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Thread: US economic recession benefits China?
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[quote=APAULT,265072]You answered your own question on why does the US keep cutting interest rates by saying that China has been raising interst rates because it is trying to cool the economy. Simply the US economy is struggling and will continue to struggle for some time. The sub prime issue was a symptom of its ills. The US dollar has been overvalued for a long time simply because everyone has assumed that the mighty US economy could service its debt to other nations, but now the rst of the world is having second thoughts. The lower US interest rates will also increase the pullout by foreign owners of dollars. It is not good for anyone if this happens too suddenly, just as the chinese is arguing it shouldn'r revalue the RMB too quickly. Market theory shows it will all balance out. If industries collapse, and they will people and capital must be deployed elsewhere, but we don't want that happening to say 20% of the economyy and populataion in one year. It takes time for investment to be reallocated and new jobs to be created. If the reallignment is too fast it will affect the whole world, sure. China may benefit from lowered input costs (there will be less competition for raw materials) but it will be hurt more by a sudden dramatic recession in the US. Subsidies are very hard to measure. Many countries provide indirect subsidies by offering below cost electricity, for example. Taxation and labour laws also impact on the competitiveness of business. A university study reported recently that in the early 1990's when there was a food shortage, farmers were actually taxed rather than subsidised (a political strategy to ensure no civil unrest in the cities perhaps). Overall, I would doubt that China provides subsidies anywhere near the levels of the USA or the EU, but I haven't seen any analysis.[/quote]
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