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China Posts First Trade Deficit in Six Years

April 11th, 2010

For the first time since 2004, China incurred a net trade deficit totalling more than $7 billion in March. China’s Statistics Department maintains that the primary drivers of the deficit were surging imports of industrial commodities, including oil and minerals. In addition, certain consumer durables, including automobiles, also encountered increased demand from China’s domestic market.

The authorities in Beijing believe that the March trade deficit was an anomaly, and that China will return to a net surplus in its international trade.  However, the March trade deficit does strengthen the case of those in the Chinese leadership who believe their country should take an inflexible stand in negotiations with Washington on the exchange rate of the national currency, the yuan or renminbi. It is likely that China will be even more determined to resist U.S. pressure to allow the value of the renminbi to appreciate. This sets the stage for increased tension between Washington and Beijing over fundamental issues that will determine the trajectory of the ongoing global economic crisis.

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