China Trade Deficit Reaches $7.3 Billion, Hope For US Exports

China’s trade deficit reached $7.3 billion in February, a number many experts say was due to the Lunar New Year holiday. Media sources say the number is the highest in seven years. Economists believe China’s surplus will reappear again for the rest of they year, but there was one number in the announcement which should give US businesses some hope. Imports to China rose 19.4%

American businesses and politicians continue to be concerned that China still manipulates the yuan and exports goods which are “unfairly” priced. Increases in wages of the typical worker in the People’s Republic may be an unexpected benefit that offsets some of those worries. Economists believe this increased compensation will cause inflation and may help boost consumer spending on Chinese made goods. It is also possible the newfound higher pay will allow member of China’s middle class to consider the purchase of a Ford (NYSE: F) or Apple (NASDAQ: AAPL) iPhone.

Even if China’s large surpluses do return, American exporters may find it easier to gain customers in the world’s most populous nation. There is a reason that GM is raising production capacity there and that Kentucky Fried Chicken plans to open more stores. China may become a larger fast food market than the US in the next decade. China’s export machine will stay in place and may even grow, but US firms believe a new, voracious consumer has become a permanent part of the economy.

If China’s consumer spending continues to rise, there will be a foot race between companies based in China and firms from the US that export to China or sell goods and services “in country.”  The competition for sales will start to tilt toward whether the People’s Republic will allow a fair fight.  It may have little choice because prices of China’s manufactured goods are already moving higher in price due to inflation.

The focus of the US commercial relationship with China has been based on  China’s ability to produce cheap finished goods. The purchasing habits of China’s consumers and the central government’s policies about the freedom of US companies to sell goods in the People’s Republic will become more important by the day.

Douglas A. McInyre