Quote:
Originally Posted by fluffy0000
Even if China continues to rely on exports for growth, the recession and the rebuilding of household balance sheets in the U.S. implies that Chinese exports to the U.S. will almost certainly decline during 2009. Thus, the overall volume of trade between the two economies is likely to fall in tandem with the sharp fall in global trade. The U.S. bilateral trade deficit with China could still remain in the range of about $200 billion in 2009, especially if the U.S. fiscal stimulus generates a gradual recovery in U.S. domestic demand. China’s overall current account balance, which is estimated to be about $370 billion (roughly 9 percent of GDP) in 2008, could well remain in the $300-350 billion range; the recent collapse in exports has been offset by an even sharper decline in imports.
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The article is essentially correct. China needs to prop up internal consumption. Also, the US needs to reduce consumption and start saving. There is definitely an imbalance here but it is not going to get better before it gets worse given the current policy and the current predicament China got itself into by buying so many treasury bills.