Courtesy of Mish.
China’s trade surplus hit a 3-year high this month as import growth plunged. That setup raises many questions.
First, let’s consider the initial story. Bloomberg reports China’s Import Growth Misses Estimates for June
China’s imports rose less than anticipated in June, pushing the trade surplus to a three-year high and adding pressure on the government to support demand as the global economy slows.
Inbound shipments increased 6.3 percent from a year earlier, the customs bureau said in a statement today in Beijing, compared with the 11 percent median estimate in a Bloomberg News survey of 32 economists. Export growth slowed to 11.3 percent and the trade surplus rose to $31.7 billion.
Rising surpluses may further strain trade relations with the U.S., which surpassed the European Union in the first half as China’s biggest foreign market and is in the midst of a presidential election marked by criticism of the Asian nation.
The country’s trade surplus with the U.S. and lack of currency gains have been issues in the U.S. election campaign this year, as American job growth slowed last quarter. Mitt Romney, the Republican presidential candidate, has criticized President Barack Obama as too soft on China. At the same time, Obama has expanded trade complaints against the nation: Last week he accused it of imposing unfair taxes on American vehicles, mostly from General Motors Co. and Chrysler Group LLC.
Will US Response Be Protectionism?
Mitt Romney has pledged to designate China a “currency manipulator” and impose duties on its imports if the yuan isn’t allowed to float freely.
If Romney increases tariffs three things will happen, all of them bad.
- Prices will rise
- Growth will slow
- China will retaliate with tariffs of its own or by buying more goods from Europe instead of goods from US produces
In essence everyone will pay higher prices for goods and services in hopes of bring back a few hundred manufacturing jobs (while losing tens-of-thousands of jobs in the ensuing economic slowdown).
Agreement With Lagarde
It is not often I agree with IMF head Christine Lagarde, but this time I do. Please consider IMF’s Lagarde urges caution over protectionism
IMF Managing Director Christine Lagarde on Tuesday said the global economic situation was worrisome and urged countries to be cautious of protectionism….
