Wednesday, 10 March 2010

How to get rid of a trade deficit/surplus?

The answer is simple: bring in a new set of bean-counters (sometimes from a different country). This is essentially what the MOFCOM of China and DOC of US did in their new "Report on the Statistical Discrepancy of Merchandise Trade Between the United States and China", which was issued on March 4th (English version here; Chinese version here). After accounting for the differences created by transshipment through HK and other intermediaries, mark-ups, and customs valuation, the discrepancy in the statistics have shrunken from a whopping 84.3 billion USD to a (still large but not so extreme) 24.2 billion USD. 

While this report adds nothing new to the intellectual debate as it has largely confirmed the works by KC Fung and Larry Lau (see this and this) on the topic, this is probably the first time that the US government openly admits that part of the growing deficit with China might simply be statistical rather than substantive.

Now the question is: Does this mean that the US government will soften its stand on the currency issue?

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