International Trade

» habs25 - China surplus over U.S.

Surprising to see how much of a surplus China is running over the U.S. What measures can U.S. take to reverse this trend? Or is the surplus bound to increase over time?

-- posted by habs25

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» Daniel Workman - China surplus over U.S.

In response to China surplus over U.S. posted by habs25:

Good question. You see, the U.S. can raise interest rates to increase the value of the American dollar since more foreign investors will be lured by the higher returns. A stronger U.S. greenback will lessen the dollar amount required to import goods into the U.S. and boost the value of American exports. The U.S. can also increase its productivity, but that requires corporate investment that typically decreases when rates go up.

Higher interest rates will also lead to reduced consumer spending in the U.S. and threaten to derail domestic and international economies. For sure the housing market will cool once mortgage rates rise.

So the trick is a "Goldilocks" approach to U.S. interest rate increases - not too many, not too fast. This approach is not easy.

It does look like the U.S. is in a "damned if you do, damned if you don't position."

China isn't that seriously affected by U.S. interest rate increases. That's why we think it's best to avoid the U.S. market for now (stocks don't react well to rate hikes).

Stay tuned for our upcoming article "Top Chinese Investment Picks".

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