US oil production peaked ~1971.
Which corresponds with the time the trade deficit commenced. The oil embargo certainly put the pinch on our surplus as we were forced to pay higher prices on the spot market for oil.
The price of oil peaked ~1980. Interestingly, the price of crude was substantially lower during WWII than it is today. [in 2000 dollars].
And it appears to be reaching a similar peak currrently. It may even exceed the 1980 peak.
But a bubble collapse in China could certainly collapse oil prices (as well as most commodities such as concrete). And as local demand for their own goods diminished, pricing power would decline, potentially in correlation with currency increases, so it would be a guess as to what effect appreciation of the Yuan would actually have in the face of Chinese companies cutting prices in order to maintain market share.
Actually, the lower dollar was supposed to increase investment and exports. In fact, the opposite has been true. And not all investment money is flowing to China alone.
People don't make business decisions based upon 1-3 year trends. It would take time for some of these manufacturers to make the painful political and economic decision to move their production to another country. But if they realize that the target country is the major portion of their product market, they will move those factories there, or somewhere nearby that provides competitive access to that principle market.
And how are we going to make China float the Yuan? Are we also going to force China to raise labor rates? China has no long term barrier in arriving at equivalent productivity and quality.
Actually, we ARE currently placing pressure on China to revalue the Yuan. We've threaten a 25%+ tariff on Chinese goods if there is no action on floating the Yuan on global markets by the end of the year.
I was watching CCTV the other night (I have a satellite dish in my "hooch" here in Baghdad) and I heard a chinese economist suggesting that China would be better served by putting an export tax on goods going to the US. This would net revenue into THEIR coffers, rather than permitting that money to flow into the US treasury. The point being that this was another attempt at avoiding what needs to be done, namely floating the Yuan and permitting Chinese and Global investors to decide where they wish to hold their cash.
But you are correct that either way it occurs, there are double edged swords to be avoided. But the longer they avoid taking the pain of full economic openness (which leads to political openness), the more it will hurt in the end.
Hawk
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