China Once Looked Tough on Trade. Now Its Options Are Dwindling
nytimes.com
nytimes.com
Assumption: Trump wants fair trade. HN readers want fair trade.
What is needed: fair trading rules, fair IP rules, fair capital structures, and a fair currency.
Tackling some of the unfair trade practices does not address all those issues. In particular it does not address the services trade imbalances, the favouring of US IP holders (as incumbents and head starters), and the massive advantage that the dollar gives to the US economy.
And we have not yet started talking about the weaponizing of the dollar, which can be recently seen in the conflict with Iran.
All this to say that the US demands are not fair.
You can obviously pursue your interests, but you will not sell it as being a "fair" policy.
The Chinese, the Europeans, all countries have equally fair, if not fairer, demands, which must be respected.
The core of the problem is obviously that the initial assumption is false: Trump and HN do not want fairer trade, but trade one-sidedly beneffiting the US.
We will fight this policies, if needed at the personal level, by selectively consuming products according to country of manufacture.
You mean favoring the people that actually invented these things? I understand there isn't much of a notion of IP in China, but are you suggesting that it's unfair to not be able to copy IP and just manufacture without paying?
Any other enforcements and punishments are overreaches by government on behalf of lobbying. Many agree that the scope and punishments on the books in the USA far outweigh the punished behavior, and these are being foisted upon the rest of the world in strong-armed multinational agreements, against the will of the people on the receiving ends.
Can you give an example of what is outside of science and arts that you think is fair game?
The IP laws should be a trade-off: temporary protection of inventors / creators, so that progress happens and consumers get a good deal. Instead, HN is already aware how IP laws get abused. The effects of those abuses are felt largely outside the US: it allows the US to foster its economic and cultural dominance.
All thanks to founding and controlling the international bodies in charge of ruling on IP matters.
China has been pulling the same bullying tactics towards EU and S.Korea/Japan as well. IP transfer, forced partnership, etc. Notice how EU, South Korea and Japan haven't really been opposing this ordeal between China and US? They would also like to see China start playing fair, unfortunately there is very few economies can standup to China right now.
China has been quite the bully towards EU nations (though not EU as whole yet). Here in Sweden, China went on full on propaganda mode over some Chinese tourists being kicked out of a hostel, and this made it to the Chinese national news yesterday.
Chinese media (and social media particularly) does regularly cover stories about Chinese people outside of China involved in situations such as these, whether it's a high-profile business figure [2], or ordinary Chinese people involved in non-ordinary conflicts. Including the narrative that Chinese people don't get justice or support from local police when they are victims to criminal activity, that's regularly reported in Chinese media.
UK media does the same thing, any disaster always has a mention of how many British citizens are involved, sometimes who they are. And a regular diet of outrage of British tourists coming face-to-face with the legal consequences of their behaviour across the world.
Brexit revelations shows me that China trades using WTO rules with Europe. There does seem to be movement on that front too. [3], [4]
Though, with trade arrangement with WTO rule, it's worth asking why US aren't resolving their dispute within the WTO. We shouldn't glorify bullies, even if they are bullying other bullies.
[1] https://www.bbc.co.uk/news/business-43926092 [2] https://www.reuters.com/article/us-hna-chairman/chinas-hna-c... [3] https://uk.reuters.com/article/uk-china-eu/eu-pushes-china-o... [4] https://www.politico.eu/article/donald-trump-china-eu-trade-...
What?
The US has only written IP laws in it's own jurisdiction. Europe, and other nations definitely write their own laws.
Nations make agreements with each other for their own benefit, for example, there is an IP section within the WTO.
If China, or anyone else, thinks they are better of without having IP laws - that's fine. Then nobody should respect their IP either.
The other problem is that China is part of the WTO and they are supposed to actually be doing one thing, but they are actually doing another ... i.e. they are out-of-bounds of their own treaties.
It was perfectly rational, in 1980's and 1990's for China to ignore IP laws, and interestingly - it was rational for the rest of us to allow them to do it.
But if you want a 'seat at the table' of major economies, that needs to change.
And it's in China's best interest to do so as well.
It's a perfectly legitimate approach for some situations. In the 1980's , 1990's it was actually a positive strategy for China to pay no mind to IP. And it was better for us as well because it was the easiest way to move them along at a quick pace. It's better for the 'rest of the world' to have a prosperous China, than a 'broke on it's back' China.
But at some point, it comes home to roost though - you can't 'catch up' to the big players without some kind of basic IP, so by becoming too entrenched in that kind of culture, they might limit themselves.
I am of the opinion that any IP is antithetical to societal progress. If people are free to copy that means we get to remove the monopolistic pricing of goods. If people are free to improve then our ideas and products become better and better, rather than having a single player guard an antiquated model and prevent others from iterating on the idea. If information flowed more freely people interested in making money would have to continue to innovate and while it may hurt a few individuals who could run with a single idea for 20+ years, it would bring up society as a whole.
Developing drugs, building special fabs, etc can be hundreds of millions spent in research that needs to be incentivized. If the option to just copy the person that does all of the work is on the table, anyone who does the research investment will be immediately undercut in price and the whole system encouraging expensive R&D will collapse.
>If information flowed more freely people interested in making money would have to continue to innovate
If information flowed more freely without IP protection, the winning move is to not actually invent things and just copy whatever the current leading products do. Maybe that's what you call "innovation", but it's a pretty big regression from actual inventions and major leaps forward.
Particularly drugs.
The more R&D involved the riskier it is to make something.
It cost $1 Billion to make a new drug, there's no way anyone invests that kind of money without IP protections.
On the creative side, we allow companies to protect their creations like characters, films etc..
1. https://www.cfr.org/blog/why-does-everyone-hate-made-china-2...
2. https://qz.com/1000541/norway-wants-china-to-forget-about-th...
3. https://www.commentarymagazine.com/foreign-policy/asia/china...
4. https://thediplomat.com/2015/02/u-s-china-relations-the-hypo...
Not just with Iran, but everywhere. Most people do not realize the monopoly of USD in banking transactions. Essentially US can pass laws or even through executive order control the economic and trade policy of other countries. Turkey and India are barred from buying Russian equipments. This is not free trade. When US uses its monopoly to block India from trade with Iran and tries the same with China, that’s not really free trade either.
You mentioned weaponizing dollar, many people do not realize how it works. We’ve seen a lot of negative news about China recently . I suspect some of it has to do with their decision to open their own oil futures trading that is not run on USD. This could be the largest threat to the USD monopoly. Time will tell..,
edit: additional links and info:
Basic info on Shanghai crude futures [0]
Some early speculative behavior. I wonder with low early volumes in this market can be manipulated to scare off more serious investors [1]
Seems like the Shanghai market had its first delivery on Sep 12 [2], that being said, some predict it might take 10 years before it will have serious impact on the market. But sometimes financial markets move ahead of the physical realities. So, its impact might become palpable in just a few years [3]
[0] https://uk.reuters.com/article/uk-china-crude-oil-futures-an...
[1] https://www.bloomberg.com/news/articles/2018-08-07/oil-specu...
[2] https://oilprice.com/Energy/Crude-Oil/China-Completes-First-...
[3] https://www.scmp.com/comment/letters/article/2139676/will-ch...
