Whither the Dragon?

As US retail consumption begins to diminish and as the weak dollar makes certain U.S.-made products cheaper in relation to European and Asian products both for the domestic and international markets, it will be interesting to watch what happens in China. The Chinese economic boom over the last ten years has been dependent primarily on US consumption of manufactured goods (over-consumption in many cases) and secondarily on European consumption. Of course, the Chinese have been selling worldwide, but it is the sales to the US and Europe that have really fueled the Chinese boom.

If US consumers begin to stop buying so much, and that is happening now, that will already directly slow Chinese growth. It will also slow European growth as the U.S. demand for European luxury goods such as Ferraris, BMW's, and French and Italian haute couture and perfume products plummets even faster than for non-luxury goods. Those factors will then also begin to diminish the considerable foreign direct investment in China by US and European investors.

This is all potentially worrisome. Right now, the largest human migration in history is occurring between the Chinese countryside and Chinese cities, with hundreds of millions of people moving within China to fuel the demand for workers connected to manufacturing for export. If those jobs start to dry up, there is going to be trouble. And if there is trouble in China, it will be the whole world's problem.