U.S./China Trade: A Tale of Two Addicts?

I well remember the late 1980's and early 1990's, when the concept of a service economy was rapidly taking root, along with the notion that the global economy was going to propel us to new heights of economic sophistication.  Totally dispensing with all of those old, dead and European economists, the new economic theory held that the grubby work of producing tangible products was not suitable for advanced economies and that the new information and technical economies meant that the intangible element of service, integrated into high-tech products, would be the determining market differentiator.  Essentially, it followed that all of those theories on value that I had learned in economics classes were no longer relevant.                                        

Here it is 2013, and I'm still trying to make sense of all of this.  It seems that each time I buy a product such as a tire or a vacuum-cleaner, I see a made-in-China sticker. Last year, our trade deficit with China was 315 billion dollars, while in the previous year it had been 295 billion.  Also during 2012,  the U.S. total of exports and imports amounted to 3.82 trillion dollars, at the same time the Chinese total came to 3.87 trillion.  In effect, China had surpassed the U.S. as the world's largest trading power.  

Perhaps a more meaningful number is the almost 2 trillion dollars of U.S. debt held by China, a significant number inasmuch as closer examination indicates how the two nations are locked into a relationship that could bode ill for both parties.While the American mania is for more and more cheap consumer goods, the Chinese addiction is for more and more investments in export-oriented industries.  Keeping in mind that by 2030 it is forecast that China will have four times more middle class consumers than the U.S., it would seem to make better sense for the Chinese to be moving in that direction.  As for the American debt, China knows very well that the Chinese economy is vulnerable to any instability in treasury yields or to any potential default on the part of our government.

Since 1980, the U.S. has lost 7 million manufacturing jobs.  Has the service economy panned out as predicted?  No, at least not yet. The 7 million high-paying industrial jobs have not all been replaced by high-paying service jobs. Consequently, the surplus labor from lost industrial jobs has more and more been going into less well paid areas of the economy.  Is this simply a way-station in a lengthy transition, or will we become a nation of fast-food workers, "gophers," and health care employees?  And, although the high-tech portion of the economy is significant, it has not yet delivered to the extent that was once thought possible.

As we continue to stumble through the recession, mindful of the 1.5 trillion dollars of expenditures in Iraq and Afghanistan and a total deficit exceeding 16 trillion, the U.S./China relationship assumes even greater significance.  Will the addictions be overcome, or will the two nations continue to be locked in a disadvantageous symbiotic embrace?  Hopefully, this is a question that politicians and economists at the highest levels are now pondering.