chinese imports, October-November 2017 and August through October 2018.

Meanwhile, U.S. exports to China fell to $10.9 billion in September 2021, which is down $348 million from the previous month, and down $587 million from September 2020.

The September surge in Chinese exports to the U.S. is very evident in our chart tracking the combined value of goods exchanged between the two countries from January 2008 through September 2021. It marks a reversal for what had become a negative trend.

In the modern era, U.S. trade with China has had a very seasonal pattern. The volumes of imports from China typically peaks in either October or November with shipments of goods ahead of the Christmas holiday season. The peak months for U.S. exports to China run from September through December, primarily driven by the harvest season for U.S.-grown soybeans.

One factor contributing to the surge in the value of Chinese goods being imported to the U.S. in 2021 is inflation. Here’s some thought-provoking analysis from David Goldman, who has rounded up September 2021′s estimated value of imports to simplify some math:

A remarkable development in response to the massive demand stimulus is the jump in American imports from China. The US in September 2021 imported more than $50 billion worth of goods from China, or an annual rate of $600 billion—nearly 30 percent of America’s total manufacturing GDP. That represents an increase of 31 percent from the level of January 2018, when President Trump first imposed tariffs on Chinese imports.

America’s supply chains could not meet the surge in demand created by the stimulus, so American consumers bought more from the world’s largest manufacturer, namely China. The problem lies in chronic underinvestment in US manufacturing. A rough gauge of the state of US manufacturing investment is the level of orders at US companies for industrial machinery. After inflation, this measure stands at the same level as 1992, or half the 1999 peak.

In theory, China could continue exporting to the United States, and continue to lend the United States the money to pay for its goods, for an indefinite period. But China’s supply chains are under pressure, and rising raw materials costs as well as energy prices constrain its ability to produce as well. Prices for China’s manufactured imports are rising, apart from the tariff effect, and that portends more inflation in the United States.

Another factor at play in driving up prices for American consumers would be the congestion in the United States’ west coast ports, specifically the ports in southern California that are the destination for many container ships transporting Chinese goods to the U.S. While that issue is now receiving substantial attention in the media, the role of port congestion in contributing to higher prices for goods driven up in part by rising transportation and shipping costs has been developing since late 2020. The following excerpt is from a 14 December 2020 report in Hellenic Shipping News:

“The sharp rise in rates is being driven by high demand for a wide range of Asian-manufactured goods in the US, where inventories are now at their lowest levels since 1990 as a result of shocks to supply chains earlier in the year,” David Kerstens, an analyst at Jefferies, told the Financial Times.

The usual Christmas rush is part of the problem, shipping researcher Alphaliner said. But that increase has been augmented by rising consumer demand, following on depressed demand during the lockdown months.

Otto Schacht, EVP sea logistics at Kuehne + Nagel, pointed out there were 15 vessels anchored outside LA-Long Beach in the last week of November waiting for a berth.

15 vessels was considered a significant backlog in December 2020. Bloomberg counted 77 container vessels waiting to dock at southern California’s ports on 4 November 2021. The problems of congestion at the ports were allowed to fester for nearly a year.

That’s despite the Biden-Harris administration’s much-hyped announcement the ports would begin operating 24 hours a day, seven days a week on 13 October 2021. Since then, the Biden-Harris administration has realized its heavily promoted plan to fix the problem is failing.

On 26 October 2021, the Biden-Harris administration announced its next solution. It would impose fines on shipping firms whose containers haven’t been able to be moved out of the congested port facilities. The fines are expected to be passed through to the firms importing the goods, which will further contribute to rising transportation and shipping costs for goods imported from China and higher prices for U.S. consumers.

References

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 4 November 2021.

U.S. Census Bureau. Trade in Goods with China. Accessed 4 November 2021.