Vicious circle of China's economic slowdown

Julian Darley of the Post Carbon Institute writes about the effect of the economic slowdown in China.
[T]he fact that the US meltdown has now flowed into China is potentially disastrous for this most populous nation, but as its exports shrink and its factories shut, the meltdown is starting to flow back to America again, making an ugly situation even worse.

This vicious cycle is playing out in interconnected ways. Reduced Chinese exports to the US mean that the Chinese have less foreign currency to lend back to America, which further exacerbates the credit crisis and tends to tighten the money supply, making it more difficult for Americans to buy Chinese exports (or anything else).

The solution (for the US, anyway), says Darley: "rebuilding of the American and British manufacturing economies (less so the European), along with the supply chains to feed it and the return of the knowledge and skills to recreate it and run it." The China Syndrome Bites Back

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  1. Good. We’ve enough chinese SHIT in our landfills to last a few lifetimes as it is.

    We may as well start producing our own goods again..just as long as it’s not by all the UAW workers that are going to be unemployed shortly.. ;)

  2. funny watching these “cycles”. Now all those with lives ruined will be given the “opportunity” to start anew and build it all over again. Remember the early 80’s? All those loans to third world countries that couldn’t repay. All those first world consumers suddenly saddled with 24% interest rates? Well, I suppose those about to be dragged through bankruptcy should take heart that the massive rebuilding needed will provide work for them. Better luck this time.

  3. I’m sceptical about this line of argument.

    It’s not that it’s impossible, but you can use the same reasoning to conclude that _any_ recession would be a never ending spiral downward.

  4. Nit nit nit. Should be

    Nit nit. “Most” as adjective for populous, s.b. “most populated.” Your serve.

    Also, populous means having a large population. The one with the largest population is populous to the greatest degree, thus “most populous.”

  5. Enough with the nits. Has anyone stopped to consider the social destabilizing effects a slowdown may have on China? As the money flow from factory-employed children to poor villages dries up China’s huge poor underclass will become increasingly restless. This is a country who is no stranger to revolution.

  6. rebuilding of the American and British manufacturing economies (less so the European), along with the supply chains to feed it and the return of the knowledge and skills to recreate it and run it

    Is that all? Should be finished by next weekend if we get right on it.

    Xopher, China is still the world’s most populous nation by roughly 200 million people, e.g., the entire population of the fifth most populous country, Brazil. India won’t be passing it until about 2050, though it’s certain to pass China at some point bar something catastrophic.

  7. Since I am a British manufacturer, and have worked in American manufacturing. I feel obliged to throw in my 2p, or $0.03 as of today’s currency conversion. ;-)

    Everyone knows there’s been a steady trend over the past few decades of manufacturing jobs being sent to the far east at the expense of the US and British labour pools. One would think that might mean that the talent pool has gone with it. Not entirely.

    In the UK, this has been offset somewhat by protectionist policies towards the protection of historical heritage and crafts, along with London’s reputation as a center of culture and design. While the UK’s engineering reputation has faded over a century of neglect, wheels have been set in motion to get it moving again, especially led by its common ties with design industries.

    The US has heavily cannibalized its once mighty manufacturing industries, moving the labour force mostly into service and financial sectors (including consumer credit) as multinationals scour the world in search of ever-cheaper factory labour. But even with corporations’ best efforts to cut costs, there are still many jobs left in the US, so the talent pool there is still alive and well, if a bit bloodied.

    My colleagues and I have been suspecting blowback for quite some time now, as China and India’s middle classes grow ever larger. Now that China’s currency is starting to reflect economic reality, we’re starting to see Chinese companies start to come calling in Western Europe and the US.

    This recession in America and the UK is going to hurt badly, but people tend to forget that recessions are a natural part of the economic cycle, and serve the purpose of bringing a country’s economy back down from an artificial high. The side effect of all this grief is that as costs fall back down to Earth, the UK and America will become more affordable places to manufacture.

  8. nit nit nit nit:” most populous” could be a stylistic emphasis a la plummy educated upper class British accent. nit.

  9. i like the idea of going down from artificial heights, problem is the necessary pain of transition.

  10. “cycle” Like a stalk of corn in the field to the annual harvest.

    Shipping containers are just a symptom, fact is their is no money for Letters of Credit since everyone is running scared. So no trade.

  11. I’m from (and live in once again) a tiny, depressed Western Mass town that lost the last of its mighty tool manufacturing industry when I was a kid in the 80s (that’s not entirely true – Kennametal maintains one plant here, but with special tax incentives that keep it from being a team player). I’ve been babbling like a freak about rebuilding America’s manufacturing base as long as I can remeber, moreso now. I think it’s way too late though, we’ve gone too far. Besides, i can’t see the bratty emo kids that populate the local skate park taking up a skilled factory trade. On the other hand, my brother in law was a bratty early 80s version of an emo kid, and he’s restarting a local machine shop and foundry that’s been dormant since 1970. So who knows.

  12. Being a craftsperson is quite different from factory labor. Factory labor is mindless and repetitive. Crafting takes skill, ingenuity, creativity, and drive.

    Having said that, does anybody in America WANT to work in manufacturing? I certainly do not.

  13. Tacking on to Usonia’s post… My father is a retired tool and die maker. I never knew what it was and was slightly ashamed of his blue collar status as a kid. He recently retired and really started telling me what he did. He was/is a highly skilled worker. The steady hands of a surgeon, minute and complex mathematics, etc. I’m in awe of what he did. It still can’t be done with computers. Most of the guys in his old shop are old-timers; not too many young people have the skills or patience to learn the trade.

  14. Just to correct the people who think that the U.S. is no longer a manufacturing nation:

    The U.S. manufactures more now than it ever did, and by many measures is still the #1 producing industrial nation in the world. Much like the U.S. grows more food now than it ever did, but agricultural employment has been shrinking – Employment is not an accurate measure of manufacturing.

    What has been declining is the percentage of the population who are employed in manufacturing (or agriculture).

    Most of the items that are now manufactured in China are cheap consumer items that Americans can afford to purchase only because they are so cheap.

    In order to shift the manufacturing of those consumer items over to the U.S., and still keep it affordable for consumers, you would have to do so much automation and labor reduction in production that it wouldn’t be any real big gain of jobs.

    Also, people who long for the glory days of American dominance of manufacturing seem to forget just how poor Americans where back then compared to today. Americans where richer relative to the rest of the world in the 1950s, but where nowhere near as prosperous as they are now. When you are longing for those days, remember you are not longing for better food, more advanced medical care, a greater abundance of consumer goods, all of which are undeniably better now than in the 1950s.

  15. Wow… the bailout bullshit never seems to end.

    Last time I checked I didn’t have to borrow money from China to pay for my stuff.

    Now that the race to the bottom is almost over these same pillaging US corps are once again going to saddle taxpayers with their retooling cost while they wait to reap the benefits of our social capital!

    I really don’t get Americans and their retarded views on socialism. They scream when someone suggests the government should pay for their health care but overwhelmingly believe that corporate socialism (That’s BAILOUT rednecks!) is in their best interest.

    Interest that in fact the next two generations of Americans will be paying BTW!

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