China to U.S. - Thanks for the Jobs, But We’ll Pass on Inflation

Nov. 12, 2010 7:25 AM ETCYB, CNY, UDN, UUP12 Comments
Graham Summers profile picture
Graham Summers

Emerging Market Mania:

CHINA, “Thanks for the Jobs Uncle Sam, But We’ll Pass On the Inflation”

The US re-opened formal trade with China in 1971.

This, in turn, kicked off two major trends:

1. The US’s economic shift from manufacturing to services (mainly financial)

2. The dramatic rise in Chinese quality of life

In plain terms, the US began shifting manufacturing jobs offshore. Charting the full impact of this trend on US employment is difficult. However, Robert Scott, an economist at the Economic Policy Institute, estimates that between 2001 and 2008 2.4 million American jobs were lost as a result of increased trade with China alone. Bear in mind, this doesn’t account for the jobs lost in the 30 years from 1971 to 2001.

As for our shift to a financial services economy, consider that from 1970 until 2003, financials market capitalizations as a percentage of the S&P 500 rose from less than 5% to 22%. Over the same period, financials’ earnings as a percentage of the S&P 500’s total earnings rose from less than 10% to 31%.

Put another way, by 2003 nearly one in every three dollars of corporate profits came from the financial sector.

Meanwhile, China was experiencing an unprecedented level of growth thanks to our renewed trade: Chinese per-capita income doubled from 1978 to 1987 and again from 1987 to 1996.

In those 20 years, more than 300 million Chinese ascended out of poverty with accompanying dramatic changes in lifestyle, professions, and diet: between 1985 and 2008, the average Chinese meat consumption more than doubled from 44 pounds to 110 per annum.

So here we are in 2010 and the US and China are now butting heads in a major way. The US (debtor, consumer, declining empire) wants to devalue the Dollar and export inflation to China. China (creditor, producer, rising empire) doesn’t care for this

This article was written by

Graham Summers profile picture
Graham Summers is Chief Market Strategist of Phoenix Capital Research, a global investment strategy firm located in Washington, DC. He is a Fuqua Business School MBA graduate, and has over a decade of experience in investment strategy, financial research, and private wealth management. An acclaimed communicator and strategist, Graham’s cutting edge business and research insights have been featured in several media outlets around the world including: CNN Money, Fox Business, Rolling Stone Magazine, Crain’s New York Business, the New York Post, MoneyTalk Radio, and The Huffington Post among many others.

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