China's New Trade Deficit

A worsening balance of trade
In the land in which everything's made
May be read as a sign
Of commercial decline
In the rest of the world, I'm afraid.

The news of China's large global trade deficit in February came as a shock, and may evoke some Schadenfreude in Americans who have despaired over the size of our nation's trade deficit with China. However, this is no time for malicious glee in the centers of manufacturing, or legislation. For one thing, the $4.1 billion Chinese trade deficit in the first two months of the year did not redound to the benefit of the US, with which China still has a large trade surplus. Second, the Chinese trade deficit indicates weak consumption among its European trading partners, to which Chinese exports declined by 1.1%. This is a sign of a possible global slowdown, which benefits nobody.

Rising Imports

Low prices on imports had checked
The inflation the Feds would project,
But metals and wages
May have a contagious-
ly Inflationary effect.

The US had long imported disinflation along with t-shirts, toys and tchochkes from China, but lately a combination of higher commodity prices, currency moves including a strengthening yuan, and wage pressures in China and elsewhere have boosted the prices of manufactured goods imported into the US.  According to the latest figures from the Labor Department, manufactured imported goods have gone from a source of disinflation to its opposite.

Trade War 101

To gainfully utilize labor, 
Export nations play "Beggar Thy Neighbor;" 
While the deficit spenders, 
Resenting their lenders, 
May rattle the trade-tariff saber.  

Thanks to Prof. Michael Pettis of Peking University (no, that's not a typo) for his timely comment in the FT.