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World Trade

March 12, 2012 – 5:05 pm

China reported a trade deficit of $31.48 billion for February. That is the largest in 12 years. So is China moving from an exporter of every kind of product to an importer? Of course it is not that simple as they continue to be a very larger exporter. However, it is important to understand why and what they import.

Make no mistake $31.48 Billion is a massive trade deficit number but its cause and the distinctions of trade with China are very significant. Basically, their economy, as we have seen in recent numbers, is slowing in its torrid growth from 10% in the past many years to a projected of 7 to 8% this year and possibly many years ahead. Also, China exports finished goods but they import raw material from around the world. At the same time the growth of their middle class means that food, luxury goods and especially oil has become major imports. As oil prices rise their trade deficit deteriorates. In that sense they are much like the U.S.

Though the trade deficit is surprising in its magnitude the growth of the middle class and the pressure of rising wage costs inside China will continue to help balance their trade. Also, they are no longer the destination of choice by many manufacturers, as labor and transportation costs rise. They seem to be changing their focus to internal growth rather than being solely reliant on exports for growth.

These are good signs for the U.S. We export massive quantities of food and services. If we stay on the current path, and our government supports this effort, we could be a large exporter of energy as well i.e. natural gas, oil and the hated but still needed coal.

Good Trading
Steve Peasley

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