Regardless what you think of the current round of recession fears- The incredible growth that China is experiencing is most likely not sustainable nor stable. Some do disagree, but I find their analysis about as convincing as those made by the 'permanent growth via new technology paradigm' camp during the late 90's.

So, like most bubbles, its waiting for a sufficient needle. Right now there are a few of needles laying around.

1) A recession in the main consumer of their goods (the US)
2) A drop in the dollar that invalidates one of the main engines of their growth (the pegging of their currency to the dollar).
3) Competition by other emerging economies that have learned from and improved on the Chinese model- IE India.
4) Rising protectionism in the US.
5) Rising Oil nailing the US consumer and drying up consumption of SE asia goods while at the same time making them more expensive to produce (thus thwarting the typical economic response- decrease prices and raise supply of the SE asia goods)

Now, right now 2 of the above conditions hold true. India and other SE Asia countries have screaming hot economies and are in direct competition with China, and the dollar is sinking faster than Little Bobbies Dead Pet Hamster going down the toilet.

The others appear to be likely. With wars in the mideast and political turmoil in many large oil producing states, Oil is hitting historic highs, even after adjustment for inflation. The implication for the US economy of the credit mess is still unclear.

So if the US goes into recession and/or as a possible reaction to a recession, raises trade barriers, then there could be a dual faltering of the economies of the global engine of material production (China) and the engine of material consumption (US) leading to a serious storm for service economies like US and Europe.

So you would be looking at a really large global economic cooldown.

Not saying the sky is falling- but we're looking at several major impacting factors all happening at once. Whatever happens, this will necessitate a change in the current odd global economic organization and bizarre (NOT FREE TRADE driven) triad between US/Europe/China. So recession or depression or no- look for some mighty big changes.

Also of note- the idiot-ideological pundits out there who don't even know what economic neoliberalism means who are screaming about the woe and danger of raising trade barriers are blissfully/willfully blind of one key factor: The most truly 'open' economy on the planet today is the US, and taking the US as a whole, it seems arguable that our 'open' trade policies are bettering either the lives or wealth of our average citizens. Other countries who are 'opening up' (if they are, its arguable that the only 'openness' is in the form of dropping trade barriers- not in the fundamental economic model in their local economy.)

China, on the other hand, is somewhere between a Fascist state (strictly speaking in economic terms for the sake of this post, but the label does of course apply elsewhere) and a state-managed planned economy with heavily policed free-enterprise taking the place of communism. They are no more 'open' than a locked Chinese puzzle box.

So the current 'paradigm' of the global economy shared by most 'experts' seems completely out of touch with reality. I find that hardly encouraging in the face of the current problems.

Yeti