Tuesday March 23, 2010 - 22:52:03 GMT
Share This Story
Foreign Exchange Analytics - www.fxa.com
China's March Trade "Deficit"
My ears perked up when I read today that Chinaâ€™s Premier Wen Jianbao said China would run a trade deficit of around $8bln and its first in 72 monthsâ€¦he was quoted as saying â€śTo be honest, I was happy when I learned of the situation.â€ť Like this is the adjustment process in work without any adjustment in USDCNY in nearly 2 years. And it turns out that the main factors driving an alleged trade deficit in March are seasonal â€“ late start to the Chinese New Year and factory closures tying up commerceâ€¦it has little to do with any jump in import demand or a large drop in exports. At the same venue (speech to foreign business people in Beijing), Wen said he did not want any currency or trade wars. Frankly of China starts running monthly deficits I would be very suspicious of the figures and would want to aggregate bilateral trade balances for the same months from Chinaâ€™s major trading partners â€“ like the US and see how China data match up with US data over time.
While a large rise in the yuan is no ticket to trade balancing, it is a starting point and will aid adjustment over time. The issue here is whether China wants to snub pressure from G20 and continue with its grossly undervalued currency, or be a responsible (and increasingly powerful) member of the global community and play be a higher standard of rules of the road for commerceâ€¦including not forcing Google to block some searches to preserve the state apparatus of the CCP. Not sure why anyone can argue that the US is getting the best of the trade relationship with China? While I am not suggesting a closed economy or sanctions to prevent imports from China, I canâ€™t help but believe that US firms have very little access to Chinaâ€™s consumers on terms any other than those dictated by the CCP and its bureaucrats.
Schumer and Graham today announced a fast track for their bill to make naming Chinaâ€™s currency misaligned a lot easier than naming China a currency manipulator and cited a study from Economic Policy Institute that blames the fixed yuan and closed markets for the loss of 2.4 million US jobs. Perhaps this overstates job losses from outsourcing and uncompetitive exchange rates (real issue is low wages in China which the currency reval would partly address). Perhaps not. But one thing is clear the US trade deficit with China has gone from $83bln in 2001 to a record $268bln in 2008 and then in the face of collapsing global trade fell to $226bln in 2009 (see EPI)â€¦if a collapse in global trade and a spike in US household savings only gets the bilateral trade gap down 16%, there is a massive structural problem in this relationship. Sure consumers get low priced consumer goodsâ€¦but this is also deflationary and with China buying massive quantities of US gvt debt, this trade divide also keeps US interest rates lower than they would otherwise be which played a role in causing the credit crisisâ€¦cheap financing for mortgages and all sorts of other stuff. To think of this relationship as an equilibrium is ludicrousâ€¦it is a serious distortion and nothing is really changing it muchâ€¦not even the worst recession since the 1930â€™s globally.
China and the US meet this week in Washington (Chinese trade official). US Treasury reports on FX to Congress April 15 and has another opportunity to name China a currency manipulator (donâ€™t count on it). And most importantly the Strategic and Economic Dialogue meeting in Beijing in late May is on the horizon. If something concrete is not accomplished in the next few months on US-China trade, Congress will own this dispute and things could get ugly fast.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."