The above-linked USAToday article reports on China’s first trade deficit in more than six years. It’s no mere coincidence that this has occurred just before a decision by the Obama administration whether to label China a “currency manipulator,” a move that would have opened the door to tariffs on Chinese imports.
China virtually admits as much:
China posted a $7.24 billion trade deficit in March, its first in almost six years, the official Xinhua News Agency reported Saturday, citing customs figures. Officials say the trend will be short-lived. The March deficit was China’s first since it recorded a $2.26 billion deficit in April 2004.
The return to deficit after many years of surplus could help ease pressure on China to allow the value of its currency to rise against the dollar — a key source of contention with the U.S. and other trading partners.
But even China’s minister of commerce, Chen Deming, described March’s deficit as only a “blip on the radar,” the state-run newspaper China Daily said Friday.
Running a trade deficit in any one month is no real trick for China. All they have to do is stockpile raw materials – oil and other commodities – by boosting imports while simultaneously slowing their exports a little.
Economists say the deficit reflected weak exports to the United States and other major markets still struggling to recover from the recession. Strong imports of commodities and components to fuel China’s own booming industrial sector contributed to the 66% jump in imports — albeit from a relatively low base the year before when China was also just emerging from a slowdown.
“Surging raw materials prices, for crude oil, iron ore, and nonferrous metals, which China buys a lot of for its own strong domestic economy, are another factor,” said An Yun, an analyst at Chang Xin Asset Management.
In other words, they manipulated trade to come up with a deficit just ahead of the Obama decision. So don’t be fooled; this isn’t the start of a new trend toward rebalancing the global economy. The U.S. trade deficit with China will soon be worse than ever, regardless of what happens to the yuan valuation issue. That is, of course, unless Obama actually decides to take action. But that’s a hedge that even Goldman-Sachs couldn’t sell.