E China Recently Experienced A Shrinking Trade Surplus

China has been pursuing an aggressive mercantilist trade policy for many years and has, of course, amassed large trade surpluses. Trade with China is politically sensitive for many countries, as the world’s second-largest economy records large trade surpluses with many of its trading partners.

China’s total trade surplus in 2017 in USD was $422.5 billion, while the surplus with the U.S. grew to $275.8 billion.

The Trump Administration has repeatedly signaled that tougher trade restrictions on China will be introduced due to China’s unfair practices that have lead to a massive trade deficit with China.

As a National Bank Hot Chart report indicates, it is probably no accident that since Trump won the 2016 U.S. election, Beijing has allowed the yuan to appreciate more than 6% against the US dollar, the fastest appreciation of the currency since 2011.

However, there is also little question that the appreciation of China’s currency will not be sufficient to satisfy the trade hawks in the U.S.

As the following two charts illustrate, China’s goods trade surplus fell to a three-year low of US$435 billion last year, though its surplus with the U.S. continued to climb, and reached a record US$278 billion.