Billy T said:
By your numbers, US per capita oil consumption is 15 times greater. As China reduces it use of coal, it will need to import more oil.
It's not clear to me that they're reducing their coal consumption substantially. Sure, they're closing mines, but that's coal *production*. They can also import coal to make up for decreasing domestic production, and very likely will do so if oil becomes very expensive. They do, after all, live right in the middle of the world coal market (Australia, China, Indonesia). Likewise, more than half of the energy produced in the US comes from coal, and the US has the world's largest coal reserves. Indeed, US energy companies are already working to promote coal consumption by developing "clean coal" systems and going on a PR blitz. As the price of oil rises, the incentive for both countries to rely more on coal will rise, and so I expect both to do exactly that. What I'm getting at is that I think you're overstating the importance of oil. It IS important to both economies (and everyone else), but by no means is it the dominant energy source for either country, nor will it ever be.
Billy T said:
One important aspect of Chinese per capita wealth increase, you did not mention is that many of the things they will buy form their factories, like refrigerators, TVs, require energy and coal will supply less as they close unsafe mine -12,000 last year - so even without any improvement in peoples life styles, Chinese oil consumption will rise.
Again, that represents a cut in comestic coal production, not consumption. When they start closing coal-fired power plants, it'll be a different story, but they aren't doing that yet. Also, by no means is oil the only fuel alternative to coal. China in particular has been making heavy investments in hydroelectric power, so you can't assume that any hypothetical cuts in coal consumption will be offset by rises in oil consumption. Actually, China's coal consumption has been on the rise; all the mine closures just mean that it will someday soon become a net importer of coal, rather than exporter. This is not to say that Chinese oil consumption won't rise; it certainly has been rising and will continue to do so. But this phenomenon is not driven by cuts in Chinese coal production; the two have little direct bearing on each other at this juncture.
Billy T said:
Oil production is near max capacity now. Thus the price of oil will rise. I do not have the data, but think US$100/barrel is about the same as it was at the artificial shortage of 1973 peak, in inflation adjusted dollars. That is I think US$100/barrel oil may be only a few years away, even if China only tries to meet its needs, not make "economic warfare."
Undoubtedly. Supply is maxed out and demand is growing, driven by China and India, so the price is going to go up. We will surely see $100/barrel oil in the next 10-20 years, or maybe sooner if some catastrophe befalls a big oil-producing region.
Billy T said:
The internally saving rate of the US is very low, perhaps even negative, as people have refinanced their home mortgages at the lower rates of the last few years. It will certainly be negative if oil is $100/ barrel. Someone must finance the "twin deficits" which grow larger every year. In crude terms the way it currently works is US buys Chinese goods, and the dollars return to the US as China (and others) lend US money to cover these deficits. If china did not do this, US taxes would need to rise and this with more expensive oil would leave less for Joe & Mary USA to spend on keeping the economy humming. It would hurt US much more than China as currently China is not really getting anything in this exchange except IOUs.
While I agree that oil is going to get more expensive, and that the US should get its financial house in order, I don't see how this adds up to Chinese preeminence. You're neglecting the primary economic mechanism that corrects trade deficits: currency exchange rates. If China stops buying up US T-Bills (these are the "loans" that finance the trade deficit), their currency will spring up against the dollar dramatically, and the trade imbalances on both sides of the Pacific will disappear. The rise in the cost of Chinese goods and labor would spell the end to foreign investment and rapid development. Thus, China isn't going to stop lending the US money, and even if they did, it wouldn't be a big deal in the long run.
Also, it is very likely that the US, were it forced to balance the federal budget, would do so via spending cuts rather than taxes. The US is not Sweden, after all. And another thing: they get a lot more than IOU's. They're now using all that debt to buy assets in America, just like every other foreign lender in history. Remember the botched UnoCal bid from a few months ago? While this phenomenon also terrifies nationalists and protectionists, it should be noted that every time China invests in US assets, or vice-versa, the probability of conflict goes down. So it's win-win in the long run.
Billy T said:
You are surely correct that the Chinese population will consume more things produced in their factories, but this does not mean, necessarily that those factories will have less to export. - I all depends upon how the productivity of those factories changes as they are made more modern.
It also depends on the cost of goods from China on the world market. As China's standard of living increases, their ability to operate cheap factories will decline, and the cost of their goods will go up. This is why developed countries tend to produce complicated, finished products while developing ones produce cheap junk. It will not take much of an upswing to push the cheap production infrastructure next door to India. Compare to Mexico: 15 years ago there was a surge of factory openings there (and closings in the US) after NAFTA went into effect. Now that Mexico's standard of living has improved, and their currency is no longer worthless, those same factories are all closing and moving to cheap pastures. No reason to think the same won't happen in China.
Billy T said:
Empires rise and fall, but it seems clear to me that the US is already on the way down. Real wages of Joe & Mary USA have been lower for several years in a row, the “twin deficits” are rapidly growing, oil will be more expensive, industrial production for export is less and the value produce/ sold is lower (One of the "twin deficits" in other terms.)
I do no know about total US government’s tax income, but expect it will soon be decreasing, if it has not already started down. As foreigner lose confidence in the dollar as a safe store of value, the interest US must pay to avoid default will increase. The US debt is IMHO already beyond the point of “no return.” - I predict that Pres. Bush's budget for next year will cite Katrina, Iraq, and other things to explain why the promised reduction in the debt will need to wait until "next year."
Summary: China is on the way up and US is on the way down. Passing is just a question of when.
Well, that's a bit dire if you ask me. The US economy is still the largest in the world, and grows at approximately the same rate as the world GDP. That's hardly what I'd call a decline. International trade isn't everything; the US (and China, Europe, etc.) all produce and consume internally WAY more than they trade internationally. Not sure what your point is about US tax revenue; it's down, but that's because we've just had several rounds of tax cuts. Which in turn stimulated the economy... but you can expect to see the books get balanced by the next president in office and, again, the trade deficit will diminish as China develops and the Yuan appreciates.
(I get this absolutely hilarious image of you hopping around in these forums on one foot - because the other is stuck in your mouth! Can't you even taste it?) Ha-ha-ha!!!!!