China and the Supply Chain.

On Sunday morning, US Time, the Chinese released their latest balance of trade numbers. It was a total shock. Analysts had expected a trade surplus of nearly $25 billion dollars. Down slightly from China's usual surplus, but still solidly in the black for the Chinese Trade Machine. Instead we got a trade deficit of $7 Billion dollars. Way out of the expectation of any on Wall Street.

On Sunday morning, US Time, the Chinese released their latest balance of trade numbers. It was a total shock.

Analysts had expected a trade surplus of nearly $25 billion dollars. Down slightly from China's usual surplus, but still solidly in the black for the Chinese Trade Machine.

Instead we got a trade deficit of $7 Billion dollars. Way out of the expectation of any on Wall Street.In this new environment, you have to ask: was the deficit a result of a lack of overseas buyers, or a lack of Chinese producers?

The answers, probably both. But if we can believe the anecdotal, and news reports coming from Wuhan as well as other cities. We come to the conclusion that Chinese production is in an astonishing decline. Entire factories must be shut down.

And that's the likely explanation for this dramatic decline in trade. So, assume for the moment that I'm right, and Chinese factories are idle, and production is way down.

Then what does that mean for the supply chain? Those goods and supplies that are shipped to the United States, and upon which we rely for much of our retail sales.

According to Transport Topics, and magazine which reports on the activities of our shipping ports. The ports of Long Beach and Los Angeles have seen a decline in their shipping volume of about 5% beginning in January.

That would correspond with the outbreak of the Coronovirus in China. Transport Topics also notes, that most of the other US Ports are experiencing shipping declines also beginning in January.

But that decline may be just the first stage of this impact. Most container ships take about 60 days, plus or minus, to reach The United States from China. That means that the real slow down in production, which began with the initial outbreak of the Coronavirus at the end of December.

That slow down in Chinese production should hit our shores in a serious way beginning at the end of this month. Unfortunately, the more I have researched this topic, the more I realize that it is most often the American firms which have made it so difficult to really anticipate what that full impact will be.

The first time I ran into this lack of transparency by the American Companies were in reviewing the annual reports of several Pharmaceutical companies. To a company, they all claimed that it was quote: “industry practice” not to release exactly which compounds the Chinese produced for the Americans.

So too, it is difficult to find out which components the Chinese make for American Tech companies. It appears that for years now, American companies have intentionally withheld disclosing exactly how much their Chinese counterparts have been involved in their supply chain.

That's all about to be revealed. Over the next month or two, we will get to see just how much of those drugs and electronics, have been provided by a supply chain that began in China.

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