China Overtaking US Economy – Good or Bad for US Business?

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As I was standing to purchase my lunch of arugula-beet-and-feta salad at a Treasure Island supermarket here in Chicago yesterday, I looked to my right and the latest Newsweek headline punched me in the face.

“Hit the Road, Barack” the headline read with a sense of weariness.

Turns out Niall Ferguson, the article’s author, had caused quite a stir with the lead piece, but John Authers’ follow-up in the Financial Times contains some interesting points that look to deflect Ferguson’s critics.

Basically, Authers argues, the US should be looking forward to China overtaking the United States in terms of GDP by 2017, because much of US business depends on China’s economic health. (Hopefully my arugula, beets and feta were not sourced in China.)

In many ways, the point in the last paragraph holds true for the metals and mining industries.

With iron ore prices losing a third of their value since April and copper prices falling, commodity markets will tumble if China tanks. (MetalMiner has written extensively on the subject, with quite a few reasons to short China.)

When it comes to the bulk of consumer-oriented American companies making more money if China continues consumes more, then sure, more Americans working for those companies will fare better. This holds true for many US metal producers and OEMs — Caterpillar, for one — yet some US steel producers and others in the metals sphere may disagree with that point.

However, maybe the argument that it would be good for the US if China’s economy overtakes it (after all, on a purchasing power parity — PPP — basis, the US is still far richer) is not the one the US should be concerned about at all.

Perhaps the key is not overall growth measured by dollars, GDP, what have you — perhaps we should be concerned more with how the US ranks in innovation.

See where the US stands in innovation rankings – and what implications that could have on metals industries – tomorrow in Part Two.

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