China's manufacturers desperately need America to buy Chinese goods. China's government desperately needs America to become more conservative in its economic behaviour, the better to protect Chinese holdings of American debt.
So far, it's the worst of both worlds. America has quit buying Chinese goods, but it hasn't started acting conservatively enough to protect Chinese holdings of Treasuries.
It's a real dilemma. One of several Catch 22's that China faces over the next 5 years. We're going to focus on China for a bit.
We can start with a bit of a contrary view, one written by James Fallow for the Atlantic. Read it. He doesn't really disagree with me that China is going to have a rough 5 years--but he's considerably more optimistic about China's future after that. Well, I am, too, depending on how you define 'after that.' In 25 years, maybe, China will be back on the road to superstardom. But this five year period is going to be so tough for China that it will take 20 years to recover.
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