Looking for a Villain, and Finding One in China

A couple years ago, economists warned that China was exporting deflation to the US. Now that is over, but many still see China as the problem. To some, China is a big cause of inflation, and economists, businessmen and politicians have blamed it for every economic woe. "China is choking off the profits of American companies with its hunger for commodities pushing up the price of raw materials and its cheap labor holding down the price of finished goods," says John Makin of the American Enterprise Institute. Adding to the problem, Chinese workers save too much and spend too little, creating an imbalance between supply and demand. However, other economists argue that the problem is overstated. A recent study by the US Federal Reserve concluded that "the impact of Chinese exports on global prices has been, while non-negligible, fairly modest." But if there is one thing that both sides of the debate agree on, it is that China has the potential to become a powerful competitor – Goldman Sachs thinks China's economy will be bigger than America's by 2041. The question for the US is whether it should fear China or take a more upbeat view of the country's growing economy. – YaleGlobal