Let many of you, I spent the last few days biting my nails as the Shanghai Composite Index sent the Dow Jones Industrial Average into an economy tailspin. How low can we go? Were we doomed to see numbers like the ones we saw back in 2008? Now that things seem to be settling out a bit, we can analyze what just happened.

So what happened?

Essentially, on the world stage, all of the various economies, big and small, are linked together. We saw this about a month ago when we took a hit from economic news coming out of Greece. You’ll notice a direct connection where when one country hits uncertainty, America begins to get nervous.

This connection is only made worse when we magnify the scale of the economy. In this case, China, which for the last quarter century, has been the single fastest growing economy in the world. Compare America’s annual growth, which is around 2-3%, to China’s, which is more like 7-10%, and you begin to see just what role China plays in the world. How many times have you seen “Made in China” labeled on various products you own? Their economic model of cheap labor and industry has dominated for the last two and a half decades.

But the world is changing, and with that, China must too. And they are not. The business world has been moving away from manufacturing and into one driven by information. People are also more conscious about their buying choices and a resurgence of American-made products has swept the hearts of the people. And finally, because of China’s growth, the living standards of the Chinese people are vastly improving, and therefore demand a more diverse economy that’s not solely built on exports.

Let’s breakdown those three points:

Welcome to the Information Age

Computers. We all have them. And the business world has officially been converted to an all digital presence. Whether you welcome it with open arms, or long for the “good ol’ days,” it’s here to stay.

Now while many people (myself included) bemoaned the loss of industry and manufacturing jobs in favor of China’s cheaper alternatives, America has built for itself the largest technological industry the world has ever seen. In this way, we were incredibly smart for building the future of our economy, while China foolishly bought up all the scraps. We knew China’s strategy would only last for so long, so we stepped out of the way, and partnered up with them when we needed it, without having the burden of a failed infrastructure once it crumbled. We have definitely learned our lessons from Detroit.

Made in America

The 80’s was a weird decade for consumerism. The influx of cheap goods and plastics from China flooded the marketplace at a time when American ingenuity was beta-testing what would become the information age. These bad habits flowed into the early 90’s as well. But the 2000’s showed the signs of a more conscious-driven culture.

As the War on Terror began, Americans began to speak again as one people, proud of their home. The huge wake-up call of 9/11 reminded us that the Star Spangled Banner is America the Beautiful. These business-minded patriots were able to take a step back and ask themselves why so much of their property was built overseas instead of giving jobs back to Americans. And then, a hand-crafted culture was born. The problem with manufacturing cheaply is that it produces cheap products. Americans are beginning to learn that even though they may pay more upfront, they are buying products that will last longer, and thus more cost-effective for the long term.

The Modernization of China

Once China was successful at growing their economy, that kind of system will inevitably trickle-down to its citizens. And did it ever. Now that living standards have been improving, the Chinese are asking for their fair share of the compromise. For 25 years, the unspoken deal was that China would grow their economy at the expense of their citizenry, in exchange for a large pay-off in the end. Basically, the Chinese government was going to “make it worth their while” to stall the wellbeing of their country.

The Chinese are saying time’s up. And they are tired of an oppressive regime making money off cheap labor and then lying about it.

So why now?

With these facts, you can see that China has been a pressure cooker for quite some time. But why did it happen last week, instead of, say, a year ago? Or a decade ago?

Remember when I said that China’s annual growth has been 7-10%? Well that may have been a big bold faced lie. It’s definitely what the Chinese government has been wanting people to believe. But data released last Friday suggests that its industrial activity has been rapidly slowly, and for the past year, the market has been manipulated by the Chinese government to keep the value of their currency high. And their stock market took the bait. This is especially obvious once we look at the Shanghai Composite Index on a yearly scale:

That is quite the growth if it was real. Now we are learning that it is not.

Why must America pay for China’s corruption?

The biggest question of them all. This is what brings us to today. The stunning news about China on Friday happened while our stock markets were open, so we took the hit at the end of last week. Then China’s markets responded to our crash on Friday. Then we responded to China’s crash of our crash. Today, China is responding to our crash of their crash of our crash.

But today was different. We broke out of this back and forth free-fall, and today our stocks are rising again in correction. Time will tell if we can shake free the influence of rogue economies, but things are on the up-swing once again. But know this, I’ve got my eye on you, China!