China said today that its exports in January took a dramatic turn for the worse, falling 17.5% in value from a year ago, as shipments of electronics, cellphones, steel products and other goods made or assembled in China plunged.
It was the biggest percentage decline since October 1998, analysts said, and indicated further troubles ahead for China’s once-powerful industrial sector and the millions of migrant workers who count on factory jobs for their livelihoods.
Chinese imports last month slumped even further, by a whopping 43%, leaving the Asian nation with a January trade surplus of $39.1 billion. Its imports are dominated by raw materials such as crude oil and metals, and equipment and machines for its manufacturing industries.
BusinessWeek suggests that this suggests a “trade bubble,” possibly fueled by the credit boom:
But there’s a good chance that the trade boom and the credit boom helped feed each other in all sorts of perverse ways. One example: Huge trade surpluses in China, Germany, Japan, and elsewhere created a pool of mobile capital, which flowed into subprime mortgages and all sorts of exotic securities. That is to say, the rest of the world lent the U.S. an enormous amount of money at low rates, which helped fuel the American housing boom. (It’s interesting to note that the growth of housing prices over the past 20 years roughly parallels the rise in trade.)
Another example: Cheap credit made it a lot easier for freight companies to finance new ships and trucks and for airlines to finance new planes. This, in turn, increased the supply of transportation and reduced the cost of shipping goods across long distances. In addition, supply chains that stretch across the ocean mean that more goods are in transit at any time. All of these goods in transit, which have been produced at a cost, but not yet bought by the final user, must be financed by someone. Until recently, such financing was cheap and easy to obtain.
And finally, there’s the link between the trade deficit and the financial crisis. As long as the U.S. is still running a trade deficit, we are still borrowing from overseas. And as long as we are still borrowing from overseas, we are piling up debt, and the financial crisis is getting worse, not better.