U.S.-China trade/tariff uncertainty is still present
U.S.-China trade/tariff uncertainty is still present ahead of the December 15 deadline, but the market are less sensitive. Interestingly, with or without a "phase one" deal between the U.S. and China, the U.S. trade and inventory data through October released last week show that front running of new tariffs may have played itself out. And, analysts may be entering a new phase of a sharply declining bilateral U.S.-China trade gap. Tariff front running pulls-ahead imports and makes the trade deficit look worse than it really is, before a later correction as imported inventories are unwound. This second process is already underway. U.S. imports from China follow a powerful season pattern of surging imports into an October peak, and then a big plunge to a point after the Chinese New Year. Last year's peak-to-trough drop was -40%. This year, imports from China fell at about a -12% y/y rate through July, before an accelerating plunge to a -23% y/y drop this October. It turns out that this year's seasonal peak was in July, at $41.5 B, before imports slid to just $40.1 B in October. For comparison, the last seasonal peak was $52.0 B in October of 2018, and before that it was $48.2 B in October of 2017. Imports from China are now plunging, which is behind the unfolding big U.S. Q4 import drop on a seasonally adjusted basis.