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China's trade surplus down 8.5% - good timing!

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In Brief

A significant fall in China's trade surplus couldn't have come at a better time: just months before the US Presidential election.

The figures were announced (Chinese only) by China's General Administration of Customs on Monday.

[caption id="attachment_738" align="alignright" width="300"] Change in China trade statistics: 2007-2008[/caption]

(The People's Daily is reporting a fall of 9.6per cent in China's trade surplus, although it isn't clear how they arrived at that number since their source is the above table)

China's lower trade surplus is mirrored by a lower trade deficit in the US: while exports to the US rose by 8.9per cent, Chinese imports from the US rose by 24.5per cent, leaving China's trade surplus with the US to fall by 15.6per cent compared with the first half of 2007.

There are various reasons for the US$13 billion drop in China's trade surplus.


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The Chinese authorities are keen to point to official policies aimed at reducing the surplus, but the US driven global economic slowdown probably had more impact. The slowdown has reduced the buying power of the majority of countries that import from China in significant measure; it has also caused the value of the US$ to fall against most major currencies, including the RMB. Another major factor was the rising price of energy resources, with the higher prices of imports of energy reducing the dollar value of the trade surplus.

Why is this good news in relation to the US election?

During Ohio’s Democratic Party primary election Obama sounded awfully protectionist, and China was the implicit if not explicit target. The reality is that good trade policy makes bad politics, and good politics make bad trade policies. Though it might have nothing to do with trade policy, falling Chinese trade surpluses (and falling US deficits) will take some of the pressure of US trade politics.

If trade policy can be kept out of the politics of the US elections, so much the better.


Update: The Democratic Party has just announced its Party Platform (pdf) – instant evidence of the conclusion above: trade needs to keep a low profile in this election.

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