Reich, R., "Think getting tough with China will solve our jobs problem? Think again. - CSMonitor.com", September 19, 2010, Link

According to Prof Reich, the crisis in the American economy can be partly attributed to the stagnation of wages in the middle-class for the past 30 years. In this time-frame the bulk of economic wealth moved to the higher end of society. The middle-class then cut back on consumption resulting in massive job losses. The answer, according to Prof Reich, would be to rebalance the American economy to ensure that financial benefits are more widely spread.

I know the South-African context is completely different, but there are some things to ponder:

• Spread the economic wealth. More people will spend and work will be created. (Not just the rich in the consumption of “upper market” produce.)

• Take care and built the middle-class. They are the “consumption lungs” of the economy.

• Be wary of the impact that the “higher end of society” has on the economy over a long term. Especially if richness is gained at the expense of others!

“With unemployment in the stratosphere and the midterm elections weeks away, politicians naturally want to show voters they’re committed to getting jobs back.

So now they’re getting tough on China.

On Wednesday the U.S. filed a pair of complaints against China with the World Trade Organization, alleging China was unfairly denying American companies access to its market. Meanwhile, several Democrats facing elections in November are introducing measures that would allow companies to pursue sanctions against China for manipulating its currency.

It’s true China has kept the value of its currency artificially low relative to the dollar. If China allowed its currency to rise, Chinese exports would become more expensive to us and our exports would be relatively cheaper to them. This would help shrink the trade imbalance.

But it’s naive to assume all we have to do to get Chinese to do what we want is to threaten them with tariffs.

First, they might retaliate. Remember, China is the biggest foreign investor in U.S. Treasury securities, with holdings of more than $843 billion. If China were to start selling off large amounts, America’s borrowing costs would soar – and we’d end up worse off.

What worries me most about all this tough talk about China is it diverts attention from the real problem. American isn’t suffering high unemployment because we’re buying too much from China and not selling them enough. Trade with China is a small portion of the U.S. economy.

Twenty million Americans lack jobs because American consumers – especially America’s vast middle class – can no longer spend what’s necessary to keep nearly everyone employed.

After three decades of stagnant middle-class wages, during which almost all the economic gains have gone to the top, we’ve finally reached a day of reckoning. The middle class can no longer borrow vast sums by using their homes as ATMs. They can’t squeeze more working hours out of two wage earners. And they have to start saving for retirement.

The central challenge we face isn’t to rebalance trade with China. It’s to rebalance the American economy so its benefits are more widely shared.” [43%]