China’s FX policy back in focus in the US

China's FX policy back in focus in the US

The US trade deficit number came in far worse than expected this morning (see chart). While this report points to US consumers starting to spend a bit more (see chart), a great deal of the stuff they have been purchasing came from China.

The Seattle Times: America's trade gap with China jumped 33.7 percent to $27.3 billion in April, the largest gap since January. The U.S. deficit with China is the largest with any country, and this year's imbalance is running ahead of last year's record pace. That is putting pressure on the Obama administration to take a tougher stand on what critics see as unfair trade practices by China.

They say Beijing is manipulating its currency to keep it undervalued against the dollar. That makes Chinese goods cheaper in the United States and American products more expensive in China.

This comes at a time when China's currency has been weakening, which is sure to provide additional ammunition for US politicians who have been highly critical of China's trade practices.

BMO: – The trade deficit with China will likely be scrutinized again as it grew nearly $7 bln to $27.3 bln and it comes as the U.S. brings China’s FX intentions back into play.