Wow... According to the AP, China trade surplus surged to $101.9 billion in 2005. Also from the report: "With total global trade of $1.42 trillion, China is now the world's third-biggest trading nation." The trade deficit between the U.S. and China will most certainly cause a backlash on Capitol Hill. The question is: will China further adjust the value of its Yuan in the light of its robust economic growth? There are other economic concerns as well. The fiscal deficit is looming the U.S. economy. Currently, the U.S. account deficit can be maintained at the current interest and exchange rates - thanks largely to capital that is pouring into the U.S. from Asia and China. But the way that most of these Asian countries are doing to sustain their economic growth is by undervaluing their currencies. It all comes full circle. The fact is that U.S. and China has become more interdependent of each other. Any drastic change in trade policies probably cause more harm than good to the U.S. economy.

I think that China does have an unfair advantage with its artificial currency valuation. However, the U.S. is simply importing too much from other countries and not exporting enough to substitute for the goods it imports. Think about it, 20% of all U.S. imports are oil. With oil price still high (and likely to go higher), the U.S. import figure (in dollars) is likely going to go up. With an insatiable appetite for consumer goods, cheaper imports are likely not going to ease up anytime soon. On the side of export, even if the dollar were to depreciate I don't think exports will offset imports anytime soon since the U.S. is so overly dependent on imports and most U.S. trading partners, like the E.U. and Japan, won't have huge appetite for American goods anytime soon due to the slowdown in their economies. Anyway, I don't claim to be an expert in economics (especially macroeconomics) nor have researched much in this topic. I am just thinking out loud on the issues of the American economy this morning.

1/11/2006 7:02:28 PM (Eastern Standard Time, UTC-05:00)

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