China’s trade balance fell and weakness of the EU economy was largely to blame. That problem is unlikely to come to an end soon and probably will worsen.
China’s trade surplus was $14.5 billion in September, which is below August’s $17.8 billion. The news reached the market at about the same time as a new IMF study that reports: “Risks for Asia are decidedly tilted to the downside.” The IMF said China’s risk was not as great as for other nations in the region, but it was still present.
China’s trade problems obviously extend well beyond the EU. The economies in the U.S., Japan and the UK have stalled. Employment in the UK recently reached a decade low. The trade figures issued by the People’s Republic said the nation’s appetite for imports has dropped. This means that either inflation has eroded purchasing power or that China’s middle class has begun to worry about a global slowdown.
China’s trade problems are even more complex than the trade numbers show. The U.S. Congress has begun a process that would pressure the Obama administration to label China as a currency manipulator. China’s worsened trade balance will pressure its central government to do nothing with the yuan. This will further worsen trouble with the U.S.
China is caught in a trade trap that may be even more troubling than the one in the last recession. The incentives to revalue its currency have grown because it almost certainly wants to avoid a trade war, but its exports, at the same time, have become less attractive to the world.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks