Thought for the day

The China Price

The three scariest words in US Industry


 
9 May 2024
 
Back around the time of the Great Financial Crisis, a book called The China Price created a lot of comment. Business Week called The China Price, the scariest three words in US Industry. The message was, cut your price by at least 30% or lose your customers. And scariest of all, media coverage suggested, a massive shift in economic power was underway.

Looking back, we can see that a massive shift in economic power really did take place. In Purchasing Power Parity terms, US GDP is now significantly smaller than China's.

Chinese GDP now approximately 38% bigger than America's
% Share of Global GDP
The China Price


* GDP in Purchasing Power Parity terms with added estimates for the size of the informal economy and adjustments for out-of-date GDP base year data.



Current media coverage also focuses a lot on deflation in China, mostly seeing it as the possible start of Japanese style "lost years” of relative impoverishment. An alternative view is that The China Price is back in action.

The chart below shows relative price movements from the Sales Managers Survey up to December 2023. China may well be heading for a period of decline. But forecasts are always uncertain, particularly (as the saying goes) in relation to the future...



One certainty, judging from these survey data, is that American prices are unlikely to stay as competitive tomorrow as they are today, if US price inflation continues at anything like its current rate, and China prices continue to fall.
 

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