China’s Dollar Problem Puts The Sync In Globally Synchronized Downturn

Because the prevailing theory behind the global slowdown is “trade wars”, most if not all attention is focused on China. While the correct target, everyone is coming it at from the wrong direction. The world awaits a crash in Chinese exports engineered by US tariffs.

It’s not happening, at least according to China’s official statistics. The reported numbers aren’t good by any stretch, but they aren’t perhaps as bad as imagined by the constant references to what we are told is the number one issue globally. You’d think that nation’s exports were crashing by 30-40% by now.

Over this past weekend, the total (dollar) value of exported goods leaving China was down by 3.2% in the month of September 2019 when compared with September 2018. For the entire quarter, exports were basically unchanged in this year’s third quarter versus last year’s.

A -0.3% change is sufficiently bad on its own, though, and a relatively accurate assessment of global demand regardless of protectionism. Realistic and actual global growth would see Chinese exports churning regularly at better than a 20% rate. The downturn globally is confirmed at around zero to slightly negative.

As we’ve said throughout, the world needs to pay closer attention to the other side of Chinese trade. Imports tumbled by 8.5% year-over-year last month, matching the worst slide (May 2019) in the last three years. For the third quarter as a whole, the total dollar value of goods and materials imported into China from the rest of the world fell by 6.5% from Q3 2018.

It was the worst quarter since the second of 2016 – the bottom of Euro$ #3. There’s no end in sight to the negative pressures.

Stimulus isn’t stimulating and China isn’t being driven down by a few billion in US tariffs on goods coming out of it. The catalytic agent for this globally synchronized downturn isn’t conveniently political.

The consequences of it are, and may still be yet. The global dollar shortage continues to squeeze China’s badly managed monetary system. The PBOC cannot gain headway because, contrary to Western imagination, Chinese technocrats are not actually patient geniuses playing some hidden long game at the rest of the world’s expense. They are hanging on merely hoping something goes right.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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Gary Anderson 3 weeks ago Contributor's comment

I think China would like to see prices from factories go down to offset higher food costs. The Chinese consumer only accounts for about 40 percent of GDP. I frankly am not worried about China because of PPP. China can import less and lower prices and create demand. China made it through the Great Recession and I think China has a better chance of making it through the next big recession better than the USA chances.