China Trade

For a long time, China's trade surplus with the United States was largely offset by a trade deficit with much of the rest of the world, leading to a roughly balanced trade position overall. This fact could be pointed to by those who wished to defend China against accusations of "unfair" trade practices. Not any more.... This week's "Off The Charts" feature in the NY Times has the (official) numbers, which show that China's trade surplus began to balloon in late 2004. Floyd Norris writes:

This week, China reported that its trade surplus for October came to a record $27 billion, a figure that is larger than its surplus for the entire year of 2003.

But even as it was posting a record surplus, China was reporting that its imports were at the lowest level in several months, and were particularly weak from Europe.

Over the last three months, China imported an average of $9.7 billion a month from Europe, a figure that was almost 5 percent lower than imports in the same three months of 2006. It was China’s biggest year-over-year decline in imports from Europe since 1998, when China was only a marginal presence in world trade, rather than the dominant force it has become.

Because China intervenes heavily in foreign exchange markets to limit the appreciation of the Yuan versus the Dollar (i.e. they are keeping the value of their currency artificially low), it has inherited some of the depreciation of the Dollar versus the Euro (i.e. European goods have become more expensive to China and Chinese goods cheaper to Europeans).

US exporters may be reaping the benefit as their European competitors get priced out of the market - according to the Census Bureau's Foreign Trade Statistics, the US exported $5.6 billion worth of goods to China in September, up 21% from a year ago (US imports from China were $29.4 billion, so the deficit is still huge, but shrinking).

In addition to its currency market intervention, China appears to be doing other things to promote a trade surplus. The NY Times reported on Friday:

Few American industries have had more success in selling goods to China than makers of medical devices like X-rays, pacemakers and patient monitors. Which is why a recent Chinese decree was so troubling.

The directive, issued in June, called for burdensome new safety inspections for foreign-made medical devices — but not for those made in China. The Bush administration is crying foul.

Even more worrisome to the administration is that the directive seems part of a recent pattern in which Chinese officials issue new regulations aimed at favoring Chinese industries over foreign competitors...

This is a good example of how regulations can be used to create "non-tariff barriers" to imports, which is why World Trade Organization rules require "national treatment" (i.e. apply regulations in the same way to imports as domestically-produced goods). This would appear to be clear grounds for a case at the WTO. It will be interesting to see if the Bush administration will take them on... Or maybe we should let the Europeans do it.