China Admits Europe Is A Problem

It may be a ruse, but China now says that problems in the economies of Europe will undermine the growth of its exports in the second half.  The Ministry of Commerce said “The sovereign debt crisis has made many EU countries shift to fiscal austerity from fiscal expansion, which will greatly restrict consumption and investment growth in the EU.” The organization also expressed concern about slowing of GDP in some Latin American countries. The Ministry did not have to mention the US. Even the Federal Reserve is concerned about second half economic growth in America.

China has talked for three weeks about its economy cooling since numbers showed a surge in its exports in June. The People’s Republic said the figure was an anomaly. Perhaps Western nations were temporarily restocking inventories.It is just as likely that China is posturing because of growing concern in the US that China still uses the yuan as a weapon to keep the price of its exports low as they enter the world market. America’s most recent trade deficit figures showed that imports from China rose. Politicians in the US have begun to agitate for the Administration to punish China for its trade practices. This could cause a trade war which could significantly alter the dynamics of the global economy by raising the prices that China’s trade partners pay for goods. That will slow the growth of the People’s Republic sharply. It would even cause China to use what is known as the “nuclear option” of dumping US Treasuries.

The nuclear option and trade sanctions still seem to be distant possibilities but China’s feint on trade will simply bring the situation to a boil if the trade numbers for the country do not change substantially in July and August. If they do not, China will be once again called  a country that will deceive for its own good, as long if not longer than it can get away with it.

Douglas A. McIntyre