SLEEPING DRAGON: Mean Mr. Mustard has written an interesting analysis on the possible future of China as a world power, based on a series of lectures by a Prof. Gregor at Berkeley. In response, I posted the following to his comments section:
First, IANAE (I Am Not An Economist), but I play one on TV. Trade "deficits" aren't really bad, and can be particularly good from a national security point of view. For instance, if China goes to war with us they immediately lose access to all our hard cash, and all we lose is their plastic crap that we can easily make ourselves. This is a huge disincentive and greatly reduces the chance that China will want to fight us.
In a balanced economic exchange, we trade cash for goods of equal value; our economy does not lose any net wealth. It can, however, become a problem if hard currency is invested in foreign countries, and in fact this is one of the middle east's largest problems. Saudi Arabia has nearly $100 billion invested in North America and Europe; if that money had instead been put to work in the middle east it could do a lot to stimulate their economies. Of course, no one will invest money if their investments will be constantly at risk of war and seizure.
Secondly, China has a lot of people but is absolutely no match for the American military. Their equipment is worse than Iraq's was, and they have little training. Additionally, even if a significant portion of their population could be conscripted it would consist entirely of light infantry which would be no match for our armor on the ground, or our planes in the sky. China will be unable to modernize or improve their military capability until AFTER they industrialize, at which point it is hoped that they will also have democratized.
The China situation should be handled carefully, but I do not believe they are the threat that many make them out to be.