Global trade is one of the primary “headwinds” facing the global economy, and it does contribute to the lack of dollar flow impeding exchange functions in troubled currency areas. A large part of the “solution” proffered by central banks is an appeal to currency devaluation in order to boost export activity. The primary impediment, something that flies in the face of the burgeoning recovery theme, is that there is nobody to export goods to.
From the US perspective, as an end buyer of goods and resources, there doesn’t appear to be any appreciable increase in trade activity. The shale oil boom due to fracking has certainly played a role in determining the quantity of petroleum to be imported, but, contrary to conventional wisdom, that is not really all that big a factor in the larger demand picture.
The US bought 4.8% fewer barrels of oil in July 2013 than July 2012, but in dollar terms it was only a 1.4% decline. Inflation, the commodity variety anyway, is back (transitory again?) and is going to remove some GDP compared with Q2 2013 (remember GDP measures second derivatives).
On the whole, US demand for imports does not look much different with or without petroleum. That means the lack of US demand for foreign produce is not due to fracking and use of US-developed oil; it is rather more widespread than that.
The level of demand for imported goods has looked recessionary since last yea, conforming to the demand picture provided by the Final Sales to Domestic Purchasers account of GDP. That has been problematic for every trade partner, including the Chinese.
Nowhere is the disconnect between policy expectations and reality more clear than Japan. The weaker yen was supposed to lead to an export renaissance, yet the yen “price” appears to be playing no role at all in US demand for Japanese goods. Since the Bank of Japan boosted its QE targets, US imports from Japan have actually worsened.
Sean Corrigan, Chief Investment Strategist for Diapason Commodities Management in London, sent me the chart below that I think sums up where we are in global trade.
By early 2011, it appeared as if global trade was at least coming back toward the well-established trend (as trade, and the economy, had done following every recession). Like so many other indications, it all changed in the middle of 2012. US demand fell sharply and it is playing a role in global economic growth and dollar shortages in currency crisis zones, even China.
At best, you might say the economy is below stall speed. At worst, the global economy is heading in the wrong direction, only slowly for now. Slowing/retreating global growth and liquidity problems are not a very good mix.
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