US officials have pointed to China's trade surpluses over the past few years in bolstering arguments for allowing yuan appreciation. However, in the first three months of 2011, China posted a quarterly trade deficit for the first time in seven years, pointing to signs of imported inflation and potentially alleviating outside pressures to revaluate, at least for the time being.
Most analysts point to the incredible growth in the Chinese economy as the reason for the deficit; the commodity-hungry development cycle that the country is going through has left it vulnerable to the type of resource price rises that have been occurring recently. Additionally, export growth has slowed as the global economy continues its recovery phase, magnifying the impact of hotly-priced commodities being imported.
This is an interesting development on the foreign affairs front as revaluation has been a area of contention between the worlds current and rising superpowers. Not only does the US have less of a leg to stand when it prods Beijing to allow the yuan to rise, Chinese officials may allow for some natural currency appreciation to combat the impact of importing largely dollar-denominated goods being paid for with its unnaturally weak currency.
Tip of the hat to S.W.
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