Chinese Trade Surplus Increases Again

While the heading to this Bloomberg news story talk of a decrease in the Chinese trade trade surplus for January, this was compared to the figures for December, a comparison of limited interest since neither number is seasonally adjusted and since December surpluses for seasonal factors tend to be much larger. Compared with January 2005 however, the surplus rose from $6.4 billion to $9.5 billion, reflecting a 28% surge in exports outpacing a 25% increase in imports. This means that after having stagnated for two months, the trade surplus in China have again started to increase.

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.