HSBC research shows that despite a significant surge in Asian exports, the growth of U.S. inventories has been relatively limited, exposing the complexity of the trade front-loading effect.
On July 12, according to news from the Chasing Wind Trading Desk, HSBC pointed out in its latest report that recent data indicates that exports from China and other regions in Asia have reached historical highs, with South Korea's exports in the second quarter showing strong quarter-on-quarter growth. However, this phenomenon raises a puzzle:
If U.S. importers are indeed stockpiling on a large scale to avoid higher tariffs, their inventories should have surged significantly, but the actual data does not show such a clear increase.
Frederic Neumann, HSBC's Chief Asian Economist, noted that while U.S. retail inventories have risen, they have only returned to the peak levels of September 2022, which pales in comparison to the inventory surge during the pandemic. This contrast may have three explanations: data lag, bonded warehouse storage, or unexpectedly strong U.S. end demand.
The report states that if it is the latter, it means that Asian exporters may have avoided the &#34;front-loading&#34; backlash effect that the market was previously concerned about. However, HSBC warns that high tariffs will ultimately have a significant impact on Asian exports.
<h2>Asian exports reach historical highs, U.S. inventories only grow moderately</h2>
HSBC data shows that the export volume index for mainland China and emerging Asia (excluding China) has both reached historical highs. Among them, South Korea's export volume in the second quarter has significantly accelerated quarter-on-quarter growth.
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U.S. manufacturing imports have surged significantly in the past few months, while European imports have shown the opposite trend. Some of these imported goods have indeed entered the warehouses of U.S. retailers, pushing retail inventories higher.
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Although U.S. retail inventories (excluding automobiles) have increased, the growth has been relatively moderate. The latest data as of May shows that inventory levels have just exceeded the peak levels of September 2022, which is significantly lower compared to the inventory surge caused by supply chain shocks during the pandemic.
The report states that what is more telling is that the U.S. retail inventory-to-sales ratio has changed little in recent months, indicating that retailers are currently maintaining relatively lean inventory levels. Other indicators also confirm this:
<blockquote>
The inventory component of the U.S. Logistics Managers' Survey shows that while total inventories have expanded, the pace of expansion is not particularly fast and is below the levels seen during the pandemic-related supply chain shocks from mid-2021 to mid-2022.
</blockquote>
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<h2>Where Have the Exported Goods Gone?</h2>
HSBC provided three possible explanations in the report: data lag, bonded warehouse storage, or unexpectedly strong U.S. end demand.
1. Data Lag: U.S. retailers' forecasts for container import volumes indicate that while imports were higher than the same period last year in April, there was a significant decline in May, possibly a lagging response to the tariff announcement in April.
Retailers predict a substantial surge in imports in June and July, speculating that this is due to front-loading purchases ahead of the tariff increase on August 1. Subsequently, imports are expected to drop significantly, far below 2023 levels, possibly due to the backlash effect of early front-loading.
2. Bonded Warehouse Storage: U.S. importers can store goods in bonded warehouses for up to five years without paying tariffs until the goods are released for distribution. Given the ongoing uncertainty regarding tariffs, importers may have purchased large quantities of goods but intend to keep them in bonded warehouses until actual sales or before the tariff increase.
Data shows that the proportion of goods from mainland China entering bonded warehouses has indeed surged, although this series of data is quite volatile. However, these goods account for less than 4% of the total procurement from mainland China. Moreover, the proportion of imported goods from other Asian economies using bonded warehouses remains within normal ranges.
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HSBC believes that while there is evidence of front-loading shipments, overall inventory in the U.S. has not excessively inflated, and the usage of bonded warehouses cannot fully explain this puzzle.
This suggests an enticing prospect: U.S. end demand may be stronger than expected, and the backlash effect of front-loading shipments may not be as severe as feared. However, HSBC emphasizes that it is unrealistic to assume that high tariffs will not have a significant impact on Asian shipments at some point

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HSBC Research found that there are three possible explanations for this contrasting phenomenon: first, there may be a lag effect in the data; second, goods are stored in bonded warehouses to avoid tariffs; third, U.S. end demand is unexpectedly strong. HSBC leans towards the third explanation, believing that strong end demand may allow Asian exporters to avoid the backlash effect of "front-loading shipments," but warns that high tariffs will ultimately have a significant impact on Asian exports

- HSBC's report indicates that despite a significant surge in Asian exports, U.S. inventory growth remains limited, highlighting the complexities of trade front-loading effects.  
- The report suggests three possible explanations for this discrepancy: data lag, storage in bonded warehouses, or unexpectedly strong U.S. end demand.  
- HSBC warns that high tariffs will ultimately have a substantial impact on Asian exports, despite the current resilience in demand.

Strong exports in Asia, but no increase in U.S. inventories. Where did these "export-seizing" goods go?