Today’s monthly trade figures out of Washington will do little to calm the protectionist spirits in the U.S. America’s trade deficit in November hit its highest level in 14 months, the AP reports, a larger than expected 9.3% increase to $63.1 billion.
Beijing’s friends in Washington will point to a sharp increase in America’s oil import bill as the main cause and note that China’s share of the deficit dropped, albeit slightly, to $24 billion.
Indeed, true. But Beijing’s foes will counter that the smaller deficit with China followed October’s record high of $25.9 billion, when American retailers were shipping in Chinese-made toys, games and video equipment to stock their shelves for the holiday sales season — product safety recalls not withstanding.
America’s exports continue to surge, benefiting from the fall of the dollar against the currencies of most of the U.S.’s trading partners. The greenback’s decline is the market’s way of adjusting the world’s huge imbalances, namely Asia’s trade surpluses and America’s deficits. It makes U.S. exports cheaper and imports more expensive.
That’s working as the textbooks say it should on the export side. But it is a different matter on the other side of the trade ledger mainly because China is America’s main supplier. Beijing is letting its currency appreciate slowly against the dollar and other Asian suppliers to America keep their currencies in line with the dollar-yuan rate so as not to disadvantage themselves against China in the U.S. market.
And there’s the rub for the U.S. Congress. Over the past 5 years, the dollar has fallen by a third against a weighted basket of the currencies of America’s trading partners and by nearly half against the euro. But the yuan has appreciated only 8% against dollar since China loosened peg in July 2005.
Some in the U.S. Congress are paving the way for economic sanctions on China if it does not allow its currency to rise in value more rapidly against the U.S. dollar in response to the contention of some of their constituents — or their constituents’ lobbyists — that Beijing is manipulating the yuan to its own manufacturers’ benefit, keeping it undervalued by as much as 40%.
Certainly much of Chinese manufacturing is in no shape to withstand a sudden and rapid appreciation of the yuan. Beijing is fully away of the social unrest that could be unleashed away from the East coast if it let that happen. Equally, as the recent inflation figures and new price controls show, it is having an ever harder time sterilizing the inflationary impact of its trade surpluses.
Even if Beijing took the highly improbable step of letting the yuan appreciate by 40%, it is equally as unlikely that that would bring China’s trade with the U.S. back in to balance.
The U.S. is not alone in facing a barrage of Chinese exports. The country’s trade surplus with the world rose by 47.7% to a record of $262.2 billion in 2007. Total trade exceeded $2 trillion for the first time.
The Bush administration prefers to deal with the issue by taking trade cases one by one to the WTO. Trade jaw-jaw rather than trade war. But this is a Congress increasingly spoiling for a fight.
Plus there is a ring. It is election season in the U.S. Immigration is a hot issue, especially as the campaign moves south. It is a short hop in many voters minds from illegal immigration to China trade via “lost” manufacturing jobs, and a discouraging number of presidential candidates encouraging them to make the connection.
All politics is local, even though globalization is not.