I was blabbering to my friend about this just yesterday. Normally, inflation is causally coupled with economic activity - and inflation isn't so bad because the economic activity means wages are keeping pace with the inflation. The high price of oil makes it more expensive to ship goods manufactured in China. Add to that the dismal outlook for American consumer spending (because gasoline prices are sucking up discretionary spending). The Chinese economy, so dependent upon selling manufactured goods to the US, could be in a reall spell of trouble. Bad news on the supply side and the demand side.

Less foreign trade isn't necessarily a bad or good thing, but in China's case, there is not near enough domestic demand to make up for the decrease in foreign demand. Meanwhile, in the United States, the infrastucture is so oil-dependent, that engaging in more domestic manufacturing for domestic demand is more difficult than it should be. Moving American workers where there are jobs requires using gasoline, and low domestic consumer demand because of high gas prices means an unfavorable business climate.

So, the high price of oil means inflation and low growth. Stagflation 2.0. It's the 70s all over again!