China posted a 48.5% increase in exports in May over its level the prior year, which led to much consternation and chest thumping in DC. Recall that Treasury Secretary Geithner was under considerable pressure from Congress to certify China a currency manipulator on April 15 (one of two semi-annual opportunities). China posted a rather surprising trade deficit for March (conveniently announced a few days before the Treasury report was due) and engaged in its usual fulminating, which led the Treasury to back down. Some attributed the unexpected deficit to the timing of the New Year (when factories are closed); some claimed the shutdowns were extended to make sure the surplus fell.
Now that China’s surpluses appear to be rising with a vengeance, Congress is pushing for a remedy and the Chinese are escalating their rhetoric. From The Hill (hat tip reader John D):
In an article published on its English-language web site, Xinhua said lawmakers were “playing a dangerous game” that will “inevitably mislead the American public, and poison the atmosphere of Sino-U.S. economic cooperation.”
Later, the article adds that “(t)hese congressmen claim they are the white knights defending the interest of the American people, but in fact, they are nothing more than a bunch of baby-kissing politicians trying to swing voters by manipulating the yuan debate.”…
Treasury Secretary Timothy Geithner testified Thursday before the Senate Finance Committee that China has not given any indication that it’s ready to act in the short-term, and Sen. Chuck Schumer (D-N.Y.) made it clear lawmakers’ patience is growing thin.
Schumer has introduced a bill that would tax Chinese imports to make up for the perceived unfair advantage of an undervalued currency, and warned Geithner the Senate was “going to do it soon.”…
Some European leaders, facing their own slow, jobless recovery from the so-called Great Recession, have called for a united U.S.-European front against China on the currency question.
Interestingly, some Asian analysts believe the strength in Chinese exports is temporary, and the euro devaluation will lead to a reversal. From News N Economics (hat tip Marshall Auerback):
A negative export growth trend has been established – explicitly in the Philippines and likely going forward in China … And these countries have strong trade ties with Europe – the Eurozone was 15% of 2009 world GDP (PPP value) according to the IMF.
Therefore, recent nominal appreciation of the Philippine peso and Chinese yuan against the euro, and expected real appreciation – Europe’s self-imposed economic contraction stemming from harsh fiscal austerity measures will drag prices downward – may very well hamper the economic recovery for key Asian economies via the export channel.
Export growth in the Philippines has been slowing to top trading partners…
In China, though, a resurgence of export growth among its top trading partners bucks the trend seen in the Philippines.
…Chinese exports are quite volatile in the beginning of the year. I suspect that Yu Song and Helen Qiao at Goldman Sachs are right, that export growth will initiate its trend downward starting in June:
We believe the very strong exports growth in May is likely to be a temporary phenomenon, much like the very weak exports data recorded in March, and expect June data to show a visible normalisation,…
The recent nominal depreciation of the euro against the Chinese yuan and the Philippine peso, 11% and 8%, respectively, since April 1 2010, will pass through to both Chinese and Philippine exports at a lag. And further real depreciation – the nominal exchange rate adjusted for relative prices of goods and services – of the euro against the yuan and the peso is almost certain. Europe’s self-imposed fiscal austerity measures will crimp economic growth and deflation is bound to take over across Europe and relative to Asia.
As such, recent external shocks from Europe will likely show up Chinese and Philippine trade data in coming months. Doesn’t look good for Asia, especially for those economies like the Philippines and China for which exports provide a robust growth impetus.