China and the United States after the crises: a zero-sum battle for jobs and growth?
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Up until about 2005, the United States and China had a symbiotic relationship with respect to growth and employment. China exported exceedingly cheap labor-intense goods to the United States and the world, and recycled its trade surpluses as credit to the American consumers buying those goods. Politically, cheap Chinese goods and lending enabled a job creating housing boom that amerliorated the increasingly unequal US income distribution. Equally so, exports generated political quiescence in China through expanded employment. Together, US and Chinese growth helped Germany, and thus Europe, grow. After 2005, China's growth became more capital intense and US homebuyers faced housing prices - and debt levels - completely detached from any plausible economic future. Relatively more capital intense Chinese exports also eroded US medium technology manufacturing in the US industrial heartland, rather than just labor intense manufacturing in the US internal periphery. Rising capital intensity also lowered employment growth inside China. This changed the symbiotic relationship into a zero-sum relationship, with Europe as the first victim. The paper presents cooperative and conflictual scenarios for the end game over the next decade.