Global Ripples from China Keeping Fed Hike at Bay

If your new mortgage is still cheap after this week’s Federal Reserve meeting, you may owe it to the sufferings of commodities producers in places like Chile, Canada and Indonesia — and the American workers whose jobs depend on exports to nations like those.

Call it the China Diaspora Effect: As China’s growth slows down, a slew of other nations are having problems because they sell China commodities, like oil, coal and iron ore, on which the Middle Kingdom’s long-running investment miracle has been built. And one reason the Fed is hesitating is uncertainty about whether problems in nations like those will affect exports from U.S. companies — not just to China but to the large part of the world making a living from its boom.

Strain on US exports

“It would be misleading to focus narrowly on the direct effect of U.S.-Chinese bilateral trade alone,” Lael Brainard, a member of the Fed’s Open Market Committee, said Oct. 12. “Many commodity-exporting countries that have depended heavily on Chinese demand are adjusting with difficulty to the recent sharp commodity price declines.”

And that’s not all: Even Asian nations not in the commodities business are seeing growth at about half of their recent pace this year, said Brainard, suggesting that even the renewed recession in Canada is partly related to China.

Exports to China are only 0.7 percent of U.S. gross domestic product, and even if they collapse, it’s not enough to explain the trade gap that Barclays economist Michael Gapen expects will have shaved about 0.7 percentage points off the economy’s third-quarter growth rate when the Commerce Department releases its initial quarterly GDP estimate on Thursday.

Through August, U.S. exports to China were down by about $3.2 billion from last year, to $74.6 billion, according to the U.S. Census Bureau.


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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.