I understand demand well enough to notice that your statement is untrue without a very important assumption:Originally Posted by Fuchs
There must be an existing demand in order for lower prices to stimulate a broadened base of customers. If people do not demand the goods, then lowering the price doesn't do much. China sells us black berets. If we stop buying black berets, then I doubt that the excess supply in China will stimulate a fashion trend of Chinamen sporting French headgear. And as other countries feel the pain of doing less business with the US, they will have less disposable income, so China will not be well-poised to market their wares in other countries as an alternative.
Also, what you wrote works poorly in the short run, which I think you acknowledge, and not at all in the long run, which directly contradicts your assertion of "a short-term phenomenon." Profits will fall because the production capacity that was serving a Chinese and US market now only serve the Chinese market. In the near term, jobs in the export industries will pay less and there will be layoffs. In the long-term, businesses will shut down and look for new ways to invest their capital - many of which will fail. I think that you are excessively confident when you assert that it would be a "short-term phenomenon" that "might last for probably two years, maybe as few as six months." If anything, the short-term would be the endgame.
I think that just about anyone in the macroeconomics field would disagree. For example, the IMF has been sounding the drumbeat for about the past year of a coming global economic slowdown, in direct response to the US economic slowdown. Their forecasts seem to be about right and follow from the belief that the US economy has a significant influence upon the global economy.
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