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Archive for May, 2010

How Best to Tilt at Chinese Windmills: China, Global Rebalancing, and US Job Growth

Monday, May 10th, 2010

There is not much to be gained by focusing on “rebalancing China”, but where there are marginal gains, its a tricky game of policy-driven targeting of the right clean-tech design and marketing jobs.

In areas where the US has much ability to influence incentives or outcomes in China, there is not much low hanging fruit for US job creation.     Here are some thoughts that might help, but I emphasize this will help only at the margin, and I am skeptical that the effects will be identifiable as independent of much more consequential things like US consumption and the outcome of China’s current artificially-induced (and bad-debt laden) expansion.

(Just as a tip, in case you are not following it; after the government investment-driven stimulus ran its course, the Chinese are now shifting to a next-step follow-on growth strategy based on near term inflation.  It seems to be working.)

1) The Chinese will revalue steadily in the next 8 quarters (unless there is a global double dip).  So, one thing would be to identify those areas in the US tradable sector that are likely to enjoy demand pull from the rising Yuan.  Having identified them, incentivize them and have them “in containers” and suppliers well informed and well prepped (trade credit provision etc.).

2) In the near term, pre-Lehman-crash type global economic dynamics will dominate over anything Pettis could suggest for Chinese rebalancing.  It will be US consumption of “Chinese products” (mostly assembled there from triangular or multi-source supply chains) that will drive wages up in China contributing to number one above.  This system is highly sensitive and will respond quickly in the recovery.

3) Jobs in sectors which design and market the types of items that are assembled on mainland China are the sectors most sensitive in the near term to improvement.  US consumer spending, thus, is key here.

4)  I have always believed that if the Chinese want to pay for things (like developing alternative energy capacity, alternative energy product manufacturing capacity, and providing the capital and subsidized demand for them) the US and other countries should free-ride on this Chinese largesse.    The policy implications here, however, are very tricky.  One way to take advantage of this is to review export licensing of alternative energy technologies for the right kinds of area (see number 3 above).  Can we find the alternative energy sub-sectors where the US is least competitive and allow design and marketing jobs to grow in the US by allowing more and easier flow of those technologies and product manufacture to China?  This is a very hotly debated topic in Commerce and State.

5) For those who care, savings, exchange rates, and status-quo financial dynamics in China are all linked to the interests and survival of the Chinese Communist Party.    Maybe someone can devise a way to transform China into a multi-party democracy.  That will certainly spur consumption and a change in the financial dynamics behind the imbalances.

The bottom line is that if  anyone can think of anything in the China rebalancing debate that will make a substantial (or even indisputably measurable) difference to US job growth, I’ll buy them a case of beer of their choice.    It might be good for someone to write a report convincing those on Capital Hill, the White House and the demagogic press that there is little to be gained by spending much time on Chinese rebalancing, valuable policy-making time and energy could then be directed to where they may help most.