You are mismatching unrestricted (wild) market with free market. Market, to be free, requires someone to play role of guard and punish bad actors, who disobey rules. Otherwise, bad actors will convert free market into non-free in no time.
Usually, such power is granted to a government or to an association of traders.
Currently, world have no united government. We have WTO, which is our world trade organization, but it have very limited power.
Why have enough power and strict moral principles to keep market free? As you said, USA cannot do that, of course, so maybe it should be job of Russia, Iran, China, or North Korea?
We seem to agree that this is not about fair trade, but that is what Trump is calling the whole thing.
I wouldn't say the US is strictly playing fair in the economic game either though, even before trump US economic power was a major weapon. The only ones that really seem committed to fait trade are the EU and maybe Canada, Japan, Korea.
Corporate America's welfare is around 100 billion as said by many rather partisan think tanks... but in reality, its trillions of dollars when you figure in realized costs such as below poverty level minimum wages, the collapse of pension and retirement programs, the exploding costs of for-profit healthcare.
Trillions of dollars? You're inventing that claim.
Less than 1% of the US population earns the minimum wage for starters.
There isn't a single developed nation that doesn't massively subsidize its poorest workers via a welfare state. Every country with universal healthcare does for example, without exception.
> the exploding costs of for-profit healthcare.
Private corporations are heavily footing the bill for that healthcare cost increase, as roughly half of the US healthcare system is employer coverage. Which is why companies as diverse as Amazon, JP Morgan and Berkshire Hathaway are desperate to work together to reduce the problem.
> the collapse of pension and retirement programs
Which is occurring in just about every major economy at the moment, thanks to rapidly aging demographics. China has a very bad pension problem for example, and that's on pensions that typically only pay about $100 per month. Simultaneously their economy is already seeing a decline in workers (which means less workers to pay into propping up the eroding pension context).
https://www.bloomberg.com/news/articles/2018-02-05/china-s-n...
He does if you believe that the current trade is unfairly balanced against the US.
>Corporate America's welfare
Nothing to do with trade policies, but w/e.
>the collapse of pension and retirement programs
That's not welfare.
>the exploding costs of for-profit healthcare.
Also not welfare, especially when many corporations have to pay these costs for their employees.
- high subsidiaries for their exports
- blind eye on IP theft
- forced technology transfer
- closed market for many industries and services
- forced "joint ventures" for certain industries
- legal system the favors Chinese companies
- systematic attack on western industries
Feel free to ask and I will give specific examples. Based on the kind of business relationship of the US and China, e.g. Apple products are produces in China and hence also go into the trade deficit, the trade deficit is heavily distorted. (China, Foxconn makes very little profit on assembling apple phones. Yet, Apples makes most profits offshore, e.g. via selling from China to HK and from HK to US). So a trade deficit is not surprising. Trump never said that he wants a zero trade balance, he told Xi to "lower it" and "equalize the playing field". This was a reasonable request.
Xi just could have agreed to this but instead wants to play hard ball. In my opinion Xi can not win this game and the only rational strategy in a game that you can not win is not to play it. It makes me doubt the strategic abilities of Xi but we will see.
"suggested on Sunday that China could deliberately disrupt American companies’ supply chains by halting the export of crucial components mostly made in China." Outstanding idea. I am sure Western companies will love this, invest more in China and don't move production to other countries.
Before you downvote me, give an argument.
Finger pointing at China doesn’t excuse any of this, even Trump’s policies against China, on the basis of free trade.
I have little to no sympathy for China, but I do believe in equitable free trade based on consensus, a common rulebook and independent arbitration. It's served us very well and even with Chinese protectionism, which they have been gradually rolling back, the US and the rest of the world has profited from it. The economic issues in the West over the last 10 years were entirely home-grown and if anything trade with China has been a resilient economic buffer that's helped us cope with the financial crisis (if unintentionally). Blaming them for all our woes is just a distraction.
I'm sorry but China is flagrantly violating so many of it's own agreements. The IP agreements of the WTO for one.
There would be little fuss if China was sticking to it's own agreements.
This alone would be very "un-chinese". A signed contract in China is always a contract in negotiation. Can change any time.
Due to this and fake products I buy clothes (YES, clothes!), shoes and electronic products only in the EU and the US.
Edit: Don't get me wrong. I love China. But many people now see only the strength of China. They have a strong culture. But it comes with many weaknesses. They once fell behind western culture. They may fail again if they don't fix some things. The downside risks here a HUGE.
Would you list some examples of that products, please?
So we did. The whole world has been painfully opening markets for 70 years, and slowly, by finding cracks in the system designed to favor American interests, developing countries have indeed started to grow richer. Still poor compared to the US, but definitely better off.
Those open markets, designed by the US to export, have been used by two actors to import to the US:
- emerging markets (China, India, ...). This was the selling point of opening the markets, so this is perfectly fair
- US capitalists, trying to increase profits by moving production overseas and reduce costs. This is what is causing problems in the US, by losing jobs. This is a homegrown problem, and nothing the rest of the world should care about.
Basically, now that the world is starting to benefit from globalisation, after the US being the main beneficiary for over 50+ years, we somehow need to start caring about internal US problems.
I do not buy this.
Germany and Japan were almost totalled but it took them just a decade to comeback because they still had the weapons factories which they repurposed to produce goods.
> .. painfully opening markets for 70 years, and slowly, by finding cracks in the system ..
Developing nations real problem was their protectionism. When India opened up its markets in 1991 it has seen a lot of progress compared to the previous time. Competition is fair practice, it forces people to produce better quality products or unique goods where they can compete in. India found its strengths and weaknesses so did China. The point is to compete with strength and weakness both, Not to compete on strengths alone. because if you do that others will do the same. This is what trump is doing now, protecting its weaknesses as China and India does.
> This is what is causing problems in the US, by losing jobs ..
US does not have a job problem, the current unemployment is 3%, which is the lowest in a century in American job markets.
> Basically, now that the world is starting to benefit from globalisation ...
US has always benefited from globalisation for being the market innovator, US invented so many things in the last 100 yrs that is indispensable to the rest of the world. For instance Semiconductors, Telephone, Mobile Phone, Television, Light Bulb , Internet, Airplane, Satellite communication. What has china and India invented in the last 100 yrs? The best way to compete is invention and innovation, ofcourse for some the pace will be different than others. China has a lot of funds now what invention comes out of Chinese labs? They are still involved in espionage in US companies so many Chinese spies have been caught in the last 10 yrs itself. I dont think chinese manufacturing has the gall to compete on fair grounds because if they do they should lift import tariffs on everything. Trump too will remove all the tariffs. It is that simple.
"We will fight this policies, if needed at the personal level, by selectively consuming products according to country of manufacture."
No. Nobody really does this. People mostly just buy stuff. Chinese will continue to be enamoured by iPhones. The only change will be any supply/demand function due to price.
2)
'Fair Trade' is not a relative issue.
If China does not respect foreign IP then nobody should respect China's IP. That would be 'fair'.
If China wants to control and invests in strategic winners then it's only fair that Europe and America do not allow those companies to sell into their economies without a big tariff.
It's also not 'fair' that China pollutes quite a lot, and does not have have basic worker protections. So 'fair' would be if the US and EU imposed tariffs for those externalities as well.
