The Commerce Department says the trade deficit widened in the first quarter to $109 billion, or 3% of US GDP. It was the third consecutive quarterly increase.
Meanwhile, in May, China's exports rose 49% from the year-earlier month. China's trade surplus widened to $19.53 billion in May, from $1.68 billion in April.
For the trade deficit to become more balanced, Americans will have to save more and spend less; while the Chinese will have to do exactly the opposite.
Yet, that alone won't remedy of the problem for the US. As long America continues to import two-thirds of the oil it uses, that trade imbalance will not shrink.
This dependence fully explains why oil companies have set up oil rigs in mile-deep water in the Gulf of Mexico, only to then drill three miles into the sea bed. But I digress.
Additionally, the Chinese currency, the yuan, has been artificially suppressed by the Chinese government, keeping it from rising to a higher value.
However, ahead of this week's G-20 meeting, Beijing bowed to pressure and agreed to ease the yuan's tie to dollar, gradually strengthening its currency. Right on cue, the yuan advanced to its highest level since 1993 in afternoon trading today in Asia,
The 0.4% rise was the biggest single-day advance in the two years since the People's Bank of China re-linked the yuan to the U.S. dollar.
That will make dollar-based goods more competitive and provide a more level playing field forthe US andother exporting nations. In essence, the dollar has dropped in relation to the yuan, and other currencies as well.
The downside of a Chinese currency revaluation — in conjunction with ongoing wage increases for Chinese workers — is that it will raise the cost of Chinese goods sold by U.S. retailers to U.S. consumers.
Get ready for higher prices, Wal-Mart shoppers.
No comments:
Post a Comment