The End of Cheap Chinese Goods

At The New York Times, Floyd Norris presents a series of charts illustrating Chinese clothing exports’ rising prices, and possible consequences for the US economy:

When Chinese trade was helping to push down prices for many things, the reported low figures for inflation gave optimistic central bankers a reason to think that there was no need to slow rapid growth in the United States.

The continued monetary stimulus helped push unemployment rates down to the levels of the late 1950s. The underlying assumption was that technological innovations had produced a new economy that could boom without inflation.

The alternative explanation was that a substantial part of the reported low inflation came from imports of Asian, primarily Chinese, products, and that that effect was bound to be temporary. At some point, trade imbalances would become unsustainable and the inflation picture would reverse, as either the dollar lost value or costs began to rise in Asia.

That is what appears to have happened.

October 21, 2011 11:36 PM
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