I don't like Trump, I don't think he really understands what he is doing - but effectively it's the right thing: 'fair trade' would ultimately for nations to be on equal terms.
So how about: all Chinese software outside of China is open source and they shouldn't have recourse on IP, and there should be tariffs to offset environmental/worker externalizations, state actors face tariffs, and Chinese purchase of external companies and assets are severely restricted.
That would be 'fair'.
That said, it would probably be in China's long term best interest to improve the IP situation, environmental and safety/worker issues, and to have less dependance on central planning. It's totally fine if China wants to 'make it's own' path, that's natural and positive. But all those things will yield long term benefit.
Trump I don't think is smart enough to put it this way - but the world should see his movements as an opportunity to address core and fundamental trade issues that we are facing, since the 'old order' is not going to work.
I hope that in the end they're able to sit down and work it out because there's plenty of room for compromise and it will be a win-win.
I realize your comment is not from a pro-US perspective, but try not to conflate a leader of a country with a group of users coming from that country. Many people on HN have nuanced views of the value of trade. If you read anything Trump has said or written on the topic its clear that he has no idea what international trade is or how tariffs work. Attributing any plan or intelligent design behind these things is one of the biggest mistakes we have made in addressing the problems created by this president. Its just what people "ooo" and "aaah" about at his rallies and that's all he cares about, but it attracts political allies that share that belief for their own reasons and that is who we see being selected to carry out US policies.
Whether that's actually the case is debatable, but people who support those policies genuinely believe so. So you can call them misguided, but not irrational or inconsistent.
No, it's not. There's absolutely no sense in which there is a "long-term gain" from imposing a tax on US consumers because the government decided they were buying the wrong products. If you have an actual argument to make in favor of these taxes, please make it. You're just parroting a talking point and providing no justification for something that doesn't make any sense.
Simply do not claim it is somehow about fairness.
Fixed that for you.
So when Chinese consumers have to pay a 25%+ "foreign goods tax" on things made in China and bought in China you'd say that's fair would you?
Invalid Assumption: Trump has any understanding of cause-effect.
This is China's problem, right now. Trump doesn't have a specific purpose, so there is no pain point you can drive back at. China should have just tariffed some meaningless stuff, rolled out the propaganda machine, and just let it go.
Never wrestle with a pig. You get dirty, and besides, the pig likes it.
1) the dollar
2) military conflict
We'll see
Also, many people here maybe don't know, China is suing the U.S. for those tariffs. Maybe wait until it played out, the everything will be a bit clear.
I don't know how people in the U.S. view this trade war, but in China, many people already start to treat it as a new normal now after realizing it will be a long lasting one. Jack Ma for example, believes it will last for ~20 years.
I also watched another video[1], which is a voice recording from a seminar, the speaker was Jin Yi Nan[2], who is one of the "Hawks" in China. In that recording, other than trying to calm the listener (mainly business man I assume) down, he made few points, which been (I oversimplified it, somebody can do a full translation of the recording if interested):
- We (China) had problems, but the U.S. also had problems. At the same time, they (The U.S.) had advantage, we had ours. We're actually chained together (trade war will be bad for both, and they are hurting themselves while we facing the challenge).
- Chinese business should keep trying to enter international (including US) market and make investment, regardless the trade war.
- Trump's idea is frozen at '40s, and we (China) will be more open (more participation in trading and welcome international investment).
I think it sort of reflects the idea of some people inside the China government, or at least showing how the government want people to think of the trade war.
On the bright side, by the time all of this ends, it will be a very good topic to discuss with our future high-schooler kids.
[0] https://www.youtube.com/watch?v=mGbcsBfPF0g
[1] https://www.youtube.com/watch?v=8svRtTAw_10 (It's in Chinese)
[2] https://zh.wikipedia.org/zh-cn/%E9%87%91%E4%B8%80%E5%8D%97 (Only Chinese version available)
Where are you getting that from? Trump wants to keep his promise to working class workers that he'll bring their manufacturing jobs back from China.
From his mouth?
Not that that would be a reliable source, I concede that ...
1.) 40-60 percent of a company’s supply chain moves out of China
2.) China restricting the movement of capital/equipments out of China (similar to what happened with Korean companies last year)
3.) China growing homebrew competitors to the foreign companies leaving, part of the ‘made in 2025 in China’ strategy, via state enterprises or state spendings in startups. China will also make US companies’ operation in China very hard, either with license restrictions, or increased local ownership.
4.) China will disincentivize Chinese consumers from purchasing US (or foreign) products, via propaganda, taxes, or control (similar to what happened with Japanese and Korean products last few years). This would be hard, as Chinese consumers prefer higher quality, higher brand value, and higher perceived value foreign products.
5.) China will have to target US farmers with tariffs, as there isn’t much US imports to tax otherwise. Plus, there is also face saving.
6.) US will increase the tariff coverage to all Chinese imports, either triggered by tariffs on US farmers, or threats to US companies.
7.) China local governments will try to seize US owned corporate assets, or prevent factories from shutting down by its owners. This will escalate the urgency for US companies to move out of China.
8.) 70-100% of company’s supply line will be out of China
9.) Eventually, most direct trades between both countries shrink down to less than $50B. Down to a significant level where it starts to effect GDP for both countries (China way more than US)
10.) China will have no choice but to embrace its lost decade, ala Japan. It will tighten controls on its citizens. It will try to contain high inflation and high unemployment rate. It will try to unwind its debt for the next 10-20 years. Its gdp growth will go towards 0 or negative. Its GDP will shrink 20-30%.
(posted this in another thread but didn't get any discussion)
China is still trading with other countries. While it may take a hit from US companies pulling some manufacturing out of China, some of those will be replaced by other - both Chinese and foreign - companies. Especially other foreign companies operating in China will profit from reduced competition for Chinese labor / manufacturing, encouraging them to move more manufacturing there. This will blunt the impact of manufacturing for the US market disappearing.
Also US companies will only withdraw in part from from China, since they can still manufacture goods intended for anywhere else in the world there - just not for the US.
In the end China will take a hit, but nothing close to requiring those measures you're picturing.
The US will have to bootstrap a lot of manufacturing to replace Chinese labor. This will sound good on paper and look good on some economic metrics, because it requires domestic investment. But since the American lifestyle won't be "subsidized" by cheap and exploitative Chinese labor anymore, the average American may actually find himself to have less than before.
And the rest of the world will profit from having two major players intentionally cripple each other.
They just have to move to cheaper countries to replace Chinese labor. One time upfront asset cost, but lower expense over time.
"US trade "only" accounts for about ~18% China's total trade"
Once China is not part of the trade flow between US and X country (Taiwan, South Korea, Japan, etc), the total trade for China will fall even more than 18%.
"they can still manufacture goods intended for anywhere else in the world there - just not for the US"
US is the largest consumer market in the world. Japan is second at 1/3 of the size of US. EU consumer market is mostly fragmented. There is just not that much singular consumer demand outside of US. Plus other countries are enacting tariffs on China as well - India for example.
"Especially other foreign companies operating in China will profit from reduced competition for Chinese labor / manufacturing, encouraging them to move more manufacturing there."
