Jul 07, 2010 08:31 PM

The Puzzle of Carruades de Lafite


Ten years ago I wrote that, whenever China buys, the price will go up and, whenever China sells, the price will go down. I recently modified the second half of that to, whenever China sells, the price will go up too, because I expect China's factory wages to quadruple over the next decade.

The slogan is a play on China's size. In economics, most observations are based on small perturbations to a complex system. For example, when a small country joins the international trading system, economists estimate the impact on the country's economy based on price convergence with international prices. When a large country like China joins the global trading system, the impact is felt both ways. In some areas, like natural resources, for example, China's impact dominates, hence, the change of relative prices for everybody.

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