Yesterday I saw an article on Bloomberg about the possible impact of a US slowdown on China cheapest celebrex, and I think that once again we may need to revive the excess-consumption vs.excess-savings debate to figure this one out. Among other things the article said:
Weaker demand for exports because of a U.S – cheapest celebrex.slowdown may be “exactly the tonic Cheapest celebrex: china needs” to reduce the problem of too much money in the financial system, Ben Simpfendorfer, a strategist at Royal Bank of Scotland Plc in Hong Kong, wrote in a report this month. The World Bank has a similar view. “A moderate global slowdown would mitigate concerns of policy makers on overall growth, inflation and the trade surplus, while China’s strong macroeconomic position provides room to adjust the domestic policy stance if necessary,” it said in a quarterly report.
This may be missing the point. If the cause of global imbalances is largely, or exclusively, excess US consumption, then a slowdown in the US would indeed be a good way to slow down Chinese export growth and monetary expansion. Lower US consumption would drive down the US trade deficit and the required adjustment needed to make the balance of payments balance would be a rise in Chinese savings relative to consumption. The Chinese trade surplus would then decline, with all the positive things that means for monetary policy in China.
But I am not convinced. If, as I believe, the cause of the monetary imbalance is that high Chinese savings have locked the country into a self-reinforcing trap – in which high money inflow leads to high industrial production which leads to a high trade surplus – then a US slowdown will probably not have much of an impact on China’s trade balance.
In that case the only significant way to interrupt the process would be to slow down or reverse the process of FX accumulation in China, and there is no obvious reason for assuming that a US slowdown will do that. In fact, over the last year or so global growth outside China has been slowing, but you couldn’t tell by looking at the Chinese trade surplus, which has ballooned. On the face of it there doesn’t seem to be much correlation between global growth and the Chinese trade surplus (which I think is more consistent with the monetary-trap argument).
Ah, you might say, in fact Chinese export growth is indeed slowing, so maybe there is a correlation. Not really. A slowdown in global demand may slow Chinese export growth, but only a slowdown in Chinese export growth relative to Chinese import growth can reverse the growth in the trade surplus.
This is not happening, and is unlikely to happen even if the US economy slows. As long as industrial production in China grows faster than consumption, China must run large and growing trade surpluses, and as long as it runs large surpluses, the banking system will ensure that industrial production will continue to soar. This is why I always refer to it as a trap: it is not clear how China can get out of it short of a major currency adjustment that reverses capital flows.
If a US slowdown results in lower combined US and European net imports, how can the world nonetheless accommodate high and rising Chinese trade surpluses? I guess other developing countries will see their own exports begin to dissipate. In fact isn’t that already happening? – cheapest celebrex