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China Trade & Tariffs: First the goods

This is a dense post but there is a lot of data here and it’s worth knowing.

President Trump in his trade war with China has fixated narrowly on the U.S. – China imbalance between the export and import of goods between the two nations. The Census Bureau maintains a trade in goods by country dataset that includes import and export amounts in nominal dollars back to 1985. The chart below shows the trade in goods deficit with China from 1985 through 2017 in both nominal (blue) and real (red) dollars.

In 1985 the goods trade between the United States and China was about equal. By 2000, the nominal trade in goods deficit grew to $83.3 billion. From 1985 to 2000, U.S. goods exports to China rose from $3.9 billion to $16.2 billion, or by $12.3 billion (319.8%). Over the same period, U.S. goods imports from China increased from $3.9 billion to $100.0 billion, or by $96.1 billion (2,490.0%).

As large as the increase in Chinese exports to the United States was from 1985 to 2000, that growth has been eclipsed by the growth since 2001, when China was admitted to the World Trade Organization (WTO). From 2001 through 2017 Chinese goods exported to the United States jumped from $102.3 billion to $505.5 billion, or by $403.2 billion (394.2%). Over the same years U.S. goods exports to China grew from $19.2 billion to $129.9 billion, or by $110.7 billion (577.2%).

Over the entire period from 1985 through 2017 nominal goods exports from the U.S. to China grew by $126.0 billion (3,268.9%). Goods imports from China over this period grew by $501.6 billion (12,989.3%). The nominal value of the trade in goods deficit rose from $6.0 million in 1985 to $375.6 billion in 2017. Adjusted for inflation the trade in goods deficit in 2017 (in $1985) equaled $188.1 billion.
Although there has been a very large increase in the U.S. trade in goods deficit with China, the year-to-year change in the trade deficit has fluctuated a great deal. As shown in the following chart, the year-to-year changes appear to have stabilized and even decreased over the past seven years.

Another way of looking at the trade in goods relationship between the U.S. and China is the ratio of U.S. – China goods imports to exports. As shown below, this ratio hit a peak at 6.2 in 1999 and has moved lower since then. The ratio now stands at about 4.

Us china imports to exports ratio
So, what has happened since the trade war began earlier this year? First, it needs to be said that tariffs do not directly address the major complaints the United States has regarding Chinese trade practices. These complaints have to do with China’s failure to live up to free market reforms promised when it joined the WTO, expropriation of trade secrets from U.S. companies doing business in China, and industrial espionage. Thus, tariffs simply represent a warning shot and they may provide a means of getting China to address more substantive issues. In the mean time they are having disruptive effects on many U.S. businesses and they will likely cause price increases for many consumer goods. It has only been about six months since the first tariffs were announced, but trade and price statistics are starting to show some of the impacts.

The Bureau of Economic Analysis (BEA) issues quarterly bilateral trade reports. So far data exists only for the first two quarters of 2018. The following table shows year-to-year changes in U.S. – China exports, imports and trade balances for eight goods categories.

Year-to Year U.S. – China Goods Trade Changes, First and Second Quarter of 2018

In response to U.S. tariff increases, China has imposed reciprocating tariffs on a number of agricultural commodities. The BEA statistics do show a decline during both the first and second quarters in the value of food, feed and beverage exports. Even though the China tariffs on U.S. agricultural commodities did not take effect until the second quarter, it began stockpiling some commodities earlier in the year.

Soybean exports have been particularly hard hit. A recent American Farm Bureau report (October 23, 2018) indicated that during the first seven weeks of the 2018/2019 market year (September 1 through August 31) that soybean exports to China declined by 97 percent compared to the prior year. Since peaking on March 5th at $10.77 per bushel, the cash price for soybeans has dropped to $8.93 per bushel on November 30th, which equals a 17 percent decrease.

The BEA data also shows a decline in exports to China of autos, auto parts and engines. During June, July and August U.S. motor vehicle exports to China decreased by $506.3 million (50.3%), $296.2 million (46.7%), and $599.3 million (55.7%), respectively (Forbes, October 25, 2018). A third category of U.S. exports that has declined since the imposing of tariffs is consumer goods.