There are lots of countries that have way cheaper labor costs than China, there's no reason for the foreign companies to go there in the face of increasing tariffs. Nike is 30% in Vietnam. Samsung is producing more of its phones in Vietnam. Uniqlo increased its presence in Vietnam by 40%.
"US companies will only withdraw in part from from China, since they can still manufacture goods intended for anywhere else in the world there "
Again, tariffs and cheaper labor costs elsewhere will entice companies to move out of China entirely. Not to mention the threat of Chinese government takeover of assets, or capital outflow restriction.
If those are actually further up the value chain leading to exports to the US (as you seem to suggest), those would largely be imported goods.
Edit: Moot point really. Those would just be a consequence of manufacturing happening in China. It's better to have a direct look at the amount of manufacturing happening in China, instead of guessing at parameters directly which are actually a dependent on it. That would be like trying to guess whether a taxi company will buy less fuel if you're no longer a customer (maybe they'll have other customers instead), and on top of that wondering whether that's a bad thing. It's just the wrong aspect to focus on.
> US is the largest consumer market in the world. Japan is second at 1/3 of the size of US. EU consumer market is mostly fragmented. There is just not that much singular consumer demand outside of US.
Which apparently doesn't seem to mean much - as proven by the fact that plenty of brands have no trouble selling basically everywhere despite "fragmented" markets. Also what do you mean when you say the EU consumer market is fragmented? The main selling point of the EU is that it is literally a single market.
> Plus other countries are enacting tariffs on China as well - India for example.
India already appears to be backpedaling on their earlier posturing.
> There are lots of countries that have way cheaper labor costs than China, there's no reason for the foreign companies to go there in the face of increasing tariffs.
The most noteworthy tariffs are China <-> US right now. There's little reason for non-US companies to go elsewhere, especially now that Chinese labor and manufacturing is going to become cheaper again - emphasis on manufacturing, not labor, since the infrastructure and know-how already exist in China.
The Chinese factories that produce goods destined for US, also produce goods for other countries, leading to trade between China and those countries. When factories move to Malaysia or Vietnam, those trades disappear.
"as proven by the fact that plenty of brands have no trouble selling basically everywhere despite "fragmented" markets" . I was addressing your point "they can still manufacture goods intended for anywhere else in the world there - just not for the US" . You're basically losing 30%-40% of your sales. That's not something that can just be brushed off.
"India already appears to be backpedaling on their earlier posturing." Citation? a cursory search shows otherwise https://www.power-technology.com/comment/india-levies-safegu... https://economictimes.indiatimes.com/industry/indl-goods/svs...
"especially now that Chinese labor and manufacturing is going to become cheaper again"
Why? Wage and rent inflation is skyrocketing in China. Yuan will drop dramatically, which means energy/resource imports will skyrocket.
The EU is legally a single market, but culturaly and linguistically it's not.
You also have to factor in though that one of Trump's stated goals is to bring manufacturing back to the US.
Any company removing itself from China to a place with cheaper labour risks Trump implementing similar measures against that country at some point in the future also.
And does the company uproot its manufacturing again and again or does it just move operations back to the US, taking advantage of tax incentives to do so.
2) China has little with which to retaliate. They can do whatever they want to 'American farmers' it won't matter because it's just a commodity: China will buy it's soy beans from Brazil, and Brazil's other customers will buy from the US. It'll have a null effect.
China is right now creating the biggest debt bubble the world has ever seen and it's scary - we don't know where they are going to go next.
See, in 2004 they had so much upside in front of them - but now ... it's not so clear.
I think we're going to see China grow at a more regular rate of 4% and that in the end, nothing existential will come of this trade war. It will hurt China a little worse than the US but it's not like we're going to see a fundamental shift in anything.
Just abandon the H1B program and make it easier for foreign labour to come in to do the work. Problem solved.
We won’t profit from having our two best customers/ suppliers cripple each other.
And, copycat politicians are already watching closely to see how many votes this buys.
Meaning, if all trade between US and China was cut off tomorrow, they would only lose 7% of GDP. So how do you get from that to 5X?
Seems like you have a model of the Chinese economy from a decade ago. Fact is, China is much larger now, and much less dependent on trade today.
Also keep in mind, a good portion of our imports from China consist of items that were imported into china for assembly. Look at all the items from other countries inside an iphone... yet when an iphone is assembled in China, the value gets assigned to China. If you adjust for this, it significantly reduces (but nowhere near eliminates) the trade imbalance. So the numbers above, actually overstate the impact on China's economy from cutting off trade.
Edit: corrected a few of my numbers from worldbank data
China is much larger and more diversified than you seem to be giving them credit.
Net trade globally, they're running an imbalance of 1.5-2% GDP.
They're growing at almost 7%/year. So there's quite a ways to go to get to -2.8.
If gdp growth stagnates, there's a very real risk that the Chinese housing bubble will collapse and bring down the entire economy with it.
But that doesn't result in a recession in China. They're growing at 7%, about the same as exports to the US. From that 7% subtract imports from the US (which would also be cuttoff and replaced by Chinese companies), and imports for export (which don't produce value for China)... and the result is that an end to US-China trade does not produce a recession for China.. they would still be growing by a few percent (note, the US economy only grows at 2-3%).
So they'll still have a growing economy... and they're still moving people from the rural areas into cities. So it's not clear to me that this collapses the housing bubble there. Possible though? Sure, maybe.
I agree with your conclusion but not your map; I see China investing and stepping up ag purchases from Brazil sub-saharan Africa; increasing the militarization of oil-producing countries, and exporting cheap products to Europe, Africa, South America and their southern mining province, Australia. The US will be forced to pay more for everything and so imports will shift to trans-shipment points; US exports will be more expensive as their imports will be more expensive. This seems like a generous gift of price support from the Trump administration to the rest of the world.
The US is a manufacturing powerhouse, but its production is bipolar: super cheap stuff too expensive to ship (paper, chopsticks, etc) and ultra-high-added-value stuff (extremely high precision bearings and the like). Not cars in huge volume but planes: sure! Tariffs don't address this structural issue; if anything they exacerbate it.
I'm assuming your assumption is because China is taking over all of the resources/production capabilities around the world? I don't think that can even remotely happen. Again, lots of multinationals are already 30% in Vietnam, Malaysia, or India. Companies can source ag or oil from plenty of non-Chinese sources. The consumers have barely felt the supply chain shifts.
"The US is a manufacturing powerhouse, but its production is bipolar"
You would be surprised at how much reshoring and US factories automation have occurred in the last few years in US. It will increase in scope after this current round of tariffs.
> I'm assuming your assumption is because China is taking over all of the resources/production capabilities around the world?
No, it's because the US government is forcing US consumers (and producers) to pay more for the goods than buyers in other countries will -- that's what a tariff is.
> You would be surprised at how much reshoring and US factories automation have occurred in the last few years in US.
Indeed I would be surprised and until recently I bought a lot of manufactured goods. OK, I may have overdone it on the beryllium bearing example: I did see a piece of fancy firefighting equipment being built in the Central Valley for shipment to a customer in NZ. But it was exotic enough that it wasn't worth figuring out how to make in NZ, while the volume was so low (they made 3-4 of them a year, at $100K/pop) that it couldn't keep the lights on. Most of what they made was farm gear and solar mounts for sale in the valley.
