US Imports: A Little Inflation For Yellen, A Little More Bastiat

US imports rocketed higher once again in December, according to just-released estimates from the Census Bureau. Since August 2017, the US economy has been adding foreign goods at an impressive pace. Year-over-year (SA), imports are up just 10.4% (only 9% unadjusted) but 9.3% was in just those last four months. For most of 2017, imports were flat and even lower.

The question is, obviously, what has changed? Did the boom finally ignite, Janet Yellen’s last goodbye a happy sendoff?

To begin with, we haven’t seen this kind of short-term burst of import activity in seven years. Not since early 2011 have such large gains been recorded in such a short period of time. Of course, what stands out about that particular point in economic history was:

Between the middle of 2010 and late April 2011, the dollar fell precipitously against all major currencies. Imports rose both as a matter of cyclical factors coming out of the Great “Recession”, but also as Americans were forced to pay more for foreign goods as the dollar priced toward “reflation.”

Economic theory posits that this weak dollar should make imports more expensive, and it does. But that never seems to lead toward the expected trade rebalancing. In other words, we still import the same amount stuff, only we have to pay more for it all. It contributes a little to the inflation baseline of any economy.

In the 21st century, these kinds of big movements for inbound trade are usually associated with impressive and full recovery. That’s surely what many are hoping is happening right now. But it also has occurred, like late 2005, when the dollar falls sharply under more questionable economic conditions. Those recoveries featured nearer 20% annual gains, not half that rate.

We can check these assumptions a couple of different ways. The first is imports by geographical distribution. An uptick in demand, of the organic variety, would benefit first and foremost China. Unless somehow the US manufacturing sector was able to rebuild its productive capacity all in the year 2017 without it showing up in any economic statistic, a pickup in goods trade will mean a direct pickup in Chinese imports.