The United States has many trading partners but the top 15 trading partners account for 75% of trade but even more interesting is that Canada, Mexico and China account for nearly 50% of all trade activity. We think it is prudent to understand what is happening with our top trading partners in terms of inflation, central bank rates, imports and exports. After all, if a country like Mexico is experiencing high inflation does it not then follow that inflation in that country will ultimately end up being exported from Mexico and imported into the U.S?
| GDP | GDP YoY | GDP QoQ | Interest rate | Inflation rate | Jobless rate | Gov. Budget | Debt/GDP | Current Account | Currency | Population | |
| Brazil | 1445 | 12.40% | -0.10% | 7.75% | 10.67% | 13.20% | -13.40% | 88.83% | -0.72 | 4.07 | 211.82 |
| Mexico | 1076 | 4.60% | -0.20% | 5.00% | 6.24% | 4.20% | -4.60% | 52.10% | 2.4 | 19.36 | 126.01 |
| India | 2623 | 20.10% | -10.20% | 4.00% | 4.48% | 6.90% | -9.40% | 73.95% | 0.9 | 71.01 | 1347.12 |
| Vietnam | 271 | -6.17% | 6.88% | 4.00% | 1.77% | 3.72% | -5.80% | 46.70% | 5 | 23170 | 97.58 |
| China | 14723 | 4.90% | 0.20% | 3.85% | 1.50% | 4.90% | -3.70% | 66.80% | 1.9 | 7.08 | 1443.5 |
| Taiwan | 669 | 3.80% | -1.07% | 1.13% | 2.58% | 3.92% | -4.50% | 28.20% | 9.5 | 28.02 | 23.55 |
| Hong Kong | 347 | 5.40% | 0.10% | 0.86% | 1.40% | 4.50% | -12.00% | 38.40% | 6.6 | 7.83 | 7.47 |
| South Korea | 1631 | 4.00% | 0.30% | 0.75% | 3.20% | 3.20% | -6.10% | 42.60% | 3.5 | 1145.85 | 51.78 |
| United States | 20937 | 4.90% | 2.00% | 0.25% | 6.20% | 4.60% | -14.90% | 128.10% | -3.1 | 98.56 | 329.48 |
| Canada | 1643 | 12.70% | -0.30% | 0.25% | 4.40% | 6.70% | -15.90% | 117.80% | -1.9 | 1.33 | 38.01 |
| United Kingdom | 2708 | 6.60% | 1.30% | 0.10% | 3.10% | 4.50% | -14.90% | 94.90% | -3.5 | 1.25 | 67.2 |
| Israel | 402 | 15.40% | 3.90% | 0.10% | 2.50% | 5.20% | -11.70% | 71.10% | 4.9 | 3.28 | 9.29 |
| Germany | 3846 | 2.50% | 1.80% | 0.00% | 4.50% | 3.40% | -4.20% | 69.80% | 7 | 1.11 | 83.17 |
| France | 2630 | 3.30% | 3.00% | 0.00% | 2.60% | 8.00% | -9.20% | 115.70% | -1.9 | 1.11 | 67.29 |
| Netherlands | 912 | 10.40% | 3.80% | 0.00% | 3.40% | 3.10% | -4.30% | 54.50% | 7.8 | 1.11 | 17.41 |
| Belgium | 515 | 4.70% | 1.80% | 0.00% | 4.16% | 6.30% | -9.40% | 114.10% | -0.2 | 1.11 | 11.52 |
| Ireland | 426 | 21.60% | 6.30% | 0.00% | 5.10% | 5.20% | -5.00% | 59.50% | 4.6 | 1.11 | 4.96 |
| Japan | 4975 | 7.60% | 0.50% | -0.10% | 0.20% | 2.80% | -12.60% | 266.20% | 3.2 | 108.19 | 125.67 |
| Switzerland | 748 | 7.70% | 1.80% | -0.75% | 1.20% | 2.50% | -2.60% | 42.90% | 3.8 | 0.92 | 8.61 |
Mexico has an inflation rate of 6.24% based on the latest release which prompted the Mexican central bank to raise interest rates to 5.0%. Let’s take a quick look at the top exports from Mexico as of 2020.
- Vehicles: US$100.7 billion (24.1% of total exports)
- Machinery including computers: $75.5 billion (18.1%)
- Electrical machinery, equipment: $75 billion (17.9%)
- Optical, technical, medical apparatus: $18.6 billion (4.4%)
- Mineral fuels including oil: $16.8 billion (4%)
- Plastics, plastic articles: $9.1 billion (2.2%)
- Furniture, bedding, lighting, signs, prefab buildings: $9.1 billion (2.2%)
- Vegetables: $8.5 billion (2%)
- Gems, precious metals: $8.15 billion (1.9%)
- Beverages, spirits, vinegar: $8.11 billion (1.9%)
Vehicles is the number 1 export from Mexico into the U.S. It is no secret that many car lots have been empty for quite some time now due to chip and other material shortages and vehicle prices have been skyrocketing as a result. To add insult to injury, inflationary pressures in Mexico will drive these costs even higher over time until this is brought under control.
Let’s take a look at Canada’s largest exports.
- Mineral fuels including oil: US$69.1 billion (17.7% of total exports)
- Vehicles: $46.5 billion (11.9%)
- Machinery including computers: $28.9 billion (7.4%)
- Gems, precious metals: $23 billion (5.9%)
- Wood: $13.5 billion (3.4%)
- Plastics, plastic articles: $12.4 billion (3.2%)
- Electrical machinery, equipment: $11 billion (2.8%)
- Ores, slag, ash: $9.9 billion (2.5%)
- Aircraft, spacecraft: $9.7 billion (2.5%)
- Pharmaceuticals: $8.5 billion (2.2%)
According to the latest U.S. inflationary number, energy inflation was up a whopping 30% and it’s no surprise that Canada has an inflation rate of 4.4% currently.
Lastly, let’s take a look at China.
- Electrical machinery, equipment: US$710.1 billion (27.4% of total exports)
- Machinery including computers: $440.3 billion (17%)
- Furniture, bedding, lighting, signs, prefabricated buildings: $109.4 billion (4.2%)
- Plastics, plastic articles: $96.4 billion (3.7%)
- Optical, technical, medical apparatus: $80.2 billion (3.1%)
- Vehicles: $76.3 billion (2.9%)
- Miscellaneous textiles, worn clothing: $75.6 billion (2.9%)
- Toys, games: $71.5 billion (2.8%)
- Articles of iron or steel: $71.1 billion (2.7%)
- Clothing, accessories (not knit or crochet): $62.3 billion (2.4%)
China’s largest export is machinery at 44.4% and we suspect inflation will continue to hit these items until inflation is brought back under control.
At the time of this writing in November 2021, the largest trading partners for the U.S., China, Mexico and Canada are all experiencing abnormal levels of inflation and we think this inflation is being exported to the U.S. The action to take here is to monitor our trading partners and review our portfolios accordingly to see which companies may be impacted negatively from continued inflation and which ones might prosper under these conditions. It is also important to note that the United States, in turn, will export inflation to other countries as costs continue to rise in the United States. This is something worthwhile to monitor as well.
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