I realized today that if demand for goods from developed nations like US is truly falling faster than demand for goods from emerging markets, then the best place to verify this trend would be to look at what's happening with China's imports. With this in mind, I looked up this Herald Tribune report about an unexpected drop in China's imports and exports.
Unexpected drop in China's imports and exports
By Andrew Jacobs and David Barboza
According to statistics released by the Chinese government Wednesday, exports fell 2.2 percent from November 2007 to November 2008 the largest year-over-year monthly decline since April 1999.
Imports to China also plunged sharply last month, falling 17.9 percent and widening China's trade surplus to a record $40 billion, from $35.2 billion in October.
In a survey of more than a dozen analysts last month, no one predicted that imports would decline. The drop in exports stretched across all major trade commodities with steel leading the downward spiral.
My reaction: Everyone is focusing on how much Chinese exports dropped, but that is missing the real story: Chinese imports fell 17.9 percent in November and China's trade surplus widened to a record $40 billion! Meanwhile exports only fell 2.2 percent!
This confirms everything I have been writing about! To put it in perspective, China's trade surplus was $262 billion for all of 2007. If we multiply China's $40 billion November surplus by twelve months, we get a $480 billion annual trade surplus, nearly twice the 2007 number! This trend is likely to get worse as time goes on, and China's trade surplus in 2009 is likely to approach 1 trillion dollars!
Furthermore, it is important to realize that since China's exports fell 2.2 percent, the benefits of buying billions of dollars to undervalue its currency are also falling.
Is China going to continue its dollar peg while its trade surplus skyrockets and its exports fall? Do I even need to ask such a dumb question? Of course they won't! It is no coincidence that, over Christmas, China announced its intentions to make the yuan an international currency! You even have the Chinese central bank quoted as saying that, "The US dollar is unlikely to be stable next year". How much more evidence do you need to figure out where all this is going?
China's plunging imports is one of the biggest stories of the year as far as I am concerned. It seals the dollar's fate.