Another example: I bought some pressure vessels (about $60K each FOB Redwood City) made in LA: about half a dozen guys, a massive steel roller press and some excellent union welders. I could get them for much less from India, with about 50 guys feeding 2" sheet steel manually into a tiny roller press, excellent welding, also x-rayed and to the same safety standard. After shipping? About $65K. But that same factory in Amedebad is shipping tons of stuff to the oilfields of Central Asia and the Middle East -- they didn't really care if they got our businesses. While the factory in Los Angeles couldn't keep busy. So that's the low end: "not worth shipping". While $150K of high pressure steam boiler had parts falling off it in shipment from Chicago. It would have been cheaper for us to buy from Germany and have it shipped over just in terms of TCO.
So yes I'm pretty familiar, as a customer, of US heavy industry.
Here's real manufacturing output: https://fred.stlouisfed.org/series/OUTMS
Here's durable and non-durable goods manufacturing employment: https://fred.stlouisfed.org/series/PRS31006013 https://fred.stlouisfed.org/series/PRS32006013
Notice they are lower than before the 2008 recession. The recession that is now a decade old.
In comparison, here's imports of goods and services: https://fred.stlouisfed.org/series/IEAMGSN And here's imports of goods from China: https://fred.stlouisfed.org/series/IMPCH
Reshoring? I'm not so sure about that overall. It's great that US manufacturing is recovering though.
especially highlighting the part that I added: US company.
Does anybody think this is a bad thing for China? I'd argue that this is one of China's core interest. China is now becoming a major sales power itself. It's not recognized for that yet, but especially in the mobile market it's far ahead of he western competitors, maybe also in IoT.
Actually one of the core Problems China is facing is that it can't BUY the stuff it wants to buy for its own production, like chips.
And what it needs to worry about is that through all the complex entanglement at one or two points its public image of the new super power might slip. And this image is very much needed for it's plans in Belt&Road as well as in Africa. So most of its concerns are not related to the US market.
As the rulers of a one-party totalitarian state, the CCP is setting itself up to take the credit and blame for everything in China. Following the "century of humiliation", China is attempting a century of rejuvenation. It started poorly with the Cultural Revolution and tens of millions dying in famine and violence, but it has made remarkable progress since Mao. It appears that the government is well-liked today (although nobody knows anything about China [1]) and economic development is continuing. The government can easily deal with a bit of discontent if required (by, say, putting a million people in concentration camps), but if there was a genuine crisis and people realised that the government had terribly mismanaged things or economically stagnates long before it becomes truly wealthy, the CCP might find that the mandate of heaven has shifted.
1. https://foreignpolicy.com/2018/03/21/nobody-knows-anything-a...
Are companies not subject to the existing money restriction? We can't move more than like 50k per year out or something. Maybe less now.
I have no idea how it works for companies, just individuals.
They will have learned that scaring off foreign investment is not good for their economy long-term. They don't want to squander their potential, I don't think.
Still, they have serious problems to address. Issues the US and the EU and other Asian economies have with them vis a vis their unfair trade practices.
If the EU and other Asian economies join up with the US and form one front on this, they will very likely come correct, if reluctantly.
The whole concept of US/EU/SEA countries should all team up against China is also laughable. Just look at EU, for Internet companies, mobile and AI, EU lost almost everything to the US dominance, EURUSD dropped 35% from its peak 10 years ago. You seriously believe EU has the interest to further strengthen the US?
I could certainly be wrong. But I don't think it's right to just take it for granted that the Chinese internet will always be censored, especially when there is a discussion about whether China treats companies from other countries fairly where it is very relevant.
In a fair environment, you'd be seeing Facebook/Google/Twitter used by hundreds of millions Chinese when most Americans paying their bills using Alipay and talk to their friends using WeChat. US dominance in tech is _NOT_ something called fair.
That being said, Huawei and Alipay's expansion into the US has been repeatedly blocked by the US federal government [1]. By citing the same national security concerns, using such logic, Cisco and Microsoft should have long been banned in China - but they are not, both are making good $ in China.
[1] https://www.reuters.com/article/us-moneygram-intl-m-a-ant-fi...
Your claim of fairness here is simply quite laughable
If anything would play into the administration's hands, it would be that move. By taking themselves offline, the Chinese would be ceding market share to upstart competitors and encouraging further reshoring of mission-critical supply chain components.
Also, just in time for this research to get off the ground:
>If it all works out, the effect could be to make small groups of engineers capable of feats that would take 100 engineers to achieve today.
https://spectrum.ieee.org/tech-talk/computing/hardware/darpa...
https://en.wikipedia.org/wiki/List_of_semiconductor_fabricat...
Note virtually all of the chinese plants in that list are nowhere near cutting edge process node sizes
https://www.electronicsweekly.com/news/business/china-no-1-i...
One of the biggest problems China has in this trade war: they're entirely replaceable. They offer nothing strictly unique that can't be replaced by another country, even though there may be a serious cost involved. The mistake of not being a large technology originator.
The agglomeration benefits of this are HUGE, and losing them would introduce a thousand small frictions into the manufacturing process. Issues that can be sorted out in hours or days in Shenzhen (finding alternate suppliers, repairing specialized machinery, etc.) would take weeks or months anywhere else. That's for individual issues. A complex piece of equipment might have a dozen such issues while scaling and optimizing its manufacturing processes. In Shenzhen, this might cause a few weeks of delay. Anywhere else, the delay would be measured in years.
There are several other such manufacturing ecosystems in China; Shenzhen is just the one I'm more familiar with. Yes, the individual parts may be replaceable -- but the whole is significantly greater than the sum of its parts. Building replacement ecosystems elsewhere would take decades.
It took China roughly two decades to build this kind of ecosystem. Its primary resource for doing so was the ~4 million STEM graduates in produces every year. That's on par with the rest of the world put together. So don't underestimate the difficult of replicating this.
I’m sure there were synergies in steel and auto production in US cities connected by rail between Pennsylvania and Michigan.
I’d say the key misunderstanding is that you’re conflating China with “markets” in “it took China roughly two decades to build this kind of ecosystem.” If you read it as, “Markets took two decades to build this kind of ecosystem,” it should be clear that the relationship between prices, time, volume, supply and demand aren’t determined by political prerogatives, but by market ones.
In other words, if your thesis is correct (that there’s something special about Shenzhen), the thing that’s special about it can be reproduced elsewhere. It will probably happen faster than two decades, because it’s proven to be a lucrative setup.
There are many different factors which go into producing such an ecosystem. Raw number of STEM graduates is a very crude proxy, but it's probably as good as anything else for representing the "feedstock" of such an ecosystem, and gives an rough indication of how difficult the task might be.
China produces ~8x as many STEM graduates as the US. Therefore, all else being equal, if it took China 20 years to develop such an ecosystem, it should take the US roughly 160 years to do the same.
"But wait!", you say, "The US can be a fast second-mover, learning from Shenzhen and not repeating its mistakes. Plus, we may have fewer STEM graduates, but on average they're better-educated and more entrepreneurial, which would allow us to move even faster". (Note, I'm not endorsing these claims, just saying that it's an argument one could plausibly make).
Fine, granting all that, let's say that each American STEM graduate is worth 10 Chinese STEM graduates. In that case, it would only take 16 years to begin to compete with Shenzhen.
