Is American Power Dwindling?

[antagon]

The US remained the world’s biggest manufacturing nation by output last year, but is poised to relinquish this slot in 2011 to China – thus ending a 110-year run as the number one country in factory production.

FT.com / China - US manufacturing crown slips

while this point is technically true it is so only because the output of China and the US are measured in dollars. If you merely broke the peg China would surpass the US in manufacturing within a week, if you appraised China's output based on actual value of goods produced they probably produce about 5 times more manufactured value than the US, but they sell it cheap.

We in turn mark up the prices 400%-900% and market their products to our citizens.

last bit about where the actual profits of chinese manufacture is realized was left out of you list of ways the US benefits from china. walmart alone rides that wave along with the retail functions of the rest of the developed world. china on the other hand runs very tight profit margins with most of the money running back into growth. one of the major repercussions is the issue of bad debt in the country's centrally allocated, cronyist credit distribution system.

on to the point of breaking the peg with the dollar. i think that this issue is taken more seriously in china than it is here in your contention that their rocket-powered growth is sustainable. breaking the peg is not an option for them, their entire position in the world is based on the peg. this is why the world's other economies are bitchin about it and they are putting up fierce resistance. they might 'win' top manufacturer in a quarter with the peg out, but they will simply cease to ship any of their overpriced bullshit the following quarter. no matter delusions of chinese consumption power, an instant break with the dollar will wipe china off of the map, geopolitically. it would be open-season in india and indonesia, japan, taiwan - everywhere which is squeezed by china's consumption of resources and share of production.

easing the peg notch by notch is the non-left-field alternative. what that indicates is a slower, but insistent, decrease in the competitive nature of chinese prices. they will loose contracts, they will squeeze further on profits. profit losses here in the US will send our retailers shopping elsewhere where currency has stabilized and a $.01 widget isnt $.07 on restock. this is deflationary for china - a horror for an export driven market. this has recession implications on top of those indicators which already exist. i suspect china will undertake the transition to a market-based currency, but they are procrastinating until our economy and the rest of the developed world are healthier, and have the capacity to demand their production.

marketized currency, marketized commodities, marketized lending and marketized investment will need to be rolled out in the country. there are minimal extents to which investment has been marketized, but they are still working on privatizing much of the above. any downturn in the economy will likely send the chinese public sector back into play. they have to work out a real public finance system. they have a lot of work to do, and where you contend that the US is broke, china is considerably worse off, there are simply fewer options to buy them time than even the US maintains with trillions in debt.

And the EU shares a central bank and a common currency. While not a nation state they are clearly an economy.

there are a dozen currencies and 22 or so independent nations with central banks of their own operating within the EU. i can see how combining the eurozone into a figure for curiosity is plausible, but especially after the greek bit and their current push for an eastern europe/eurasia free-for-all, i dont consider the EU a single economy. the data for the individual states is recorded independently by all metrics. we've got 50 states, why no inclination to do the same with them?

 

[antagon]

What is happening is that the US economy and Chinese economy are moving toward parity. With wages and living standards included in that rebalancing.

this is another rosy projection on transitional processes. when the chinese economy matches the size of the US, and that will take several years yet, their population being 4 time ours, will be considerably poorer. on the face of it, the chinese economy will have to be about 4 times our own to sustain the wages and living standards enjoyed here in the US. i dont think that this is possible in a very short term. i think that going into the 21st century, china and their labor-driven economy will struggle to compete with a world which applies less labor to each unit produced, inverting a 20th century advantage for the US to a 21st century disadvantage for china.

furthermore, the disparity of wealth in china is also quite dramatic. a chinese economy twice our size will not function to trickle wealth down and throughout the populace like our land of opportunity model does. the way things work in the country with respect to corporate finance cannot support a small business base as we have. i would imagine that china would adopt some labor regulations in some 20 years targeted at wages and hours, but if they are still in the high-volume, low-profit, public-debt-funded, labor-intensive manufacture game, this will be an intentional shot in the foot.

there are so many ways which china's growth is based on them specifically being poor and backward, that wealth, and quality of life actually work against their model. they can transition, but it will be like superman losing his powers.

 

[rightwinger]

What is happening is that the US economy and Chinese economy are moving toward parity. With wages and living standards included in that rebalancing.

this is another rosy projection on transitional processes. when the chinese economy matches the size of the US, and that will take several years yet, their population being 4 time ours, will be considerably poorer. on the face of it, the chinese economy will have to be about 4 times our own to sustain the wages and living standards enjoyed here in the US. i dont think that this is possible in a very short term. i think that going into the 21st century, china and their labor-driven economy will struggle to compete with a world which applies less labor to each unit produced, inverting a 20th century advantage for the US to a 21st century disadvantage for china.

furthermore, the disparity of wealth in china is also quite dramatic. a chinese economy twice our size will not function to trickle wealth down and throughout the populace like our land of opportunity model does. the way things work in the country with respect to corporate finance cannot support a small business base as we have. i would imagine that china would adopt some labor regulations in some 20 years targeted at wages and hours, but if they are still in the high-volume, low-profit, public-debt-funded, labor-intensive manufacture game, this will be an intentional shot in the foot.

there are so many ways which china's growth is based on them specifically being poor and backward, that wealth, and quality of life actually work against their model. they can transition, but it will be like superman losing his powers.

China has one third the GDP to support five times the population. Most of their population lacks running water, electricity and basic infrastructure

China has a long way to go