If you look around the internets, you can find a little bit about China’s 12th 5 year plan. Here is one of the key components of the 5 year plan.
“Rise in domestic consumption”
There are not many ways to do this on a large scale. One way would be for China to cut their Current Account Surplus. A current account surplus maintained through a unnaturally low exchange rate is a tricky idea. It gives people jobs, but these jobs are lower paying than they “should” be.
bBut for countries like China, those jobs with artificially low pay are still better jobs which feed domestic demand. In general, it works well for countries that are able to do it, like China did for the last 40 years or so.
But at some point, it becomes obvious jobs should be better, and people start to get upset at bad working conditions and low pay. This is why one focus for China will be increasing domestic consumption.
“China’s current-account surplus for 2011 shrank to $201.1 billion, from $305.4 billion in 2010. More important, as a ratio of gross domestic product, the current-account surplus fell to about 2.7%. That’s close to a decade low and below the 4% threshold that suggests an exchange rate out of whack with equilibrium.”
Here at MMR, one of the our big ideas is “The Current Account Deficit is a drag on domestic demand”.
In plain English, we like jobs for people here in the states more than we like cheap toys from China. We like the spillover effects of having industry based here.
Of course, there are good ways to move jobs back to the U.S. in ways which don’t result in shooting wars. We need to be very aware of the twin deficits, the Government deficit and Foreign Sector deficit.
But it’s possible the next 5 years will be different than the last 40 in some major ways, and one of these ways will be the lack of a gigantic demand vacuum out of Asia. We may have more help fighting this battle than we expected. A smaller CAD with China automatically moves jobs back to the United States, without anyone lifting a finger.