China's Trade Deficit - Yes, Trade DEFICIT

April 14, 2010 - PRLog -- By David Caploe PhD, Chief Political Economist, EconomyWatch.com

While you would barely know it from reading the New York Times or most other Western media, in March China indeed posted its first monthly trade deficit – USD 7.24 billion – in six years.

And there are two reasons you wouldn’t be likely to have heard about it:

a) in true “economediatic” © fashion, it was announced and reported on Friday night / Saturday morning US time, which, as we’ve made clear, is almost always the time when “bad” news is made public; and

b) in the weeks before, as we’ll demonstrate in a moment, the American media, at least, was full of the usual ill-informed jeremiads against the “UNDER-valued” renminbi –

and, of course, the announcement of a multi-billion trade DEFICIT makes such claims a bit less credible, to put it mildly,

since, according to the nonsensical academic economic conventional wisdom, a trade deficit is prima facie indication of an OVER-valued currency.

Interestingly and predictably enough, the US media frenzy demanding appreciation of the yuan – in true “global media society” fashion –

elicited a strong counter-reaction in the Chinese blogosphere – where discourse is much freer about economics than politics – AGAINST any upward revaluation,

a fact that made any such move even less likely – and, in our view, rightly so – than it was already.

To take only two of many “China MUST revalue” items, both appearing on April 8, the first was a news piece by the Times’ generally shrewd correspondent, Keith Bradsher, claiming that “China Seems Set To Loosen Hold on Its Currency.”

To be perfectly honest, we were skeptical when we read it, about both its likelihood and, even more, what would be the point of it all, as even Bradsher seemed to be:

   

Insisting on anonymity because of the delicacy of the issue in Beijing, they predicted that China’s policy shift could easily occur before President Hu Jintao arrives in Washington next week for discussions with President Obama and other world leaders on improving nuclear security.


Well, he was certainly right about the sensitivity of the issue – which we’ll get to in a moment –

but, at least so far, he and all the people he references in the piece got it ALL wrong when they predicted such a move would come before the start of the nuclear security talks.

And given the firestorm these and other Western media items provoked in China, the timing of any such shift has now been moved back months, if it’s ever going to happen at all.

That said, it’s interesting to see how little effect Bradsher thought a revaluation would have:

   

A stronger renminbi could prove to be a mixed blessing for the United States.


Indeed !!!

   

If China cuts back sharply on purchases of Treasuries, then the Obama administration could find it harder to finance American budget deficits.  


Well, that would be great, wouldn’t it ???

   

But with the Chinese economy booming, a small move in the renminbi may still leave the central bank struggling with trade surpluses and a tide of speculative investment into China.

That could force it to continue buying Treasuries with the extra dollars.


Notice the use of the conditionals, “may” and “could”.

Now there WAS some interesting information about the “policy politics” of this debate within the Chinese government:

   

Chinese officials have been publicly wrangling over what to do about the currency for a month.


And the fact that the debate has become public, of course, is a sign of how serious an issue it has become for the elite.

   

The central bank [which, not surprisingly, tends to be in tune with the central bankers of OTHER countries] favors a prompt move,

while the Commerce Ministry, aligned with exporters, has opposed currency appreciation.


And this is the key division within the governmental elite.

   

The Obama administration has stayed scrupulously silent, fearing that public comments could backfire by stirring a nationalist reaction in Beijing against international pressure.


But, of course, in this age of the global media society, it’s not only the statements of government officials that people can access –

it’s also precisely media accounts
like this, and that’s what got Chinese bloggers so upset in the less-than-a-week since this appeared.

To read more at http://www.economywatch.com/, go to:

http://www.economywatch.com/economy-business-and-finance-...

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