Some of us remember when “Made in Japan” meant only one thing: cheap toys. In the decades after World War II, Japan grew from an impoverished provider of cheap trinkets into a world economic power producing some of the best quality, most innovative, and most expensive products in the world. Today, goods from Japan, while offering great value, can also be too expensive for working class Americans. When Japan’s standard of living rose dramatically in the late 1970s and 1980s, the resulting economic disruption rippled throughout the world economy. Japan’s growing wealth – and rising export prices – affected all of the country’s trading partners.

Now imagine a similar scenario, but with a much, much larger country. A February 1, 2008, New York Times story opened with a five-word sentence that carries significant importance for the US economy: “China’s latest export is inflation.”

The Times’ Shanghai correspondent David Barboza wrote about the factors increasing the cost of imports from China. Much of the world decries China’s record on worker rights and the environment, and rightfully so. But we must recognize that every step to improve these areas also increases the costs of goods from China.

According to Barboza’s article, China has been raising wages, removing incentives that once favored exporters of cheap goods, and “is also stepping up its enforcement of environmental laws, putting added pressure on factories that had long skirted regulations.”

Factor in rapidly rising oil prices and the weakening dollar, and one can see the inflation genie straining to escape its bottle, now made of Chinese glass.

Inflation is a complicated topic, not least because our measures of inflation typically do not include energy and food. By the time we admit inflation is rising, it is often rising fast and powerfully. Economist and former Labor Secretary Robert Reich once wrote that our old fears of the domino effect of Asian Communism have been replaced by the domino effect of Asian Capitalism. Is inflation the next big ripple to spread across the Pacific?