Did semiconductors skew the trade balance?
Inventories are the toughest thing to forecast. Economists at banks, universities and think-tanks have tried for years, but they have basically thrown up their hands and decided that inventory forecasting is impossible.
The trade war makes it doubly so.
Every US and Chinese company that trades across the Pacific is either stockpiling or rushing out exports right now and has been doing so since at least September. How each company reacts is impossible to track and figuring it out in aggregate is a guessing game.
However there are people trying to isolate a few parts of it and one is Brad Setser who looked at semi-conductors. He found an unusual jump in Chinese imports from chip suppliers in 2017 and 2018. The thinking is that Huawei, ZTE and others may have been building up stockpiles ahead of the trade war.
Apart from the tactical impact on China's resilience in the face of the escalating trade war, if this story is true it also suggests that the fall in China's surplus in 2018 was, well, a bit artificial. Or rather that China was pulling forward at least some imports, not just pulling forward exports to beat the tariff. Of course, in 2019, there will be even bigger distortions
What he doesn't talk about is cryptocurrency and I think chip-buying for that may have been part of the story.
I any case, I continue to believe that US and Chinese inventories are both higher than normal because of build-ups ahead of the trade war. As those run off, expect growth to undershoot.
