The ongoing battle between the United States and China for economic supremacy isnít only being fought in the gilded ballrooms of Washington, as trade negotiators from either side parry over automobile parts content, intellectual property rights, government subsidies and the like.

Casualties and victories are also borne out over the decks of hulking freighters that carry the commodities which make up the nuts and bolts of international trade.

Indeed, shipping statistics are often sought by economics and traders trying to predict the health of a countryís economy or the world economy. The Baltic Dry Index (BDI) is one such leading indicator. Another is the Purchasing Managersí Index (PMI). PMIs are a monthly survey of supply chain managers across 19 industries. An economy with a PMI of over 50 is considered to be growing; under 50 means an economy is treading water or possibly drowning.

This article is concerned with the Baltic Dry Index and other shipping statistics - such as cargo volumes through West Coast ports - that we can use to determine who, at this stage, China or the US, is winning the trade war.

The overall conclusion we, at Ahead of the Herd, came up with, is that the United States is winning, in terms of raw economic data, but at a cost to both economies of roughly $165 billion in two-way trade. The losers also include US consumers who are paying more for imported goods, and companies in both countries that canít afford 25% tariffs for an extended period of time.

Baltic Dry Index

Created by the London-based Baltic Exchange, the Baltic Dry Index is a measure of supply and demand for bulk cargo such as iron ore, lumber, coal, grain, etc. Demand for such bulk-shipped (as opposed to containerized cargo) raw materials is a predictor of future economic growth. For example, a country that is expanding its steel output will order more iron ore and coal, which will increase the demand for shipping these commodities. Therefore, an expanding or contracting BDI is considered to be a leading indicator of industrial production and economic activity.

The BDI is calculated by assessing multiple shipping rates across 20+ routes for each vessel category - Capesize vessels weighing over 100,000 dead weight tonnes (DWT) (these ships cannot go through the Panama Canal); Panamax ships 60,000-80,000 DWT that can go through the Panama Canal; and Supramaxes or Handymaxes, similar in size to a Panamax but with specialized loading/ discharging equipment. Members of the Baltic Exchange contact dry bulk shippers worldwide in order to gather the prices of each raw material included in the index, then calculate an average price for each. The BDI is issued daily.

Those that follow the Baltic Dry Index diligently can glean precious information in which to make investment decisions that few investors are aware of. For example, the BDI is known to have predicted the 2008 recession when the prices of key commodities in the index suddenly dropped.

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