Impacts of China's Trade Surplus

Feeding on the strength of European demand and Asian emerging markets, China’s trade surplus rose to its highest level in more than two years during the month of July. The country’s surplus rose to $31.5 billion, the biggest gap since January of 2009. Chinese exports and imports both grew over 20 percent from a year ago and there are a couple key reasons that account for these large increases.

Growth in shipments to Europe has doubled over the last two months granting China higher export numbers. Exports to Japan also rose as Japan surges back after the tragic earthquake that occurred earlier in the year. China’s relationship with developing countries in Asia, such as Vietnam and Indonesia, continues to strengthen providing China with lucrative export markets. Sales of Chinese goods in these markets have increased this past year allowing the trade surplus gap to grow even larger.

China’s trade surplus may be at its highest level now, but economists warn that the surplus could decline if the global economy continues to weaken. However that being said, the export and import growth from China may offer some temporary relief to the stressed market. The unexpectedly high trade surplus could also have major impacts on trade with other countries. Calls for China to appreciate its currency and increased trade tension are some of the possible effects of the high Chinese trade surplus. China’s currency, the Yuan, rose a 17-year high against the dollar this past week. Analysts say China may be compelled to strengthen the Yuan even further to solve the country’s highest inflation level in over 3 years. It’s uncertain what China will exactly do next, but one thing is certain. China’s future decisions will have large effects on the global economy.