On the import side of the trade ledger, U.S. tariffs seem to be having the greatest impact on food, feed and beverages and on consumer goods. However, since most of the new U.S. tariffs on Chinese produced consumer goods only took effect in mid-September prices for items such as apparel, footwear, toys, computers, and other electronics have not yet been passed on to U.S. consumers. Where price impacts seem to be showing up are for goods, such as motor vehicle parts and for steel products. Since the tariffs on steel and aluminum were the first ones imposed back in March the prices of domestically produced goods with high steel or aluminum content have begun to increase. Examples of year-over-year price changes for selected goods are presented in the following table.

Year-over-Year Price Changes for Selected Consumer and Producer Goods, January – October 2018

Finally, the balance of trade for goods between the United States and China appears to show some impact of the tariffs. Although the trade in goods deficit with China increased during both the first and second quarters of 2018, the increase in the deficit during the second quarter was only about one-fifth of the size of the increase during the first quarter. The greatest change occurred in the consumer goods category. During the first quarter the U.S. consumer goods deficit with China grew by $6.1 billion, but during the second quarter the deficit shrank by $93 million. There was also a large change in the industrial supplies and materials category. During the first quarter the trade deficit with China in this category increased by $494 million, while during the second quarter the deficit declined by $854 million compared to the prior year.

Quarterly bilateral trade statistics for the third quarter will be released by the BEA in mid-December. These should provide a clearer picture of the impact of tariffs on the trade in goods flows between the United States and China.

Next the services….

by admin· December 3, 2018· 0 comments · Uncategorized

Measuring the Platform

The “platform economy”—Uber etc.—is a lot smaller than people think it is. And workers would pay good money for better working conditions.

A lot of myths circulate about the contemporary labor market. One of the more durable is that we’re all day laborers now, working two temp jobs and driving an Uber on the side. As we showed back in June, BLS stats show that between 1.3% and 3.8% of all workers are contingent, depending on which definition you use, which are smaller shares than what prevailed in 1995 and 2005. In other words, hardly representative.

But what about what the BLS calls “electronically mediated employment,” platforms like Uber and TaskRabbit? Internet and barstool chatter would have you believe they’re ubiquitous—not as a way of hailing a ride but as a major form of employment. Data released by the BLS at the end of September challenges this story. In fact, such platforms account for just 1% of total employment. And over a fifth, or 22%, of such workers are in the transportation sector, more than four times that sector’s share of total employment. Take those away, and the electronically mediated account for just 0.8% of employment.

There were technical challenges
to evaluating the numbers, which were gathered as part of a supplement to the monthly Current Population Survey (CPS, the source of the household employment stats) for May 2017. Many respondents were apparently confused by this question into thinking they should answer “yes” if they drove to work or used a computer on the job:

Some people find short, IN-PERSON tasks or jobs through companies that connect them directly with customers using a website or mobile app. These companies also coordinate payment for the service through the app or website.

For example, using your own car to drive people from one place to another, delivering something, or doing someone’s household tasks or errands.

Does this describe ANY work (you/NAME) did LAST WEEK?

Since the BLS could compare responses to this question with respondents’ full answers to the CPS, they were able to discover a large number of false positives. For example, a banker, a cop, a professor, a motel desk clerk, a hairdresser, and a surgeon all answered “yes,” even though they shouldn’t have. The raw “yes” responses came to 3.3% of employment. But when the BLS recoded the answers to be consistent with the regular CPS questions, the share fell to 1.0%. For transparency’s sake, they report both sets of results. But given the rich comparative data provided by the standard CPS questions, the recodings look well-founded.

As the graph above shows, there were some variations by demographics and especially sector in the prevalence of platform employment. There was little gender difference. Blacks were somewhat more likely than others to be so employed. The share rose with education (and, although the graph doesn’t show these results, those with advanced degrees were more likely than those with bachelor’s only to do electronically mediated work). The biggest variations are by industrial sector, with almost no one in the goods-producing sectors or government working for an app. But 4.5% of workers in transportation and warehousing, 2.7% of those in professional and business services, and 2.3% of those in information were.

These are not large numbers, even in transportation.
They’re consistent with a new study from the JP Morgan Chase Institute, which is based on deposits into 39 million Chase checking accounts. It found 1.6% of the sample earning platform income in 2018Q1, up from 0.3% five years earlier. (If you’re the sensationalizing sort, you could say the share has quintupled, but it’s still quite small.) Two-thirds of that came from transportation. Over the course of a year, 4.5% of accounts showed some platform income, but most were for just a few months.

