Monday, September 20, 2010

Who Would Lose A Trade War?

Chinese think tank warns US it will emerge as loser in trade war. 

I think this quote has some merit "They are utterly wrong," said Gabriel Stein from Lombard Street Research. "The lesson of the 1930s is that surplus countries with structurally weak domestic demand come off worst in a trade war."

China needs to sell the goods it produces lest their production will by necessity shrink rapidly to meet just domestic demand. If they have even a small dip in sales it leads to tons of lost jobs, closed factories and social unrest. While they are diversifying their markets it isn't happening anywhere as fast as they would like. Their free economy (well free except for real big players) and totalitarian state approach works so long as the economy is booming and people are happy with that. Iran has been trying the same thing and when the economy slowed they got problems. 

At the same time right now we are dependent on the Chinese buying debt to pay for this meth binge of debt fueled spending we are on (drunken sailor's is a poor analogy because late in the night or early in the morning they pass out/ fall asleep and it ends, unlike this epic economic fail we are experiencing which is more akin to a meth/ crack head who stays up for days on end).

If we got our spending under control then we could tell China to suck it. That would really be great. However we don't seem to want to live within our means. 

Interesting times for sure. 

 


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