I recently heard some experts talking about why China’s economic woes shouldn’t matter as it relates to performance of the US economy. The argument made was that China is a very small portion of our GDP from an export standpoint, so a weakened China economy has a very small effect on profitability of US corporations and hence the US stock market. Secondarily the Chinese debt problem is an internal debt issue. The US has very little exposure in this regard. So in their opinion the US market’s response to China economic woes is outsized relative to the true influence on US economy. US corporate performance is good, and employment is up, so the stock market impact due to China is overstated. However as I listened, I felt that they missed the largest strategic threat that China poses. If their authoritarian regime is threatened internally due to economic recession then I worry about a regime that may act out on nationalistic adventures to move the populations attention away from their failing economy. They are already showing an aggressive hand in the South Pacific, also called the South China Sea, claiming islands, shipping and fishing waters that are in international waters. I worry and anticipate Chinese aggressive behavior toward Taiwan, toward Japan, and other Asian nations and consequently to the US. Additionally acts of omission are of concern, maybe they don’t reign in North Korea as they otherwise might. We must worry about the Chinese government responding to economic issues with nationalistic adventures. US Stocks may suffer more broadly in the coming weeks from the uncertainties around international threats in the Asia as well as those in the Middle East because of the effect that authoritarian nationalistic (or in case of Middle East – Sectarian) adventures might have on the global economy.
Mike
Good thoughts. China economic problems can effect our markets since a slow down there simply means people are not buying world wide, a slow down earth wide. We still have 93 million of Americans out of work. China economy is still growing at 6 percent, number which the USA would love to have. China could have internal problems of it’s people revolting if it’s people are out of work. My concern is work for Americans. As long as low wages are paid too workers in other parts of the world, we simply cannot compete. I have heard people say “don’t take away my Walmart”…USA has some of the highest business taxes in the world. Our govt seems to care about how much money they can take in, instead of how many jobs they create. Lack of jobs, breaks up families, lowers self esteem and leaves those to live off the Goverment for food and housing. One cannot blame the corporations, for if they could get products made with cheaper labor, then it lowers the cost to the customers. Making their products in more demand worldwide. I believe American worker can compete worldwide if the Goverment would stop being so greedy and let our business run their industry. Kids coming out of college cannot find jobs. Plumbers make more than engineers and those with master degrees in other careers. 10 thousand factories have been closed in the last 15 years. China military expansion? A concern sure! However, they do not want to kill the cook that feeds them. War for both countries would be a scorched earth and would benefit no one. The country that is most effected is Japan, I can see no direct influence to the security of our country. Shall we stand with Japan, absolutely but they need to pay for our protection.