Moments after China's $7.2 billion March trade deficit was announced, the Chinese Ministry of Commerce was blasting away at critics of the CNY peg. According to Market News, the MofComm stated that "the recent steady decline in China's trade surplus and the trade deficit post in March again show that the yuan exchange rate is not the key determinant in the country's foreign trade balance." He has a good point - what is, is the endless printing of paper money by China used to keep its residential sector screaming ever higher, while at the same time taking advantage of the same generosity from Ben Bernanke across the Pacific, which in turn benefits China just as much as it does the US. The reason is simple - continued destruction of the dollar, which will commence shortly, will benefit China as well, further facilitating its export economy, while its own printing goes straight to boosting imports. In this way, the confrontation of Chinese and US monetary policy can be seen nowhere better than in the Chinese balance of trade: and judging by the increasing trade deficit, the Fed's influence is starting to wane. Soon enough, when the Fed's marginal impact on the CNY is negligible (via dollar printing and via the CNY peg which is not going away any time soon), China will truly have no other option but to rely on its own consumer class, even as it still seeks to reap the benefits of increasing exports. Our belief is that the deficit will drift slowly higher, however what will become evident will be the ever greater absolute amount of both imports and exports in China.

More from Market News:

Spokesman Yao Jian's comments were issued after the General Administration of Customs reported that the March trade balance slipped to a deficit of $7.24 billion, the first shortfall since April 2004, as a result of higher global commodities prices and surging commodity import volumes. "Our country's trade surplus has been falling and we saw a trade deficit in March while our yuan exchange rate maintained basic stability," Yao said. "This again proves that the determining factor the in foreign trade balance is not the exchange rate but market demand and supply as well as other factors." Yao also said that China's trade surplus is likely to fall sharply this year from 2009's $196 billion. "Our country's trade balance has been continuously improving. This provides conditions for maintaining a stable yuan exchange rate," Yao added. He also repeatedly long-standing government calls for other countries to lift controls on exports to China. The Commerce Ministry has been identified as a key source of opposition to a stronger yuan on the State Council, the executive decision-making body which approves major policy shifts.

And all those who think Geithner achieved anything in China (aside from additional laughter at his ramblings from Chinese students), may want to reconsider:

Commerce Minister Chen Deming appeared on state television Saturday soon after the data's release to talk down speculation about a move on the exchange rate, citing the monthly trade gap. "The March deficit tells us that the trade balance isn't necessarily directly linked to the value of the exchange rate. It's decided by market demand and supply," he said.

At the end of the day, a few hundred million angry Chinese is a greater mobilizing force than a few hundred thousand US union workers. Hopefully American politicians will figure this out soon.