GeoData
Where Data and Geopolitics Intersect - and Explain Possible New Trends
June 24, 2024
US-China Decoupling in One Chart (with Two More Bonus Charts)
In the last few years, there have been a lot of discussions about the rate of decoupling between China and the US. We have noticed the discussion seems to regularly default to a month-by-month analysis or, at best, a quarterly analysis. Recently, CEIC Data published a two-year chart (2022 to 2024) showing Chinese exports not only to the US (which, indeed, have seen significant shrinkage) but also to the rest of the world.
The only actual increase, as the chart below shows, is to Southeast Asia, Latin America, and, of course, Russia. It is probably the best single chart we have seen so far, making clear how decoupling has taken hold and, more importantly, how it is not just a US-China issue but also one impacting the EU and Japan (who counts China as their biggest trading partner). And for the other major trading partner not listed here - South Korea - the second chart below shows their plunge in trade with China versus the spike in trade with the US.
Finally, the third chart shows how increasingly dependent China is on industrial production and exports rather than encouraging consumer spending. So, exports are driving China’s economic recovery—but not to the US and EU like it used to rely on.
A Common Question From Clients: Where Has All the CHIPS Act and IRA Money Gone? The Answer: Most of It Has Not Been Distributed Yet - Meaning The Massive Fiscal Boost Has Yet to Hit the Economy
There is a lot of excitement in the markets about the power of CHIPS Act, the Infrastructure bill, and the Inflation Reduction Act (IRA) spending to turbo-charge the US economy. But the real question is when can we expect it? From the charts below (courtesy of Politico), not for a while. So far, less than 2 percent of available CHIPS funding has been awarded by the Department of Commerce. The simple reason for this is the construction of semiconductor manufacturing facilities is anything but “shovel-ready.” It takes years - our understanding is five years minimum - to construct facilities. And you can only imagine how long it takes to plan such buildings.
The infrastructure bill and the IRA are moving along significantly faster in dispensing funds. But again, infrastructure building of any kind takes a long time to complete.
All in all, the size and scope of the fiscal spending of three bills are going to be a significant plus for the US economy - but not in time for the 2024 elections. And, if anything, Washington politicians will be lucky if it has ramped up enough to significantly impact the economy in a major way by the 2026 midterms.
The US Election, Gasoline Prices, the Budget/Debt Crisis, and the SPR: Is the SPR Doing OK and Is It Ready for a Crisis? And Who Knew Congress has Been Using SPR Sales for Budget Funding?
The Financial Times recently had an interesting and timely piece reporting how President Biden is prepared to use oil from the US Strategic Petroleum Reserve (SPR) again in an attempt to drive down persistently high gas prices ahead of the election. We have had the opportunity to do extensive speaking engagements throughout the Midwest and South in recent months, and in talking to a broad array of voters at all sorts of economic levels, the price of gasoline is the top complaint (quickly followed by high food prices). Heading into November, it continues to be a tough challenge for the Biden Administration as various geopolitical and economic factors have whipsawed the price of oil for the last three years, especially since 2022.
While there is little a President can actually do to drive down oil prices, one of the tools at hand is the ability to release portions of the SPR. Conceptually, added supply in the public market would seem like a smart way to push prices down. But In reality, SPR releases do little to impact prices as it just is not enough to impact the markets in a large enough way. Yet, President Biden (and previous Presidents) do it because, well, at least, they can look like they are doing something.
President Biden has used that tool with vigor. He first announced on March 31, 2022, that the Administration would release 1 million barrels of oil per day from the reserve for the next 180 days, selling it at an average price of $96 per barrel—making it the biggest SPR sale in 40 years. This sale also lowered the SPR to its lowest levels in more than 40 years.
So, that got us wondering: With news of a likely new Presidential mandate to release more SPR stock and ongoing - indeed, increasing - geopolitical tensions and rising shipping rates globally, we were curious about what the current SPR level stands (after all, the whole point of the SPR is have a massive oil reserve in times of crisis. And Republicans have been strong critics of the Biden Administration for allowing to get so low.
By way of background, the SPR is authorized to store 727 million barrels. Currently, according to recent Department of Energy stats, the current level is at 370.9 million barrels.
But there is another little known factor as to why the SPR is so low: Congress has figured out selling SPR reserves is a way to get additional revenue for federal budgets. For example, according to the US Energy Information Agency, “in 2018, Congress directed the sale of more than 100 million barrels of oil from the U.S. Strategic Petroleum Reserve (SPR) in U.S. government fiscal years (FY) 2022 through 2027. Based on legislated sales established in multiple acts of Congress, the SPR could decline by about 40% in the coming decade while still meeting requirements for petroleum import coverage. Assuming no other legislation over this period, the SPR could decline from 695 million barrels at the start of 2017 to about 410 million barrels at the start of 2028.” That money has gone to help fund the Highway Trust Fund and other government programs.
I guess the point of this post is to ask: Do we take the SPR seriously anymore as a critical national economic security program? Or has its time of necessity essentially passed, especially with the ability of US producers to massively increase the pumping of crude at US sites if needed? Just looking at Permian (Texas and New Mexico) production, it seems there is more than enough oil if needed in an emergency.
And do US voters understand - as we march toward the November elections - that whatever President Biden does with SPR releases, it really is not going to impact the price of gasoline now or in the future?