Views of A China Collapse Affecting the US Economy

Economists are mixed in their view of how a collapse of the Chinese economy would affect the US.

Kenneth Rogoff, economics professor at Harvard University:
A sharp slowdown in Chinese growth represents the single biggest risk to U.S. and global growth today. China's massive excess savings have been helping to hold down mortgage interest rates everywhere. Trade with China has been a major driver in the revival of U.S. productivity that has helped boost growth and lower inflation. Above all, China's generally peaceful integration into the world economy has been helping lower market volatility, thereby driving up the price for risky assets such as housing and equities. Most investors are far too sanguine about the risk of a China meltdown, forgetting that China is still very much a poor developing country with huge political, social, and financial vulnerabilities.. The immediate impact on the United States would be through a sharp rise in interest rates and market volatility, and a concomitant drop in equity and housing prices.

....Clyde Prestowitz, president of the Economic Strategy Institute:
The U.S. is not that vulnerable to a slowdown in China. We don't export a lot there, and the main problem for us would be any slowdown in Chinese capital flowing into [U.S. Treasury bonds]. But there is also a lot of capital coming out of the Middle East, so I don't see the U.S. as vulnerable to China. But Latin America .and certainly the Asian countries that supply China with raw materials and parts would be hit.

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China's economic growth has been impressive up to this point, although the underlying economic infrastructure of China remains less solid and substantial than most analysts would like.

If China can reform its banking industry, and sell off the non-performing state owned enterprise sector, it would go a long way toward reassuring the more savvy foreign investors of China's long term commitment to eliminating corruption, and solidifying its economic foundations.