China confirmed today that it posted a trade deficit in Q1.There are obviously seasonal issues, and the lunar new year might have played some role, but as WSJ notes, it’s the country’s first trade deficit for a quarter in 7 years. For the year, the country will still post a pretty massive trade surplus.
But the bottom line is that Chinese trade is slowly coming into line, and that means that the momentum towards revaluation of the yuan is going to slow. It has already.
On Friday, Lawrence Lau, chairman of the Hong Kong unit of China Investment Corp., the country’s sovereign-wealth fund, argued in a public lecture that recent trade data indicate there is no need for further appreciation.
“Currently China is beginning to see trade deficits. If trade is balanced, then there’s no need to adjust the yuan,” said the economist and former academic.
In the US Congress, Chinese trade issues have been put onto the backburner, with the focus turning to the debt and the deficit. But as this is an issue that resonates with both liberals and tea partiers (some), expect this to come roaring back if the pace of yuan change stops.