About the only thing I didn't like about Floyd Norris' Saturday New York Times article was the title "Not Everyone Is in the Red on Trade With China." And to be honest, the title -- which seems to allude to the by now outdated argument that China's surplus with the US is offset by a deficit with the rest of the world -- didn't really match the content of the article, or fully match the conclusions that emerge from the useful charts that accompanied the article.
The article essentially argues that China's the rise in China's overall surplus is no longer simply a product of strong growth in Chinese exports to the US.Norris notes that:
- China now runs a very large trade surplus with Europe
- China's exports to the US are growing more slowly than its exports to Europe and the rest of the world. In part, that is because the US is growing more slowly than Europe and the rest of the world. But I suspect it also has something to do with the fact that the RMB has appreciated -- albeit very modestly -- against the dollar while it has depreciated against many other currencies.
Norris uses the Chinese trade data, but he also recognizes its flaws: the Chinese data overstates Chinese exports to Hong Kong and understates Chinese exports to the US and Europe, and thus understates China's surplus with the US and Europe. And even graphs based on the Chinese data -- see the graphics that accompany Norris' article -- tell the basic story behind the recent rise of China's global trade surplus well.
Indeed the charts -- though not the text of the article itself, highlight a third key point.
China's trade deficit with the world (excluding the US and Europe) is now shrinking. The IMF's regional outlook and the World Bank's Asian outlook both specifically noted that China's deficit with the rest of Asia is now falling. That is a change from the 2002-2004 period. Back then, the increase in China's trade surplus with the US and Europe was largely offset by a rise in China's deficit with the rest of the world. By contrast, the surge China's surplus with the US and Europe over the past two years hasn't been associated with a widening of China's deficit with the rest of the world. Indeed, China's exports to the world -- once the US and Europe have been taken out -- are now growing faster than China's imports from the world, and far faster than China's exports to the US.
Unless that changes, China's surplus looks set to continue to rise. So too will China's capacity to use its global surplus to finance the United States' global deficit -- not just the United States' bilateral deficit with China. Some of China's now large surplus with Europe gets channeled into the US bond market. Or at least used too ...