A recent article in the
Financial Times states that China's exports rose 17.7% and imports climbed 55.9% in December, the first such increases in exports in 14 months. Several economists agree that the export growth is one of many factors that may lead China to allow a gradual appreciation of the Yuan, which would help other countries (since a rise in the Yuan's value will make foreign goods cheaper, increasing imports...). At the same time, many western economies, notably the U.S., need to boost domestic savings rates as well, if global rebalancing is to occur. Rebalancing, in the current context, would mean that debt-laden countries reduce consumption and increase individual savings as well as investment in R&D and production, while countries in surplus increase consumption. Among the key strategic areas poised for such investment in the U.S.: energy and efficient (clean) technologies. President Obama faces a sizable political challenge ahead with the coming mid-term elections, because any new energy legislation will be spun as a tax on industry and an affront to individual freedom by the opposition. The risk to politicians supporting energy legislation is not insignificant: they may be voted out of office (this has been exacerbated by the recent epidemic of 'foot in mouth' disease by many Democrats in Congress). Yet the importance of providing government incentives to spur investment in clean technology cannot be overstated. Part of any energy legislation ought to be a gas tax to force a behavior change among the population. Of course, this is not a popular idea, and there is little doubt such a proposal would cause Glenn Beck to cry on national TV (sadly, such cheap theater seems convincing to many Americans). But the US needs to pay closer attention to the underlying factors that are going to make China even stronger in the years ahead, as compared to us. China is
investing heavily in clean technology, including
nuclear power. At the same time, China, with its surpluses, must find ways to redistribute some of its growing wealth to encourage increased domestic consumption. One of the challenges is convincing China to allow a more rapid rise in the Yuan to accelerate this effort. The other challenge is for President Obama to convince the U.S. Congress that a truly substantial national energy bill will reap enormous rewards for decades (particularly in terms of remaining a competitive global economic force), even if the passage of such a bill leads to short-term political losses.