China Manipulates Trade Balance Ahead of Yuan Decision

http://www.usatoday.com/money/world/2010-04-09-china-runs-trade-deficit_N.htm

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.

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4 Responses to China Manipulates Trade Balance Ahead of Yuan Decision

  1. Mark Hall says:

    Judging from their past experience, our government leaders probably again fell for this suspiciously timed ploy hook, line and sinker.

    Remarkable how quickly they reacted to Geithner’s visit.

    We sure showed them a thing or two, didn’t we!

    By the way, China Holly shrubs make nice “hedges” and when they get unwieldy you can get them under control and/or cut them down to acceptable size with a simple pair of shears.

    Sorry, but that’s probably as good as it is going to get.

  2. Randy says:

    You can’t take action when the country is net energy negative. Sure, there is oil around locally but its not cheap oil. How do you pay workers in a modern factory good wages to pull levers when you can’t even fix up the existing infrastructure because triple digit oil prices gets people right off the roads. Most people’s jobs are essentially nonsensical (the so-called FIRE industry) to drive maximum transactions to service the impossible late stage fractional reserve exponential function that dooms all currencies over time.

    Unless Pete has some actual solutions to make the real physical economy far more competitive to offset the price of oil, I’m afraid his manufacturing paradise is a fiction.

    • Pete Murphy says:

      “Most people’s jobs are essentially nonsensical …”

      Keep ’em comin’, Randy. We can all use a good laugh.

      By the way, please define your “FIRE” acronym.

  3. Randy says:

    FIRE – Finance, Insurance, Real Estate

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