Chinas Record Trade Surplus Worries the US

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China reported a record trade surplus of US$102 billion in 2005 on a total trade value of US$1.4 trillion making China the third biggest trader in the world. Chinas exports rose 28 percent to US$762 billion, while imports were up 18 percent to US$660 billion.

The surplus with the US was reported to be US$114.7 billion (though US sources claim it is even higher perhaps US$200 billion), up from US$80 billion in 2004 and US$28 billion in 2001. However China had a net deficit of US$12 billion with the rest of the world (mainly due to imports from Japan and oil-producing countries). Chinas surplus with the EU was US$70 billion.

The US reaction to the news has been predictably negative, and Max Baucus, a Democrat on the Senate Finance Committee, was reported to have said that continuing increases in the deficit may force protectionist action.

Jon Snow, the US Treasury Secretary, noted that China is inviting lots of negative reaction in the Congress” He noted intellectual property, the trade deficit, and RMB revaluation as being critical issues in the bilateral relationship.

However Snow was also clear that “it’s awfully important we resist these protectionist pressures” which he felt could (or, in our view, almost certainly would) be counter-productive.

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