Savings, Production and Net Exports: Part III

Low interest rates due to low saving rates have produced large negative net exports (-6% of GDP in 2006) and large debt accumulation.  Large debt accumulation is the result of a high consumption rate (currently around 70% of GDP) produced in part by readily available credit.  Unemployment, both structural and temporary, is a lot like a residual effect.

The increase in net imports leads to the erosion of manufacturing jobs.  Debt accumulation leads to the erosion of construction and retail jobs.  Both cheap imports and (cheap) readily available credit allow the consumption rate to rise higher.

Exporting countries benefit from US credit availability by acquiring US paper currency for its exports at the benefit of low unemployment.  As long as the exporters produce more than they can consume and as long as the US can consume more than it produces, unemployment and savings should balance.

In the wake of the financial crisis, the US cannot expand its credit availability, and instead is at all levels - from households to government - cutting back on debt accumulation.  Because the US cannot indebt itself to buy cheap imports, exporting countries must deal with rising unemployment as an effect of a stagnation in the US consumption rate.

So who benefits more: China or the US?