China’s December trade surplus was only $13.1 billion, a 17.9% increase. That would be a boom for any other nation. But, November’s improvement was a more impressive 34.9%.
Some economists will claim that China’s red-hot economy has begun to cool. Others will say that China’s place as a low-cost labor market has begun to disappear. The People’s Republic faces inflation as the cost of goods sold level. There has also been government support for wage increases among the factory class–some as high as 30%.
Another part of the debate about the trade surplus is that it is a sign that the economies of Japan and the West have started to falter again. There are some signs of that in the US jobless numbers. Austerity and tax programs in the EU and UK could temporarily cap grow. China’s trade partners may have begun another period of extremely modest growth or minor recession.
China will certainly use the data as leverage in upcoming high level talks in Washington. The People’s Republic has been badgered by the US to allow the value of the yuan to float upward. The currency is viewed as a major reason for China’s trade advantages.
China will argue that the December trade numbers are proof that it now lacks the advantages it had over the US in their trade relationships in the last few years. It will be another means to bully the American government to keep it from adding trade sanctions against the world’s second largest economy based on GDP. Many members of Congress are already pressuring the President on the issue.
The US will need to argue that a month of statistics is not a trend. A decade of statistics is. There is no reason to believe that the modest Chinese trade deficit for December is anything more than an anomaly if it is not due to a breakdown in the American economy. It is simply foolish to argue otherwise. China’s trade surpluses will almost certainly rise in 2011. It has to push its factory goods somewhere and that somewhere always includes the US.
Douglas A. McIntyre
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