Data for 2010 is starting to come in, and China's merchandise trade surplus was $183.1 billion, according to Chinese customs. Assuming China's GDP grew 9% in 2010, to about $5.46 trillion, that would mean China's trade surplus was equivalent to 3.4% of its GDP. That is way down from the skyrocketing 7-11% range of 2006-08.
The US now finds itself in a dilemma. Both Democrats and Republicans have been critical of China's large overall and bilateral trade surpluses and accumulation of foreign exchange reserves, arguing that these imbalance were contributing to a slower recovery in the American economy and elsewhere. Hence, the pressure of the RMB to appreciate, a growing number of bilateral and WTO trade cases, and even changes in American monetary policy to effectively weaken the dollar (and strengthen the RMB). At the Fall G-20 meeting, US Treasury Secretary Geitner pushed for an agreement in which countries would commit to keep their international economic activities in rough balance, including not having trade surpluses above 4% of GDP. I suspect he got that 4% from Chinese officials who had publicly stated that they themselves had this 4% goal in mind. Despite the underlying consensus, no such agreement was reached at the G-20, and calls for continued bilateral and multilateral pressure continued.
Now the US is in an uncomfortable position: China has apparently met the broader goal of lowering its overall trade imbalances, but it still has a very large bilateral surplus with the US and the RMB has appreciated 2-3% against the dollar since the summer. In addition, although there has been some improvement in US employment data (down to 9.4%), that is still a high figure and economic growth is still extremely sluggish.
When President Hu Jintao arrives for his state visit next week, it will be decidedly difficulty for President Obama and his team to continue to pressure China with much authority. To the contrary, one might expect President Hu to seek recognition from the US side that it, in fact, has done much to reduce global imbalances, fulfilling its obligations as a "responsible stakeholder," and moreover, it's now the US's turn to chip in -- get control of its budget deficit, increase savings, and facilitate greater long-term economic growth. He might even push President Obama to publicly praise China.
Will this happen? Probably not. Given a weak US recovery, the continued large bilateral deficit (particularly as a percentage of the overall US trade deficit), and serious complaints from American multinationals about China's business environment, I wouldn't expect the US to declare victory next week. President Obama may offer some kind words on the economic front, but if so, they will be part of a longer sentence in which the main phrase is about the need for more progress, as in, "The US welcomes China's lower global trade surplus, but this improvement needs to be accompanied by a range of other substantial changes." We shall see.