Markets: Trade remains very much in focus - BBH

Analysts at BBH suggest that trade remains very much in focus for global markets.  

Key Quotes

“There have been a couple of developments to note.  First, exemptions to the US steel and aluminum tariffs have been granted to Canada and Mexico, pending the outcome of NAFTA negotiations.  Recall Canada and Mexico were exempt from Bush's steel tariffs also.  Apparently, other countries may be exempt if they can show that their sales do not threaten US security, which includes economic security and jobs.’

“Second, reports suggest that the US has asked China to come up with a way to reduce its bilateral trade surplus with the US by $1 bln.  Last year, the US trade deficit with China was around $375 bln.  Apparently, lifting US bans on some technology exports to China is not what the Administration has in mind.  Yet a $1 bln reduction is hardly even a rounding error.”

“Third, following the US report of its largest monthly trade deficit since the Great Financial Crisis, China reports its February trade figures today.  Exports (in dollar terms) jumped 44.5% above year ago levels following an 11.2% rise in January.  Imports rose 6.3% following a 36.8% increase in January.  The trade surplus swelled to $33.7 bln from $20.35 bln.”

“Shipments to the US rose 46.1% after an 11.1% gain previously.  Exports to the EU were up 42.4% following a 10.3% rise in January.  Exports to Japan rose 31.2% after a 1.4% increase in January.  However, things are not what they seem.  The most important distortion can be traced to the Lunar New Year.  It is best to take the two months together.  Trade has increased.  The surplus has increased, but not as much as it appears.  Last year, the two-month combined surplus was about $38 bln.  This year it is $56 bln.”

“The second consideration that can be obscured by the focus on goods and services crossing borders instead of ownership is that some foreign companies use China as an export platform. For example, Chinese figures suggest that companies that have a large foreign investor account for 42% of China's total trade.”