China's New Trade Deficit Won't Help America

China iPhone Consumer ChineseMade in… oh wait.

It’s now become clear that China probably experienced its first trade deficit in 70 months during March, according to a consensus of economists and also a statement from premier Wen Jiabao.The deficit is expected to be tiny, at about $360m compared to a $7.6 billion surplus in February, but at the very least the country will use the data to cool criticism of its currency and trade policies.

Still, when it comes to trade with the U.S. in particular, which is where China is under the most fire due to the fact that its yuan is pegged to the dollar, China’s aggregate March deficit will likely ring hollow. This is because the key global trade imbalance — America’s trade deficit within the context of a pegged yuan — will remain.

This isn’t to say that China’s deficit is meaningless. The likely March deficit still points to an adjustment in global trade flow, whereby Chinese domestic demand is becoming a more significant driver for the world. It’s just that the March data is unlikely to blunt American anger towards the yuan peg right now.

Moreover, China’s Minister of Commerce Chen Deming has said that he expects the March trade deficit to be only temporary,a ‘blip on the radar’. The more likely China trend is that of more balanced trade, and this is what the Mr. Chen has said the government wants. The country neither wants large deficits nor surpluses, since both cause considerable problems for the Chinese economy.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.