U.S. Markets close in 3 hrs 37 mins

Commodities Tumble: Is China’s Economy Next?

Fin - Daily Ticker - US

Commodity prices resumed their recent slide today. Oil prices are firmly under $100 per barrel which is potentially good news for consumers but a bad sign for the global economy: Goldman Sach's Jim O'Neill says China's economy is "slowing down more than people realize," Reuters reports, predicting GDP will slow to 8% in the second half of 2011.

In related matters, China's central bank took another step today to cool the country's economic engine and temper inflation by increasing the reserve requirement ratio for its commercial banks - the eighth such move in recent months. By raising reserve requirements, Beijing hopes to limit bank lending which will result in less inflation.

"They are seriously concerned about inflation," says Ian Bremmer president of the Eurasia Group, a political risk and research consulting firm. Based on his sources, Bremmer detects a divide in China's government between those who want to allow the yuan to appreciate and those that favor a greater crackdown on lending. But "there is no panic yet in Beijing," he says.

In the accompanying clip, The Daily Ticker's Aaron Task and Daniel Gross discuss the future of U.S.-Sino relations with Bremmer in the aftermath of this week's bilateral strategic talks.

"It's clear that China's going to become a politicized issue" in the 2012 election, says Bremmer. With continued high unemployment, he expects the GOP will attack the Obama administration for allowing jobs and industries to move overseas. That trend may slow according to a new study by Boston Consulting Group study (BCG) that predicts that in 2015 global manufacturers will view the U.S. as equal to if not better-than China. (See: "Made in America" The Comeback)

"That's insanity!," Bremmer exclaims "We've got a long way to go."

However, Bremmer does believe the U.S. is still a force in manufacturing and may benefit from higher commodity prices. "Globally with prices of commodity input prices going up and with some decoupling around currency there's reason why some manufacturing should come back to the Western Hemisphere," he says, but argues businesses will continue to favor cheap labor in China and elsewhere in the emerging and frontier markets.