China Export Drop Signals Deepening US Recession

china2China’s exports declined 17.5% to $90.45 billion in January. By some measures, the is the biggest drop in a decade. For the same period, China’s imports plunged 43.1% to $51.34 billion.

Both pieces of news are bad for China, and they may be just as bad for the US.

One of the reasons that the US may be taking in fewer goods from China is that American inventories have built up so much. That helped the Q4 GDP numbers, but that inventory is being burned off in this quarter which means what is produced in China and elsewhere is going to stay where it is produced until inventories drop.

To make the import/export picture more complex, most US businesses cannot get the credit to buy what they need.  In some cases, this is putting companies out of business.

The China export numbers are a relatively poor indication of  the trend in US imports now, even if America is China’s largest trade partner. The numbers should become very important in February and March. At that point, US firms will have cut down their inventories though sales and will need to replenish them. Or, the recession will have dropped demand for goods so hard that China’s factories could be idle all year.

Douglas A. McIntyre