by Calculated Risk on 3/11/2009 10:51:00 AM

From Brad Setser: The fall in China’s exports caught up with the fall in China’s imports, at least for now

After soaring for most of this decade — the pace of China’s export growth clearly turned up in 2002 or 2003 and then stayed at a very high pace — China’s exports are falling back to earth. The surge in China’s exports could prove to be as unsustainable as the rise in US (and some European) home prices. They might end up being mirror images … as Americans and Europeans could only import so much from China so long as they could borrow against rising home prices.
emphasis added

credit: graph from Brad Setser

Historically there has been a strong correlation between household mortgage equity withdrawal (MEW) in the U.S. and the U.S. trade deficit. Now that MEW is essentially over, the U.S. trade deficit has declined sharply too.

As Setser suggests, the surge in China's exports were very dependent on the U.S. and European housing bubbles - and MEW.

Note: Q4 MEW will probably be available next week (the Fed's Flow of Funds report will be released tomorrow).