That crazy feeling ...

 

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The U.S. trade gap sent at least two wrong-headed signals to economists this week with a gap that grew in part due to a decline in exports.

The trade deficit rose to $49.9 billion in June, far higher than economists had expected, with the balance sliding backwards on items like automobiles and consumer products even though exports rose in both of those categories.

That is to say, the U.S. exported marginally more automobiles and marginally more consumer products, but imports of both outpaced the gain in exports.

Exports overall, shrank. At the same time, the deficit that was already too large for many grew by 18.8 percent -- both of the statistics stunning in the light of President Barack Obama's goal to double exports within five years.

In an already wobbly week, the news from the Commerce Department helped U.S. stock markets not at all. The Dow Jones industrial average plunged 2.49 percent, while the Standard & Poor's index dropped 2.82 percent.

By trending the wrong way, the numbers showed how high the hurdles are, concerning Obama's export ambitions.

That goal already has the feel of a standard, if pedestrian, definition of crazy, to wit: If you do the same things all over again and expect different results, that qualifies as crazy.

One of the obvious places this is true is China's currency policy and the U.S. response to it.

In the spring, the Treasury Department backed away from an option to label China a currency manipulator, which would open up options for Congress to impose sanctions on Chinese goods entering the country. Not long after, shortly before the last Group of 20 meeting in Toronto at the end of June, the People's Bank of China said it would allow limited flexibility in the yuan, which gave equity markets a temporary boost and allowed diplomats a sigh of relief.

In the background, some said China was just mouthing the words. The yuan, or renminbi, is said to be undervalued by 20 percent to 50 percent. While the precise figure is debatable, there are few who would argue that the Chinese currency is 0.8 percent undervalued, which is how much it has risen since the central bank said it would be allowed to appreciate.

What's the definition of a manipulator? Do China's efforts to keep out foreign investment not count? Does China's "heavy intervention," as the Washington Post described it, in the currency market not count?

China's trade surplus in July, meanwhile, surprised economists as much as the U.S. deficit did, jumping to $28.7 billion in July from $20.2 billion in June.

That's probably a hint of some kind.

In international markets Thursday, the Nikkei 225 index in Japan fell 0.86 percent while the Shanghai composite index lost 1.23 percent. The Hang Seng index in Hong Kong dropped 0.89 percent while the Sensex in India rose 0.02 percent.

In Australia, the S&P/ASX 200 fell 1.22 percent.

In midday trading in Europe, the FTSE 100 index added 0.26 percent while the DAX 30 in Germany dropped 0.27 percent. The CAC 40 in France slid 0.28 percent while the pan-European DJ Stoxx 50 gained 0.27 percent.