China: Looking through trade war distractions
China recorded a rare current account deficit in the first quarter. This isn’t likely to mark the start of a more permanent financing hole, but the account is moving closer to a structural equilibrium. This comes at a time when China is under pressure to cut its large trade surplus with the US, a process complicated by US fiscal policy, which is actually driving the expansion of America’s own C/A gap. The most probable outcome is a reshuffling of global trade that meets President Trump’s objectives for more ‘take’ from China. This should be manageable for the Chinese, but the distortions that reworking trade policy create for the US add to its macro risks.