Good morning from the UK, where the mood has brightened. Seven in 10 people have some form of immunisation against Covid-19 and the economy is reopening earlier than in many nearby countries.
Today’s main piece looks at another success story, that of the US consumer, which is making multiple exporters happier owing to a spending spree on goods, many of which are imported from abroad.
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Yesterday’s Trade Secrets covered how, despite Joe Biden’s protectionist rhetoric, the new US president has proven a blessing for world trade. The reason being that many Americans will feel richer as a result of his $1.9tn stimulus — some of which is bound to be spent on goods originating from abroad.
Today we talk about the surge that has already occurred.
There are two factors that have helped exporters to the US. The first is that the US’s economic fortunes have fast improved after reaching a nadir in the second quarter of 2020. The labour market is in better shape, while the effect of the government’s support packages has been to boost spending. The second is that with many local businesses shut, the US wallet has shifted from spending on services to consumer durables.
Here are the specifics of what’s happened so far.
The US’s trade deficit for goods has soared as a result of the pandemic. It rose to $91bn in March, up $25bn from the same month last year, making it the highest figure since records began after the second world war. Figures released later today for the total trade deficit, which includes services, are expected to show a similar picture.
Most of that is down to strong imports of goods, the amount of which swelled to $233bn in March, a double-digit increase from the same month last year. While that was the month when the pandemic really began to bite, the current level is still well above the 2019-2018 average of $209bn, according to official data released at the end of last week.
The big winners of this surge in demand for consumer durables have been China, Mexico and Canada, according to a Financial Times analysis of official data.
While those three have long been among the US’s largest trade partners, smaller players have also seen the value of their goods exports to the US soar. Vietnam continued to perform well, benefiting from some rerouting of trade away from China as a result of the US-China trade war.
US imports from Vietnam rose twice as fast as total imports in the past six months compared with the previous six months. Overall, the south-east Asian nation registered the strongest pace of growth of any large source of US imports over the past three years.
The figures also provide a glimpse into how the US stimulus will be allocated among global exporters.
Ludovic Subran, chief economist at insurer Allianz, estimated that the stimulus would lead to an additional rise in imports of goods and services of $360bn between 2021 and 2022 as US consumers splashed their cash on goods such as televisions, electronics or cars, many of them imported from other countries.
Subran thought those additional gains would amount to 1.4 per cent of gross domestic product for Vietnam over the same period, as Americans stocked up on its exports of textiles, computers and telecoms. Mexico would receive a boost estimated at 1.7 per cent of GDP.
As the US begins to open up, the deficit may narrow somewhat. Pooja Sriram, am economist at Barclays, said the reopening could soften the demand for goods, as consumers returned to spend on services such as gym membership rather than goods such as fitness tools. Still, with almost $2tn to dole out, US consumers’ demand for durables was likely to remain “buoyant”.
The manufacturing boom that began during the second half of last year continues. A recovery in global export volumes, the result of the phenomenon discussed in today’s main piece — a boom in demand for consumer durables — has benefited the world’s makers, including those in the eurozone. The chart below highlights this.
The line is based on the closely watched purchasing managers’ index and shows that the rate of expansion in activity remained high last month. The figures came out earlier today and, according to the FT’s Frankfurt bureau chief Martin Arnold, are the highest since IHS Markit began the survey in 1997.