Economic Growth vs trade balance

  China would continue to maintain strong economic growth even as its trade balance begins to deteriorate due to higher wages and GDP per capita. Citizens perceive their standard of living to be improving as their income levels continue to increase. The increase comes as a result of two variables. Appreciating currency and increase in the monetary supply. As Chinese GDP per capita reaches 100,000, or 200,000 or 1 million dollars per year. Chinese standard of living and personal incomes would be unrivaled. However such high levels of annual compensation would mean it is impossible to produce a product in China and sell it abroad at a profit. Especially when foreign consumers who purchase these products are not making 1 million dollars a year themselves.

  China could subsidize the price of these products so that these goods could remain competitive abroad. However, that price subsidization would still spill off as a trade deficit for China through some other sector. The final result is that the only industries in China that can remain competitive are services and goods that can only be produced in China and sold to Chinese. Not goods that are produced in China and sold abroad.

  To maintain near 100 percent employment rates would mean exports play almost no role in creating jobs, and the only sectors creating jobs would be found in services and government spending. Military spending, infrastructure spending, social spending etc. would then be the only manufacturing jobs available. And all service sector jobs would employ Chinese since with few exceptions only by being present in China are you able to provide a service.

  China would experience massive trade deficits and foreign debt, however its standard of living would be the highest in the world. Since China would not only consume the goods and services Chinese are able to produce. But the goods and services that non-Chinese produce and export to China.

  So long as foreign countries are willing to post trade surpluses with China, China can continue a lifestyle of easy living and high military spending. If they refuse to post trade surpluses with China. China would have to cut back on such a lifestyle. But cheap Chinese exports would once again force foreign industries into turmoil.