trade surplus returns in china

Statistics from March surprisingly show a new trade surplus for China. Good news for China and the rest of the world too.

The surprise return to surplus from February’s $31.5 billion deficit confounded expectations that trade would remain $1.3 billion in the red, with a solid 10.4 percent year-on-year bounce in sales to the United States helping exports grow faster than expected, customs data showed on Tuesday.

Imports undershot expectations, growing 5.3 percent on the year in March – consistent with other data suggesting soggy domestic demand in the first quarter of the year – but the trade numbers overall reinforced the view of analysts that China’s trade-sensitive economy is set for a soft landing in 2012.

Like many predicted, foreign demand for Chinese goods has not been hurt very much  by the increased value of the Yuan. The new Chinese trade surplus is being attributed to better growth in the rest of the world, particularly the US.

For skeptics who believe this is not good for the rest of the world, let me try–again– to explain.

The savings that consumers enjoy from buying foreign goods allows them to either save more money or to buy more goods. The savings might turn into better investment opportunities, and more demand for goods might come from either home or abroad.

This is an essential lesson in free-trade economics.

another free trade issue

A new story focuses on Argentina’s restrictions on trade, forcing importers to export goods of equal value.

Complaints have been made to the World Trade Organization from the US, the E.U., Japan and 10 other countries.

Argentina’s motivation is to preserve domestic jobs, ignoring the true advantages of real free trade, which accrue to consumers through lower prices and greater demand for both domestic and foreign-made goods.

The irony in all this is that the countries making the complaints are guilty of similar tactics. The most familiar is the US demands that China increase the value of its currency, afraid that it will cost the US more jobs.

After 200 years, people–including politicians–should better understand David Ricardo’s explanation of comparative advantage, where free trade encourages countries to specialize in the production of goods and services that they produce relatively best.