China released its latest export data and the country’s vast export engine unexpectedly kicked into higher gear in September, producing a record trade surplus with the United States that could exacerbate the already-heated dispute between Beijing and Washington.

China’s politically-sensitive surplus with the U.S. was $34.13 billion in September, surpassing the "record" of $31.05 billion in August.

Over the first nine months of the year, China’s surplus with the United States, its largest export market, totaled $225.79 billion, compared with about $196.01 billion in the same period last year.

Total exports from China increased by 14.5 percent year-on-year to $226.65 billion in September, after a 9.8 percent rise in July. It was the fastest growth in outbound shipments since February, due to strengthening global demand and despite intense trade tensions with the U.S. Unwrought aluminum and aluminum product exports surged 37 percent year-on-year to 507,000 tons but were down 0.6 percent month-on-month from a downwardly revised 510,000 tons in August, which remained by the way the second-highest on record.

On March 23, the U.S. has imposed tariffs of 25 percent on Chinese steel imports and 10 percent on aluminum imports since. However, a lower yuan (CNY), which has weakened by more than 9 percent against the U.S. dollar since mid-April, has helped metal exports. China's steel product exports went up 15.8 percent year-on-year to 5.95 million tons in September and was up 1.4 percent from a revised figure of 5.87 million tons in August.

To shore up growth, Beijing has also pledged to increase export tax rebates from November 1st for the second time this year and has promised to cut corporate burden on a larger scale to help struggling Chinese firms.

Now, with global growth likely to cool further in the coming quarters and U.S. tariffs set to become more punishing, the current resilience of China’s exports is unlikely to remain sustained at today’s levels.

We’ll see if or how President Donald Trump will comment these trade data.

U.S. Treasury Staff Finds China Isn’t Manipulating Yuan

The just released China’s trade data with the U.S. will probably put more stress on the already tense trade relations, but that still can’t be called a full-blown “trade war” between the two biggest economies in the world.

Unfortunately, for now at least, it looks like we are moving in the wrong direction. Of course, we aren’t there yet.

Now, taking into account all the above, for investors it is important to take note that the U.S. Treasury Department’s staff has advised Secretary Steven Mnuchin that China isn’t manipulating the Chinese currency, the yuan (CNY) as the Trump administration prepares to issue the closely watched bi-annual report called “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” next week.

So far, it isn’t known if Mnuchin will follow the advice of his staff members not to call China a currency manipulator.

What is known, is that Trump has publicly and privately pressured Mnuchin to declare China a currency manipulator.

Formally accusing China of manipulating its currency wouldn’t trigger any sanctions or retribution, but the move would without any doubt further heighten tensions between the U.S. and China.

Today, the Chinese daily “South China Morning Post” put an interesting headline that reads: “After years of ensuring its currency never breached the magical mark, analysts say Beijing might finally be ready to let go.”

By the way, that magical mark is 7 yuan (CNY) per dollar.

Interestingly, Yu Yongding, a leading economist and former adviser to the People’s Bank of China (PBOC), the country’s central bank, said in an article published by the official China Securities Journal on Thursday that the PBOC should not intervene even if the yuan (CNY) weakened below 7 to the dollar, which means quoting above 7 to the dollar, as long as it maintained control of its capital account.

While in recent months it appeared the “pro-stability” camp had held sway on the issue of keeping the yuan (CNY) below the seven mark to the dollar, the Chinese central bank has reintroduced its counter-cyclical factor for calculating the yuan’s exchange rate and required currency traders to put down 20 percent margin when short selling it as the “pro-flexibility” group was making ground, Ding said.

I think that investors could do well keeping a close eye on the yuan (CNY) because a further weakening of the Chinese currency, which means at or higher than 7 CNY per dollar, because that would affect markets everywhere.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.