US trade deficit, Chinese trade surplus grow

Yesterday's report by the Commerce Department that the US trade deficit hit US$58.3 billion in January, the second highest on record, will surely put further pressure on the US dollar.

The deficit was up 4.7 percent from a revised 55.7 billion dollars in December. Imports were up 1.9 percent to US$159.1 billion while exports rose 0.4 percent to US$100.8 billion. The politically-sensitive US trade deficit with China increased 7 percent to US$15.3 billion, but the deficit with the European Union fell 21.3 percent to US$8.1 billion while the deficit with Japan fell 9.3 percent to US$6.21 billion.

Earlier, the Ministry of Commerce in China had reported that the country's trade surplus in February was US$4.6 billion, up from US$6.48 billion in January. Exports were up 31 per cent to US$44.53 billion from a year ago, while imports slumped 5 per cent to US$39.92 billion.

Looking at the first two months of the year instead to offset the Lunar New Year effects -- the festival took place in February this year but in January last year -- the trade surplus was US$11.11 billion. Its trade balance had shown a deficit of US$8 billion in the same period last year. Exports rose 36.6 per cent year-on-year in the first two months of 2005 to reach US$95.28 billion while imports increased 8.3 per cent to US$84.18 billion.

While these statistics suggest that a revaluation of the renminbi is justified, inflation data is less conclusive. Yesterday, China's National Bureau of Statistics reported that China's consumer price index rose 3.9 percent in February over the same month last year. Again, the Lunar New Year may have had some effect, with prices of food, transportation and tourism most affected.

Prior to February, China had been seeing a deceleration in its inflation rate even as the US inflation rate has been threatening to accelerate. A slower inflation rate implies a stronger currency.