That analysis is almost certainly far too generous towards the US, however -- and even if it were well-founded, what American politician would pursue the necessary policies, given a best-case 16-year ROI? And what American polity would accede to the requirements of such policies?
Answer: none. This just isn't going to happen in the US. India has the scale to pull it off, but not the organisational capacity; Germany has the organisational capacity but not the scale; most other places have neither. Anybody who thinks that it'd be easy to replace China is utterly fooling themselves.
It's certainly possible to replicate, but history has shown that it can be difficult. It would be like trying to supplant Hollywood.
I cannot see evidences that China is particularly more so than any other country.
And China has an abundance of skilled labor unseen elsewhere, says Cook:
"The products we do require really advanced tooling, and the precision that you have to have, the tooling and working with the materials that we do are state of the art. And the tooling skill is very deep here. In the US you could have a meeting of tooling engineers and I'm not sure we could fill the room. In China you could fill multiple football fields." "
https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-...
Translation: Apple invested massively in China-based manufacturing, and he doesn't want to have to repeat that investment elsewhere.
http://www.iphonehacks.com/2016/10/next-iphone-probably-wont...
Koenig writes. “Apple is such a huge buyer of a particular kind of mill (BT30 spindle drill-tap centers) that Fanuc, Brother and DMG Mori each have factories dedicated to building machines exclusively for Apple.”
Here is a list of countries that provide the parts.
https://www.quora.com/Where-is-the-iPhone-originally-made
As you can see it would be fairly easy to for Apple/Foxconn to source these parts and build their products in the USA. I think the big motivator for them is they would rather outsource manufacturing to Foxconn and wash their hands of having to deal with it.
Another is the inflation caused by the tariffs reducing the profits of industries that compete for the same consumer dollars. If consumers are paying more for plastic goods, then they have less money to spend on discretionary purchases.
Production moving from China to the US puts strain an already tight labor market, which displaces incumbent industries. I.e., shoe manufactures move to the US to avoid tariffs, which makes labor too expensive for the cardboard industry, who moves to another region.
All of these effects cascade to related industries.
Also, the collective "we" can win even if a large number of us suffer as a result of these policies.
Trade is usually 'win win'. So when there's less trade, there's less 'winning' on both sides.
Imagine if Chia is the sole source of Silk, and the US is the sole source of Rubber.
If the US 'wins' a trade war with China by doing more damage to then, but there is less trade ... well then there is unmet/latent demand in the US for Silk and in China for Rubber that is not met, which is an economic loss.
That said - trade needs to be in fair terms or it doesn't work. If one side cheats, they can suck all of the 'win' out of the 'win win' for themselves.
Yeah, you live in a bubble. Outside of the bubble, the American working class has been eviscerated.
Different countries have different laws, and they all forbid importing some stuff. China is stricter than us, so it stands to reason that we'll produce more products forbidden in their country than the other way around.
We can certainly hurt China but that was never in question. Whether this scheme will be any good for the US is TBD.
China running out of things to tax, doesn’t mean America has actually gained anything. America was stronger, but that doesn’t create jobs.
https://www.theguardian.com/world/commentisfree/2018/apr/11/...
This does not remove the real problems we have in the states regarding wealth distribution. But globally, things are pretty amazing compared to how they've been, even within a single lifetime.
What that means is a trade war is going to cause prices in the US to rise more than prices in China. Which means either the prices of what the US does export will go up or the USA's standard of living will go down.
In the short term a carefully crafted trade barrier can have positive effects. For example, if the government decides a country should have natural advantage in industry X, but establishing industry X is impossible because of foreign competition than a trade barrier is a reasonable option. In effect the rest of the population is subsidising the initial higher prices and poor quality from industry X until experience and effects of scale kick in.
The danger is a trade barrier can be damned hard to get rid of because inevitably doing so will kill jobs. So hard that killing them it usually requires some sort of crisis. That's what happened in both Australia and NZ a few decades ago, with one Australia treasurer famously saying "if we don't do something we will become a banana republic". The barriers came down, there was an enormous amount of pain (interest rates hitting 20%), and he got voted out. But the country hasn't had a recession since.
If Trump's little war disappears with Trump I doubt it will have much effect on anything. If I was a US citizen, the most worrying line in that article is some democrats support it, so they could stay.
A big part of the rationale with all of these little trade wars is to make China stand alone on the global stage, so that they are more easily negotiated with. A secondary effect is to eliminate "Made in $country" goods that are 90% manufactured in China and finished in e.g. Italy or Canada.
Don't try to find a logic when there clearly is none. Trade war with EU and Canada might be the most unhelpful thing Trump has done.
That's not how this works. A trade tariff dispute doesn't mean anything about the relationships in other matters unless they are brought up as part of the negotiations. Each country isn't a single person being directed by their feelings being hurt.
So we can certainly negotiate with Canada to get them to lift dairy tariffs or whatever and still count on them not to allow Russia to setup air force bases there.
Actually it’s an incredibly smart culturally sensitive move - it allows the Chinese to save face.
Instead of making it the West vs China the perception has been shifted to Trump trying to get fairer trade deals for the US even with close allies.
I'm hoping the same. I don't think it's likely to happen, but it would be good long term. Short term though, it will be a bit of a shock to see the plastic toy that was $20 now be $100.
1. The Chinese had option of imposing high tariffs on politically significant US agricultural products, like soyabean, which are not very large in $ value, but affect a lot of areas.
2. Since some swing states are highly influential in US elections, the Chinese always had the option of imposing tariffs which impact the swing states mostly.
Both of these thoughts arose from the fact that as a democratic country, the US would have to take into account both short and long term trade prospects. Now reading this article, it seems being a predominantly export driven economy and having a huge trade surplus with the US, the Chinese don't really have that much leverage.
Don't paint the above as good for the US - things are bad for farmers, they are selling below what the cost would have been. I'm pointing out that the picture is (as always) complex.
On the other hand, most of China's exports aren't fungible commodities, so it will have more difficulty finding substitutes for the reduced demand caused by American tariffs.
You shouldn't be basing your opinion on opinion news articles. Just 2 years ago, the nytimes was telling us the world was headed to economic armageddon with no end in sight. Look at us now.
One day the news tells you Trump is going to start ww3 with china and the next you'd think china is weak and have to submit to Trump's demand.
> Both of these thoughts arose from the fact that as a democratic country, the US would have to take into account both short and long term trade prospects.
If that was the case, we wouldn't have the rust belt. We wouldn't have the collapse of detroit. We wouldn't have NAFTA or trade with China. Most americans were never for lopsided trade with china or mexico or even canada. I think foreigners have an idealized view of the US, democracy and how things work.
Trade with china for the last 40 years was basically "wage arbitrage" ( which some might call exploitation of cheap chinese labor ). US corporations moved production to china to use the abundant and cheap labor. The reason why we didn't have tariffs on "chinese" imports is because most "chinese" imports to the US are actually american goods. Or it's a sino-american partnership/company. This is why Trump is getting so much backlash from corporate america. The tariffs hurt american goods.
https://data.oecd.org/trade/trade-in-goods-and-services.htm
Imports | Exports
China 17% | 20%
US 15% | 12%
Protecting elections may mean ending winner take all electoral college system.
