More on China, Trade and Protectionism
I have been very hawkish on protectionist rhetoric in the past, going so far as to call it the major risk to continued economic growth.
However, I was on BNN’s Headline show at lunchtime yesterday with Stacy-Marie Ishmael of FT Alphaville. At one point, the presenter Paul Waldie asked me about China and trade. In my view, I gave a fairly economy-bullish answer that downplayed the trade tensions. See video parts here (Part 1, Part 2).
I feel that the percentage increase in Chinese exports and imports were about the same. So this is no indication of a deteriorating trade situation for the US vis-a-vis China. This, coupled with the data I showed you yesterday on freight traffic and the link on freight below (hat tip OilFinder) has me thinking more about increased trade as a signal of recovery than about protectionism.
And I should add that the April 15th currency manipulator deadline has come and gone.
But, the trade tensions are still there lurking as the FT article I highlighted in the links post today demonstrates.
A surge in Chinese exports and rising anger in the US Congress will put renewed pressure on China to allow its currency to rise against the US dollar…
The data gave more ammunition to China’s critics in Congress, who have said they will proceed with legislation to restrict Chinese imports to correct the perceived misalignment of the country’s currency.
Thursday, Tim Geithner, Treasury secretary, warned China that congressional anger could result in rapid action. “I think the strength of the sentiment in Congress is overwhelmingly strong, it’s bipartisan and it reflects how important this is to the United States,” he told the Senate finance committee.
Charles Schumer of New York, the Senate’s third most senior Democrat, said he would seek to have his bill made into law within two weeks unless he saw signs of action from Beijing.
Secretary Geithner has taken a softly, softly approach since the April 15th deadline passed, understanding that hot-headed rhetoric will backfire. Of course, Chuck Schumer is taking a different approach. But the FT article does note that Mr. Geithner’s tone seems to be shifting and that is worrying.
I see the China issue as more of a backburner thing given the sovereign debt crisis in Europe and the recent understanding in policy circles that leading indicators are rolling over. I sense that Team Obama is more interested in ensuring the recovery sticks through November than in creating a political mess with China. That’s why people are talking about stimulus. I could be wrong but this explains my dovish answer to Paul’s question.
What I see now is a flagging recovery where growth decelerates sharply in the second half of the year. I am not talking immediate double dip like the Consumer Metrics Institute but more of a softening to stall speed of 1-2% real GDP growth. The question is what then.
A friend of mine made a comment to me that I agree with directionally on the bullish freight data from Andy Lees. He said:
I think it relates to inventory build, which we’re certainly seeing in GDP, and which all the tech companies, as one example, have referred to, and have been doing, in their most recent quarters and conference calls, ensuring that supply chain holdups don’t inhibit their ability to ship. Absent signs of rising end demand, which I don’t see for the moment, I’d make the case that this is part of a false spring, and expect it to die on the vine over the summer and into the fall.
Now, I think inventories-to-sales are still low as evidenced in the last ISM survey. But, he is making the case for weaker consumer demand going forward which would necessitate the lower inventories and drive up future inventories-to-sales ratios.
My sense is that when this dynamic plays out, that is when the protectionist rhetoric will kick in to high gear.