Going forward, I intend to post excerpts on this Blog from what I consider to be the best articles on the Council on Foreign Relations website compiled or written by Brad Setser.  I think Setser’s content broadly is interesting and worth periodic visits.

U.S. Trade Deficit

The following is an excerpt from an article that appeared on the Council on Foreign Relations website on January 13 titled ‘The fall in the US trade deficit in November’.  To put this excerpt in context on that day the U.S. Bureau of Economic Analysis reported trade statistics indicating that the he U.S. Net Trade Deficit in November, 2008 was $40.4 billion, down from $56.6 billion in October.  This significant drop largely resulted from a large reduction in oil prices and a reduction in the ‘goods’ (as contrasted to ‘service’) deficit.  That said, a +$40 billion Net Trade Deficit is still a long distance from a Net Trade Surplus, and the imbalance in trade between the U.S. and its trading partners continues to grow at a staggering pace – as does the U.S.’s dependence on those trading partners.  None of this in my view augers well for U.S. economic recovery.  As noted in another Post on this Blog today, this past September 7 I said on this Blog (read here):

“Watch the monthly U.S. net monthly trade deficit figure closely. It strikes me that when it drops significantly that will be a ‘several month delayed’ strong sign that the U.S. Consumer has significantly reduced spending. I say ‘several months delayed’ because it ought to take a few months for Walmart and others to cut back on their inventory purchases and for that to work its way through the ‘consumer system”

The excerpt from Setser’s post follows:

“This shows up in clearly in a plot — prepared by Arpana Pandey — of real goods imports and exports. In November the down turn in imports was sharper than the downturn in exports. There isn’t anything good in this graph other than the fall in the trade deficit.  Falls in exports and imports signal contracting global activity.”

I recommend you read the entire article in context by clicking here.

U.S. Reliance on China Financing

The following are excerpts from an article that appeared on the Council on Foreign Relations website on January 23 titled ‘Is the US now more, or less, reliant on China’s government for financing?’

“China is buying more Treasuries even as the pace of its reserve growth slows. But the increase in China’s demand has been dwarfed by the increase in Treasury issuance.”

“I have long highlighted the risks associated with the United States’ reliance on China’s government for financing. But I am not sure that this dependence is currently increasing.
The US relies on China above all to finance its external deficit. But the trade deficit is falling right now, both absolutely and relative to GDP. One byproduct of the United States’ own slowdown is that it has to borrow less from the rest of the world than in the past. That suggests that the US is now less not more dependent on the rest of the world for financing. That doesn’t necessarily mean that US dependence on China has decreased though: If China is the only country in the world with a big surplus and the US is the only country in the world with a big deficit, the US is arguably more reliant on China than in the past, simply because there are fewer other sources of external financing for the US deficit.  But in one respect that dependence has changed, as the pace of China’s reserve growth has slowed dramatically. Right now, the US in some sense relies more on private Chinese savers and less on China’s government.”

“The US — a large deficit country — would benefit in a lot of ways if it could export its way out of trouble. That would also help to bring the world closer to balance. Yet with its own economy slowing sharply, China’s willingness to accept a stronger RMB has likely gone down. Here, US and Chinese interests diverge. Both want to draw on external demand to support their own growth.”

I recommend you read the entire article in context by clicking here.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. No check of data underlying articles or comments referenced herein has been made, and no responsibility is taken for them.  See Legal Disclaimer.

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• After Spain, is Italy Next?
• Spain and Spanish Bank Dilemma!
• China Banking Camel In U.S. Tent?
• No Alternative To Austerity

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