Chinese Trade Surplus Increases Again
This is likely to mean that the pressure on the Chinese to increase the foreign exchange value of the yuan is likely to increase. After the 2.1% revaluation in July from 8.28 yuan/$ to 8.11 yuan/$, the yuan have only strengthened 0.8%, to 8.046 yuan/$. While the pace of appreciation have increased somewhat, with the gain being 0.28% the last month, compared with a monthly average of 0.1% the previous 5 months, this is still far to little to have any significant impact on the trade balance. While I myself is not bothered by the Chinese trade surplus and while I am generally skeptical to the Friedmanite "exchange rate flexibility" idea, a stronger yuan is appropriate in the current circumstances, since we are otherwise likely to see a increase in formal trade barriers, something which is worse both for the Chinese and for us. Moreover, a smaller trade surplus would reduce Chinese purchases of U.S. government bonds and thus raise bond yields, which in turn means that the seriousness of Bush's fiscal recklessness would be more apparent.