I think 2016 proved that the electoral college is not supplying the adult oversight that the founders intended.
https://www.historycentral.com/elections/Electoralcollgewhy....
Is there a more accurate interpretation describing how the founding fathers believed it served the purpose of "adult oversight"? What exactly does that mean by the way?
Presently, the electoral college benefits rural voters (Wyoming and the like) by increasing vote value. Winner-take-all elections benefit urban voters by disenfranchising rural voters (every non-Democrat county in California).
I don't think so. Doing some Googling, it looks like China's soybean imports (100 million tons) could be more than satisfied by the production of Brazil and Argentina (139 million tons). US production is 108 million tons.
Soybeans are fungible, so instead of other producers ramping up soybean production, I think we'll see production stay constant while trading relationships reconfigure around the tariffs. For instance: China can replace American soybeans with Brazilian ones, and American soybeans will then go to wherever the Brazilian soybeans were going to previously.
https://www.worldatlas.com/articles/world-leaders-in-soya-so...
https://www.world-grain.com/articles/10955-china-soybean-imp...
The demand for Soybeans globally has not changed.
Tariffs in China really will just mean that buyers and sellers will shift around.
Chinese will now buy Soy from Brazil, thus avoiding tariffs, and rather than buying more expensive Soy beans from Brazil (because of more demand), those other buyers will shift to buy from the US.
Chinese tariffs on commodity goods won't have an effect if there a good number of buyers and suppliers.
It doesn't merely redistribute wealth from one company to another. It reclaims critical domestic industrial investment and blue collar jobs as well.
Nucor's profit for all of 2016 was $796m, and $679m for 2014 (2015 was a bad year). For just the second quarter it was $683m and they've yet to see the full benefit of the tariffs. Alcoa, which has been a disaster the last several years, produced a billion dollars in operating income in the first two quarters, equal to a full year's operating income previously. US Steel which has been bleeding to death for years, looks capable of producing a billion dollars in annual profit again in the near future ($214m in profit in the second quarter on a large bump in sales).
Yes, we'll pay slightly higher steel & aluminum prices than we would have otherwise if we were getting artificially low dumping-level prices set by the Chinese impact on the global markets. It's worth it to regenerate major US industry back to health and the blue collar jobs that go with that. We can afford the slightly higher prices, we can't afford a hollowed-out industrial base.
In this case almost all profits that come to the domestic producers of steel come from the domestic consumers (and those impacted by tit for tat tariffs).
There might be very good reasons to prefer some industries to others but as a revenue source tariffs are not at all like a neutral VAT.
Northern manufacturers wanted high tariffs on manufactured goods and low tariffs on agricultural products. Southern farmers wanted high tariffs on agricultural products and low tariffs on manufactured goods--to placate Europeans so they'd buy Southern agricultural products, and to check the economic power of the North. And of course the Federal government relied on tariffs for income--the Articles of Confederation being considered a failure largely because the Federal government had no independent source of income--and as a foreign policy tool.
Everybody was at odds.
(Note that it was also common back then to impose export tariffs, which added considerable complexity to the debate. Today export tariffs are largely unheard of in the U.S. but perhaps ripe for rediscovery. Though we recently loosened restraints on the export of crude oil and natural gas, so it probably won't happen any time soon.)
3% is a substantial amount but I doubt it’ll be close to that much. Supply chains will move to avoid tarrifs, parts will be shipped to Brazil or Mexico and then into the US. Or from China to Vietnam etc. I highly doubt it’ll get to 3% but if it does and the economic impacts of that thus far are fairly minimal, that would be significant. Makes up for the entire tax cut deficit and more when accounted for dynamic scoring but again it’s still monumentally dumb to count on tariffs for revenue which Trump has been stupidly bragging about. I do completely support Trump’s trade war thus far however with the end goal of fair and reciprocal trade and limiting China militarily through the economy.
What I am worried is that this may turn into an actual war. And from what I can tell, China is not ruling out this possibility, it may not happen within next 2 - 3 years, but they are investing heavily into their military.
And if you look into the reporting from US media and Chinese media, they are both extremely one sided. ( But I guess that is... how it suppose to work ? ) Most US citizen do not realise how the USD works, and how currency works today. Most Chinese do not realise how closed their market are and their nation's unfair tactics. If tension continues.....
I don't know when will we reach that critical points, as with everything in life, the last 20% always takes the same amount of time as the first 80%. But once it does, China is looking at a potential job lost of 5 - 50M or more.
What does matter is the utility for each country. Considering Chinas much lower PPP/capita all tariffs hurt them more.
They should play a long game. There is no benefit for them in retaliating to hurt the US as long as it does not cause issues in domestic politics. They should focus on not getting hurt too much and let time do the rest.
https://markets.businessinsider.com/news/stocks/alibaba-stoc...
U.S. conservatives love bilateral trade deals, but that's only because most trade occurs through the WTO system, making bilateral negotiations tractable. If either the U.S. or China lost the benefit of the WTO system, they would be indisputably worse off. So would everybody else. But in any event the end game will be resolved, for better or worse, long before 20 years is up. If there's still a dispute raging in 20 years then the next 20 years will be filled with economic and political strife much like those of the 20th century.
It probably can last that long. It will take years for a WTO tribunal to do its work, and even after the tribunal makes its ruling, there can be years more of foot-dragging. I can see all of that taking at least a decade.
By contrast, the WTO deeply matters to the wealth and security of the U.S. economy. But much like NATO, Congress is willing to call Trump's bluff.
[EDIT: I confused ICJ with ICC. My bad.]
The US have the more powerful economy today. But given the above, once China is on a development path then it is simply inevitable that it will overtake the US.
When I say 'time' I'm not looking at the next quarter or next year. That's shortsighted. I'm looking at 20, 50, 100 years.
In fact, I would argue that the US government knows that and that's why they are increasingly alarmed.
Once it is discarded as the "one and only option", once real alternatives emerge, once the US loses its dominance, the US could end up being subjected to the same financial constraints that all countries are used to operate in.
That has the powers that be trying to delay the inevitable.
Seemed to me that if China wanted to amp this up and play hardball, they could just give Tim Cook a phone call and tell him they won't be making iPhones anymore. Estimates I've seen is that about 40% of Foxconn is Apple products. They could probably replace this demand with more Japanese/Korean/Domestic IHVs, combined with banning domestic sale of iPhones and accelerating the marketshare loss that's been ongoing.
It's also apparently the largest private employer in China. It seems like it's really easy to shoot yourself in the foot with this trade war stuff...
Well, this is actually the fundamental problem, isn't it? There's no way actual trade evens out, so tariffs are the only real outcome here. Even if we "win", it's not actually winning.
China is still considered a developing country by the WTO, it's very difficult to get into the Chinese market and they don't actually enforce IP rights which is a problem both for the US and EU.
The EU has very openly stated that they have the exact same problems with China as the US does. They couldn't any further telegraph their interest in conspiring with the US to tame China's abuses. Indeed it may be the only way to do it, you need truly immense pressure to get China to change behavior, more than the US can bring to the table by itself.
He is in the right on this one despite his style but sometimes that's what you need.
China has been having IP laws and protection since around 1980, and China government never said once that stealing IP is okay. It is IP law execution and enforcement in China that is sub-par. Policing is sometimes hard.