Strikingly, despite the growth in platform work in transportation, from close to 0 in 2013 to 1.0% of the sample in 2018Q1, average monthly earnings in transportation were down by more than half, “even among the highest earning and the most regularly engaged drivers.” Earnings from selling (presumably names like Etsy and eBay, though neither the BLS nor Chase names names) and space rental (presumably Airbnb and the like) were quite small, with under 0.5% of accounts showing such income in a recent month. In months when families participate in the platform economy, such earnings account for just over half the month’s income—but other sources of income are clearly necessary.

So, it looks like the platform economy can provide some income, but not enough to live on. And the steady influx of drivers into the likes of Uber and Lyft is driving down pay.

by admin· November 19, 2018· 0 comments · Employment & Productivity, TLR Wire

Longer & Mostly Milder, but Don’t Sneeze

Rising interest rates probably won’t help the startup series, outlined below, head northward. How does the current tightening cycle stack up against earlier instances?

Longer and mostly milder, in a phrase.

Over the last 35 months, since the tightening began in December 2015, the fed funds rate is up 196 bps. The average of the previous six cycles shown is 648 bps over 22 months, though the range in both magnitude and duration is wide.

But the current rise in rates is starting from a very low level (0.24%). The previous low starting point was 1.03% in 2004; the average, excluding the recent cycle, is 5.26%. If we look at the percentage (not percentage point) rise from the starting point, we get a very different picture. The bottom graph indexes the fed funds rate in the base month to 100. By that measure, the current cycle is the winner, with a current index value of 917. In second place is the 2004 cycle with a maximum value of 510. The average of all the previous cycles, again excluding the current one, is 277.

So, while the current round of tightening looks mild if you look at the level and change in nominal rates alone—a mildness accentuated by the slow pace of tightening—the change from record low interest rates to something more normal is nothing to sneeze at. A stumbling stock market is the least we can expect if this continues as it’s likely to.

by admin· November 19, 2018· 0 comments · Fed Focus

Startups Only Stable. We’re Waiting….

We keep looking for evidence that policy changes coming out of Washington—namely tax cuts and deregulation—are stimulating entrepreneurship and so far we’re coming up empty.

The latest evidence comes for the BLS’s Business Employment Dynamics (BED) series.

The BED series isn’t the timeliest around—we just got the data for the first quarter. But we shouldn’t get too hung up on novelty; these things have long-term effects.

Establishment births, expressed as a percentage of total establishments, were unchanged between 2017Q4 and 2018Q1, at 3.1%. (Establishment deaths, which are available with an additional three quarter lag—you want to make sure they’re really dead and not just unresponsive—rose between 2017Q1 and 2017Q2.) That 3.1% birth rate is below earlier peaks in 2005, 2012, and 2015 (each of which was lower than the previous).

Maybe things will pick up, but they haven’t yet.

by admin· November 19, 2018· 0 comments · Comments & Context, TLR Wire

Tax Contacts: “Where are those wages?”

As those who follow our work know, we have frequent, detailed discussions with senior revenue officials around the county on a regular basis. Withheld receipts are better tied to ordinary wages than are overall Personal Income Taxes, which include estimated payments on stock income and the like, and are out in front these days. Recently, when discussing growth in withheld receipts with our revenue contacts, we’ve been hearing from some: “Where are those wages we keep hearing about?

Maybe here: profits are up far more than wages in this cycle—almost three times as much. And that’s a real issue in our debt-laden economy, especially at the low end.

The two major factors of production, capital and labor, have enjoyed different rewards in this recovery/expansion. Graphed above are after-tax corporate profits and wage & salary payments by nonfinancial corporations, indexed so that the ending quarter of the recession, 2009Q2, is set to 100. (We use after-tax profits because those are what matter to shareholders, and because bookkeeping shenanigans at the end of 2017 and beginning of 2018 in anticipation of the tax cuts distort the numbers.)

Since mid-2009, nominal wages are up by 49%—but profits are up by 136%. (It’d be nice to present real measures but choosing the proper deflators would be a fatal challenge.) For a while, it looked as if profits had peaked in 2014, but they’ve made a healthy recovery since. And they got a splendid boost from the tax cuts.