Originally posted by Bill Moore:
Yep, pretty soon it will be a good idea to start investing in American manufacturing companies, maybe China will no longer be able to produce steel and toys at a competitive price?
...to happen. And, remember, China (PRC) subsidizes gas prices, but they have raised the street prices twice, but even after the increases, they are still only running to what works out to be in the $3.30 a gallon range for gas.

Even China, with their vast trade inbalance, was just seeing money evaporate due to the gas subsidy. They simply couldn't continue to afford it, but China is running some very serious risks right now, as their internal markets are undergoing major shocks (see their internal stock market for an example). Their leadership has got to be staying up nights worrying.

The problem isn't China's production cost, it's the transportation costs. That's the killer that they just cannot get around, and realize, that 's at $120 a Bbl. oil. Prices based on $120 a Bbl. are making a substantial piece of China's manufacturing cost ineffective for goods, including associated distribution/delivery costs. If it's just manufacturing, they are still ok. But exports where you have the associated transportation costs are a totally different story.

Just as a btw, at $200 a Bbl. oil, the price component for a gal. of gas is $4.67 a gal for just the oil component. Diesel is even higher. That's no refining, distribution, taxes, or transportation costs in there. So, say hello to $5.50 to $6.00 bucks a gallon for gas, even higher for diesel.

At $200 a Bbl. China is out of the manufacturing export business. Now the biggest non-OPEC beneficiary of $200 a Bbl. would actually be initially the NAFTA nations, followed by the CAFTA nations, because you would see a renewed trade growth between those parties, because goods and services (including transportation costs) would be affordable.

Something else to think about is that China is running up against a real problem because one of the ways that multinational corporations are attempting to alleviate the rapid costs increase in China's manufacturing goods is through more reliance on the internet for communications, but it turns out they've been running up against all sorts of different types of Chinese "limitations" on use of the internet for doing business-to-business communications. Wasn't a big deal before, but now, when every little thing counts, the ability to avoid sending a couple of execs out on business travel for a week can be the difference between a profitable contract and a loser of a deal.

Something for both our current and future leadership in DC to think about.

Because once China loses much of the business to places like both the NAFTA and CAFTA nations, it's going to be a lot harder to get it back going trans-Pacific. Business have long memories - rivers of red ink tends to do that.