Also, I believe the US really wants to treat IP as an "asset" rather than a "product".
>Last month, Attorney General Eric Holder announced that the United States was charging members of the Chinese military with economic espionage. Stealing trade secrets from American companies, he said, enabled China to “illegally sabotage” foreign competitors and propel its own companies to “success in the international marketplace.” The United States should know. That’s pretty much how we got our start as a manufacturing power, too.
>The United States emerged as the world’s industrial leader by illicitly appropriating mechanical and scientific innovations from Europe,” the historian Doron Ben-Atar observes in his book “Trade Secrets.” Throughout the late eighteenth and early nineteenth centuries, American industrial spies roamed the British Isles, seeking not just new machines but skilled workers who could run and maintain those machines. One of these artisans was Samuel Slater, often called “the father of the American industrial revolution.” He emigrated here in 1789, posing as a farmhand and bringing with him an intimate knowledge of the Arkwright spinning frames that had transformed textile production in England, and he set up the first water-powered textile mill in the U.S. Two decades later, the American businessman Francis Cabot Lowell talked his way into a number of British mills, and memorized the plans to the Cartwright power loom. When he returned home, he built his own version of the loom, and became the most successful industrialist of his time.
>The American government often encouraged such piracy. Alexander Hamilton, in his 1791 “Report on Manufactures,” called on the country to reward those who brought us “improvements and secrets of extraordinary value” from elsewhere. State governments financed the importation of smuggled machines. And although federal patents were supposed to be granted only to people who came up with original inventions, Ben-Atar shows that, in practice, Americans were receiving patents for technology pirated from abroad.
And rather than going to the court for justice, the US place tariffs for a war..
Not clear if this is a feature or a bug.
Second, it is impossible for a foreign nation to "fund" the U.S., which is a currency issuer. Rather, because we have open capital markets, we allow foreigners to purchase U.S. assets -- something that most other nations don't allow, including China. What this means is that there is a demand for dollars other than the trade demand, but an asset demand. This allows trade deficits to occur.
If you want to stop trade deficits, then don't impose tariffs, but do what China does and ban capital inflows. With no foreign capital inflows, there are no trade deficits -- the golden rule of international trade is that the changes to the capital account plus the changes to the current account must equal 0. No change to one implies no changes to the other, as a mathematical identity.
The way to understand this mathematical relationship is that when the rest of the world sells a good to the U.S., it gets a dollar, and now it has a choice of using that dollar to buy an asset or using it to buy a good. If it is very hard to buy assets, then you buy a good. In this way, the exchange rate adjusts so that the rest of the world doesn't have a trade deficit or surplus.
The reason why you want balanced trade is that when the foreigner gets a dollar by selling a good, but doesn't spend the dollar on buying an american good, then american economy has 1 dollar less income and it needs to sell off $1 of an asset. Selling assets does not produce income but selling goods does produce income. This is why nations like China basically ban selling assets to foreigners and so it's impossible for them to have trade deficits. There are very few nations that have the open capital markets of the U.S. -- really no nation, and our unique policies on capital are why we have such a uniquely large trade deficit.
In that time US debt has gone from $6.7t to $21t. Their share has gone from 15% or so, to 5.7%. They're no longer a funding source for new US debt, and are no longer a critical funding source of existing debt (although hey, it's nice to have them squatting on that trillion dollars and not liquidating it).
If we want fairer international trade, the dollar must be ditched.
Play it through: - they can't back down --> means they can't not lose half a trillion per year in current revenue --> means they don't get to spend that money on "Chinese advancement", but they might foolishly think they look "tough".
I can think of five ways out of this where they win. If they are too stupid to do so, then they don't really deserve to be in power, do they. One of the big arguments for the authoritarian structure is that they get fewer pretty faces, and 3/4 the way up the chain of command they should get higher levels of actual capability.
One of the unexpected benefits of China having forced everyone to partner up with local companies. They'd be considerably harming their own companies and economy in the process.
When your country owns the majority of the popular Shanghai Disney park, do you call a boycott on it (via boycotting all things Disney)? When your country owns the majority of all value derived from local McDonald's franchises, do you call a boycott on that American brand? When your companies have partnership deals on manufacturing with GM, such that most Chinese-purchased GM vehicles are made domestically in China, do you call a boycott on those cars? And so on.
China feels a lot more free to play the boycott card in dealing with Japan and South Korea because there's a vast difference in the scale of the benefit in question. China only has a small trade surplus with Japan, of about ~$20b. But China is a very large export market for Japan, equal to 2.5% of Japan's economy in scale, so they can hammer Japan there (by contrast China's imports from the US are merely equivalent to 0.5% of the US economy). With the US, China has a $400b trade surplus that is at risk, the damage is overwhelmingly tilted at themselves in any boycott.
My guess is the traditional Black Friday bargains wont look that good this year due to the tax-everything-from-China policy. Then maybe the US consumer could wake up. The rightwing fake news will blame it on Democrats of course.
I think this trade war has been very telling, it showed the underlying fragility of China's boasting as a superpower.
All in all, I see USA recovering from the Trump blunder, and I believe that it will come out stronger than ever.
If anti-fragile by Taleb holds true, the US Gov is relatively anti-fragile to Russian or Chinese ones. Note that anti-fragility refers to the recoverability when exposed to unforseen circumstances. We see the US democratic system evolving and we will see a much stronger democratic process as a result.
On the other hand, things don't look good for Russia's economy along with China now facing an exodus of foreign investors and corporations nervous with China's new dictator.
On what metric? By GDP PPP, they've already passed us: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
They are a much larger country. At about 15k gdp per capita, they'll match our gdp... and that's just a solid middle-income country... not exceptional. As they start to exceed that, certainly that economic power will start to show itself globally.
For comparison, Taiwan and South Korea are at ~$30k. That would result in a gdp 2x as large as the US (about 40T).
Japan was able to endure a lost decade(s) due to immense social solidarity that few countries, perhaps even the US, possess.
China is known as an unusually fragile country in some ways due to its tendency to break up or devolve into Afghanistan-like warlordism.
A collapse of their economy, which seems probable at some point after 40 years of malinvestment, will crush any cohesion the CCP has built. To maintain it, they will of course try more authoritarian measures as they are doing now.
The bigger picture though is that they will shift this internal “civil war” outside the country in the form of a war against someone else. This solves the lack of manufacturing demand issue, deals with population issues (perhaps unloyal ethnic groups can be put on the front-lines), and would draw on a reservoir of nationalistic fever not really touched since WWII.
Steve Bannon has been clear that he believes WWIII will be a global, non-nuclear war between China and US. I used to think this would only be the case if Trump remained president, but now no matter who is elected, it still seems like a considerable chance.
Your points make no sense. Civil war, countries breaking up etc. almost always happen only when people's basic needs (food, water, clothing, heat, electricity) are not being met. Even during its lost decade, Japan has been a top 25 country by per-capita income.
Your comments were narrow — you only cited “human rights”, which yes, China is abysmal. But what about quality of life in general? My understanding is that QOL has gone up dramatically in China.
Game theory has much more merit for a country like China given the (lack of) election cycle.
The biggest problem with modern representative democracies is that they tend to be myopic.
Then it should start an advertising blitz to highlight how workers/farmers in the former states are suffering.