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Policy

Trade Data Woes

U.S. chemical industry posts three months of trade surplus, but the numbers are disturbingly volatile

by BY WILLIAM J. STORCK
February 7, 2005 | A version of this story appeared in Volume 83, Issue 6

An unusual event for the U.S. chemical enterprise took place in November. It wouldn't have been unusual five years ago, but since the beginning of the 2001 recession, it has been unseen.

What was this event? It was the third straight month in which the U.S. showed a surplus in chemical foreign trade. The last time this happened was spring 2001.

The streak, if you wish to call it that, began in September with a 1.4% month-to-month increase in chemical exports to $9.39 billion but a 12.0% decline in imports to $8.80 billion. October showed a 6.3% increase in exports to $9.98 billion and a 6.2% rise in imports to $9.34 billion. This, however, was followed in November by a 4.8% fall in exports to $9.51 billion and a 1.9% drop in imports to $9.16 billion.

Compared with the corresponding year-earlier month, chemical exports surged 22.1% in September, 21.0% in October, and 22.1% in November. Imports of chemicals, in contrast, rose just 3.2% in September, 6.7% in October, and 16.5% in November. Thus, the chemical trade surplus was $587 million in September, $640 million in October, and $343 million in November.

As in the past, the big swings in chemical trade were largely influenced by the organic chemical sector, which in 2003 was the second-largest exporting sector at 22% of the industry total and the largest importer at 33% of the total. In 2004, through the first 11 months, the sector maintained its position in imports and also became the biggest in exports.

Thus, the organic chemical sector--which contains products ranging from high-volume commodities such as petrochemicals to high-value pharmaceutical and other intermediates--has a huge influence on total chemical trade data. Its weight is such that if this sector, which has shown a monthly trade deficit for more than three years, is excluded from the total, the remainder of the industry almost always is in surplus.

In the September-through-November period of last year, however, the organic chemical deficit shrank as prices for basic organic chemicals rose considerably and the declining value of the dollar against foreign currencies made this sector much more competitive against products from overseas, especially European ones.

Organic chemicals, which perhaps have been the most volatile of the chemical sectors for the past three years, went from a deficit of $1.08 billion in August to just a $108 million deficit in September. The sector's deficit increased slightly in the next two months to $186 million in October and $196 million in November. This compares to deficits of $1.13 billion, $759 million, and $776 million in September, October, and November 2003.

The volatility of the organic chemical sector, especially on the import side, and of pharmaceuticals, to a lesser extent, has been a huge factor in the ups and downs in the entire chemical industry going back some time.

These huge swings in imports and thus in the trade balance call into question the government numbers themselves. Over the past years, I have asked a number of economists both in the chemical industry and in the Commerce Department why this should be so--why the trade balance should vary by $1 billion or more in some months. For instance, in December 2003, the trade deficit for all chemicals was $1.56 billion, $1.48 billion greater than it had been in November, thanks to a $1.33 billion increase in imports. The deficit then contracted by $1.28 billion in January 2004 to $282 million as imports fell $1.07 billion.

Then in April 2004, the deficit increased from the previous month by $479 million to $1.13 billion, but this time it was a greater decline in exports than in imports that caused the jump. However, in the following month, the trade balance rose by $1.38 billion to a surplus of $251 million. This time, although there was a $399 million increase in exports, it was the $982 million rise in imports that provided the major thrust in the trade balance.

These are but examples of a volatility that, to some extent, has been going on for years. During the years of month-after-month trade surpluses, however, nobody seemed to worry too much about it. The era of high volatility really began in the early to mid-1990s as foreign-made pharmaceutical intermediates became a more significant part of U.S. chemical imports. And since then, high on economists' wish lists has been seasonal adjustment of the data. A wish that has not been, and perhaps cannot be, granted.

A couple of theories exist among trade watchers as to why there is such month-to-month volatility. One is that importers and exporters sometimes delay shipments for tax purposes. Another is that, since the Commerce Department does not revise data on a constant basis but rather only once a year, late-arriving figures from importers and exporters are simply put into the current month instead of the month in which they should be credited. It is true that the annual revision does smooth some of the data, but not enough for this theory to be entirely credible. Or this may be just the way it is.

 

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