China Trade Surplus Surges

Members of Congress who are trying to force the Obama Administration to label China as a “currency manipulator”  now have another weapon. The China Customers Bureau reported that the People’s Republic’s trade surplus for June was $20 billion.

“China has reported another strong trade surplus, and next week we are going to see another large U.S. trade deficit. This contrast will likely add to the international pressure on Beijing to allow further currency gains to make a bigger contribution to global growth,” said Royal Bank of Canada economist Brian Jackson, according to The Wall Street Journal.

Many economists and members of Congress believe that China was being disingenuous when it said that it would stop the policy of pegging the yuan to the dollar. That should have begun to devalue China’s currency which would make US exports more competitive in world markets. The value of the yuan has been blamed for a loss of American jobs, particularly in the manufacturing sector. With unemployment in the US hovering just below 10% and the manufacturing sector in a shambles, Congress is likely to try to seize the power of the Treasury Department to decide whether China’s currency in being manipulated. That, in turn, could cause the US to put high tariffs on Chinese imports. China would likely retaliate and a trade war would ensue. Import and Export of China charts from China Customers Bureau

A trade war between the two giants could disrupt global trade enough to make the financial contagion issues in Europe seem like a relatively small problem. Costs of goods imported into the US would likely soar greatly pressuring consumer spending

Also, China said it would not employee the “nuclear option” of dumping US Treasuries which would make America’s borrowing costs soar. But that could change quickly

Douglas A. McIntyre