I was tempted to title this blog “$18.8 billion more reasons for Tyler Cowen, Dan Drezner, Greg Mankiw and a host of others to think the RMB isn’t really undervalued.” 

But that would be a bit over-the-top.   The soaring Chinese trade surplus though does imply that the scale of capital outflows needed to keep the RMB from rising, should Chine ever liberalize its capital account (which, as Drezner notes, isn’t about to happen), has grown.   As for that matter, does all the money flowing into China’s property market … 

I see why SAFE officials hinted over the weekend that China’s reserves currently top $1 trillion.  A nearly $20b August trade surplus and valuation gains on China’s euros and pounds in August could easily push China’s August reserve growth above $30b – and that puts China within easy shouting distance of a trillion. 

China’s y/y export growth accelerated in August, with exports up nearly 33% y/y.    To be fair to Dr. Cowen I should note that several years ago I argued that there was no way that China could sustain that kind of export growth as its export base expanded, no matter how tenaciously China clung to its peg. I was wrong.  

Why?    Joellen Perry and Marcus Walker of the Wall Street Journal are on the story.

Sclerotic Europe, not the US, has driven China’s export growth.  That has been true since 2003.  But it has been particularly true in 2006.  At least for the first six months of the year.  I don’t (yet) know about August –  I like to work off the US and European data rather than the Chinese data since the US and Europe adjust for Chinese exports through Hong-Kong.   But China sure is selling a lot of stuff to someone.