A story in China Daily indicates that the Chinese offiicaldom foresees a record trade deficit for March:
The country will probably see a “record trade deficit” in March thanks to surging imports, Minister of Commerce Chen Deming said on Sunday, while warning that Beijing will “fight back” if Washington labels China a currency manipulator.
Speaking at the three-day China Development Forum that ends on Monday, Chen said: “I believe there will be a trade deficit in March” – which will be the first since May 2004.
Yves here. Note that a trade deficit would seem to undercut the US’s argument that the renminbi is undervalued (or to put a finer point on it, it may have been undervalued, but is no longer). If true, this may bear out the contention made here by Marshall Auerback in earlier posts, namely, that domestic inflation is running at a high level. The effect, of repricing goods upwards in renminbi terms, would have the effect of making prices less competitive globally.
Cynics may argue that China’s suddenly showing a trade deficit, on the eve of when the Obama administration is under pressure to brand China a currency manipulator, is just too convenient an outcome to be believed. China’s salvo about its notoriously crappy, politically manipulated statistics, in “the lady doth protest too much” fashion, only serves to bolster those doubts:
The ministry also said on Friday that Washington’s method of evaluating trade figures magnifies the deficit with China.
“The deficit has been vastly overestimated based on American statistics,” and according to the latest report prepared by both sides, the US deficit for 2006 is “26 percent higher than it should have been,” Chen said.
Yves again. No matter how you look at this, the pre-announcement is significant. If China appears to be fudging its data, it sets the stage for a full blown trade war. Regardless, this salvo makes the idea Auerback discussed more than a month ago, which was hooted down at the time, that China might devalue the renminbi, suddenly look like a real possibility.