Tuesday, July 1, 2008

Chicken or the Egg?

  • High growth in China increases the demand for commodities, such as oil
  • The increased demand increases the price of commodities
  • A spike in commodity prices hurts Chinese growth prospects
  • Slower growth decreases the price of commodities
  • Rinse, repeat…

Since Fall there has been a dramatic shift in the relationship between the two with it looking like China’s success may have indeed been enabled by cheap commodities (cheap labor is not enough when commodities spike).

Without a rapid decline in the price of energy and/or other related commodities, it will become cheaper for many companies to move production closer to home, rather than utilize China to create goods at a cost struggling US consumers may no longer be able to afford.

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