The Chinese need the American export market or their economy collapses. For the US, a serious dollar decline suddenly makes American products more competitive relative to other advanced economies. There's some indication that GM intends to shift production out of its Canadian factories to the United States because of the rise of the Canadian dollar.
When the loonie was at .60 on the dollar, that meant that a CAN$50/hr wage and benefit cost $30/hr American. And at the same time, the comparable US wage was $60-75/hr including retiree benfits. Now with the new UAW contract, that wage has dropped to around $48/hr American, while at the same time the Canadian cost has risen from around $30/hr US, to around $50 US. They shifted healthcare costs for retirees over onto this VEBA, and now the games different.
The convergence of VEBA deals to shrink healthcare costs, and downward pressure on the US dollar coming from the Chinese mean that in the next few years, American advanced manufacturing is going to have a huge cost savings in wage terms over their counterparts in the rest of the developed world. And if trade balances between the US and EU start to shift in favor of the US, then this is going to mean that European economies are going to be less able to soak up surplus Chinese production.
My prediction?
China ends up pulling a Japan circa 1987, and goes into severe economic decline. And that creates a political crisis. And there's now guarantee that the new regime in Beijing is going to be as pacific as the current. If China can't secure raw materials through commerce, then outright conflict seems like a real possibility. Particularly by proxy in Africa, by which I mean China may fuel conflict on that continent in order to seize natural resources. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
I think that a return to full blown warlordism of the 1920-1940 (roughly) period is unlikely. Ironically, I think that there are important and cohesive bonds in Chinese society, it's just that they are of the pathological variety. I see that at least two regions (The Pearl River Delta centered on Guangdong and swatch from Shanghai through Fujian) could consolidate into functioning states indepedent of Beijing. And they would still be enormously powerful states, with the capacity to raise a lot of hell.
A South China state if it included Shanghai, could be a powerhouse. And I think that they might willingly turn their backs on to the Chinese interior, choosing instead to plot their games in Africa, SE Asia, and Latin America where the ability to coerce trading partners is more profound.
A Chinese coastal state released of the burden of supporting the interior and the sclerotic north would be an important state.
Consider.
The top 4 provinces in China in terms of GDP were Guangdong (USD 325 billion), followed by Shandong (USD 269 billion), Shanghai (USD 273 billion) and Zhejiang (USD 196 billion) in 2006
So a Chinese state that looked like the one in red.
Would still be a 1 trillion USD economy, on par with Spain or Canada. And a 1 billion economy with a real chance to develop an internal economy might become a 2 billion USD economy in 1 years. And that means it's a player on par with Germany or France in real terms. And probably much larger than them in PPP terms. That kind of money can buy a lot of ships, guns, and planes. And being oriented towards the sea, might have a naval focus that's not true of present day China. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
Important and cohesive bonds existed in the warlord era China, too -- they were an eventual reason for re-unification (as half a dozen previous times). But internal conflict, from standing disputes to disintegration, is driven by elites competing or defending their turf, when the supreme power isn't clear. Would the Party leadership go, I don't see na obvious candidate for an unquestioned successor -- I'd expect various local Party barons, democratic and nationalist forces to vie for power, while the peasant and worker rebellions the Party now routinely puts down could blow up big-time regionally. *Lunatic*, n. One whose delusions are out of fashion.
Would the Party leadership go, I don't see na obvious candidate for an unquestioned successor -- I'd expect various local Party barons, democratic and nationalist forces to vie for power, while the peasant and worker rebellions the Party now routinely puts down could blow up big-time regionally.
The decision to allow entrepenuers (i.e. capitalists) membership in the party several years ago means that now there's a fusion between the rising capitalist class and what remains of the party and military bureacracy. So you have a military-industrial complex in waiting. If south China can hold their shit together, and the rest of the country crumbles into warlordism then you're still going to have migration. Possibly more profound then now, and the migrants will have even fewer rights if they are not citizens of this south China state.
As for resources, I think that if US power is checked as it is now with the Iraq war, then this state could act agressively in the South China Sea, and develop a closely controlled source of oil. Further, Australia is a country where natural resources are being transferred to the Chinese. Australia supplies, coal, wheat, etc. In the long term, if the US can't enforce territorial integrity in Asia, is the Australian position tenable? Or does Australia fall under Chinese regional hegemony?
And with Australia's natural resources, and naval power to open markets, the new Chinese state is a real contender. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
They seem to fully understand the state of affairs on this planet. They are picking their friends and their fights; and they seem to have absorbed the idea that it is easier to shut up or to tell the truth than to remember your lies.
Australia is another trading partner, not a target. China understands trade quite well. I think that 2000+ years of an almost consistent nationhood - with plenty of lessons learned - does inform them to a major extent today. They've seen militant imperialism from every side. I think that they see the downside. (On the other hand I might not want to be Vietnamese.)
As far as dumping dollars, my guess is that they are already in the process of adjusting their stake, but it won't go into full dump mode for the reasons stated elsewhere in the comments. For one thing who is going to take a trillion US$ right now? Nobody. My guess is that their recent statements were partially for the fun of tweaking BushCo, who are currently working on the first joints of their fingers, having already gnawed through their fingernails. paul spencer
If the Chinese dump the dollar in favor of the euro, then they have the effect of placing an enormous burden on the ability of their best customer to purchase their products. I would take significant redirection of Chinese trade from the American market to European or other markets to be a more serious indicator that something is amiss.
Europe is a bigger market for China than the US, now - and imports are growing faster too. In the long run, we're all dead. John Maynard Keynes
What happens if European exporters suddenly face dropping returns for their exports in the US?
Capital goods aside, the luxury good market is important and arguably very subject to rising prices. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
Luxury goods, as positional goods, tend to have negative price elasticity - ie the more expensive they are, the better they sell because they get even more exclusive (which is what you buy).
Airbus suffers. Some manufacturers suffer. Others are price-makers (cf - wind turbine manufacturers ...) Many have booming markets in Europe and the Middle East. Many enjoy cheaper inputs thanks to the lower dollar.
There's no obvious breaking point, if at all. In the long run, we're all dead. John Maynard Keynes
Japan's growth stopped by most indicators at that time, and there were some concerns. However, the social network there is probably superior to everywhere else. (There was a reported sighting of a homeless person, it is true.)
What happened actually is that Japan shifted gears, just as it had in the early '70s. In that earlier era, it had built up its infrastructure and labor force to the point where it could support a modern industrial base. In the late '80s the ruling class moved huge segments of industrial production off-shore via investment and switched to "high tech" domestically.
To make the investment and keep the domestic working class tractable, they recycled tax money and savings via 0% interest loans. Not a bad way to run a country. paul spencer
