The destructive new logic that threatens globalisation
economist.com
economist.com
That is, China has been pursuing industrial policy and state-driven investment to the extent that it can be considered a trade barrier. Other Asian countries too have been making such large state driven investments in semiconductors that the US semiconductor industry can demand $50 billion of state subsidization at a time when it is more profitable than ever.
Some of this is not the specifics of China's government and policy but is driven by China's size and the speed at which it integrated in world markets. For instance most of the time trade "lifts all boats" but it turned out that the China shock was so large that it really did hurt workers here.
This is not a matter of some little country Belgium practicing dirigisme, this is a matter of multiple industries that the US is being to be forced out of. For instance China subsidized a large number of aluminum factories that have been producing a huge glut of aluminum that is building up in warehouses, making it impossible for other aluminum producers to do business on a market basis... And furthermore having an impact on upstream and downstream industries.
Free marketeers will say that China will ultimately pay a price for wasteful spending but going down this path we will see the US industrial base hollowed out more and find that the slightest sniffle or sneeze in China will cause supply chain ripples that are harmful to our economy.
https://en.wikipedia.org/wiki/Corn_Laws
The WTO has been in a stalemate since the Seattle riots of 1999 because developed countries insist on subsidizing and protecting farmers of major crops (the odd thing is that there is little dirigisme for healthy foods like broccoli and spinach but a lot for mass carbohydrates such as corn, sugar,...) but developing countries won't further open any other kind of trade unless the developed world opens up in agriculture.
The Corn Laws were so divisive in the UK because they were good for legacy nobles who owned vast amounts of rural land but bad for city dewellers and the emerging class of factory owners.
Note the story of
https://en.wikipedia.org/wiki/U.S._Sugar
where particularly
... sugarcane in the United States remains nearly twice as expensive per pound
as in other developed countries due to the failure the industry would face
without government subsidies
In the case of the US our comparative advantage for producing food is large and we don't improve national security by maximizing our production, we just use more fertilizer and get a bigger dead spot where the Mississippi river enters the ocean.
Mass carbs are how you feed people in the kind of emergency that might make having a strong domestic food supply extremely nice. People can always backyard-garden some greens. If you've got enough corn, wheat, rice, and/or potatoes (maybe), the rest will sort itself out. If you're lacking in those, people are gonna die.
You can't run a nation on broccoli and spinach (unless your population consists of Popeye-clones) while you can run it on starchy foods like wheat, corn and potatoes. They may not be the most healthy alternatives but they'll keep you - and your army - alive to live and fight another day. If a nation can not get any broccoli or spinach they'll just get some other green vegetables or do without. If the nation can not get any bulk starch products it is in dire straits. The high status of green vegetables is more of a symptom of overabundance than of their capacity to feed a nation. They certainly make for a healthy addition to a diet but they lack a number of essential things - proteins and fat as well as some vitamins, B-12 being the hardest to find in plant-based foods.
The dirty secret of international fair trade, is that there is no international fair trade. And there never has been.
It's not the fault of the US for ag subsidies. Not even the fault of China if we're being honest. It's just how things have always been since before the Phoenecians even.
Pro tip:
"Empires", are not built on "fair trade".
And US had no reason to break it because until maybe 2005 US was the biggest beneficiary of this system.
The optimal solution is tit-for-tat. And it leads to a stable equilibrium for the market as a whole and everyone is better off.
But if you know everyone else is playing tit-for-tat, then you can exploit that by always taking advantage. Then you win.
But if too many other bots also make that same realization, everything collapses again. The whole market is worse off.
China, in this case, is playing a lot like that one player who noticed everyone else believes in free markets. If you’re the only player with the opposite strategy, it works great … until others start changing. Then everyone is worse off.
Although whether markets were ever free free is a questionable claim at best. Are there economies without subsidies and without tax breaks?
In a sense, there is actually a free market... but it's the one where you buy and sell politicians. That one conditions the other one, which isn't free. That will happen regardless of who lives in the White House.
[1] There are countries that do things that are more beneficial to someone else than own interests, but they don't count as free.
Chile tried to do something similar when they realized a lot of their mines were owned by US companies, they elected a new leader who was going to nationalize the mines, but then the US govt backed a coup to overthrow him and install a dictator.[2]
[1]: https://en.wikipedia.org/wiki/Anarchism_in_Spain [2]: https://en.wikipedia.org/wiki/1973_Chilean_coup_d'%C3%A9tat
That’s cute but not true. Countries like France force their colonies (former) in Africa to supply raw materials (like chocolate or vanilla) for cheap, and make billions every year by processing it and selling finished goods for sometimes 100x. Any attempts by African nations to process the raw materials to finished goods are actively squashed by the French govt by a mix of policies. France is not alone in this. “Free Market” has never existed.
It's just a little suspect those countries have never grown a single bean, and they're able to buy raw coffee beans from undeveloped countries for a steal.
Why do countries like Ethiopia and Guatemala sell them for so cheap? because the IMF would call in their loans if they didn't, sending their economies back to the stone age overnight.
The free market on a global scale has always been entirely fictitious.
Mercantilism on the other hand has a long history as you point out.
Cute theory, unsupported by facts. Chocolate for instance is a simple supply chain problem: shipping cocoa to Europe is cheaper than shipping milk to Africa and then shipping chocolate back to Europe.
Where possible - nuts for example, transformation increasingly takes place locally. The bottleneck isn't some obscure international conspiracy but investor's willingness to take the country risk and establish trust relationships.
Crops produced in Africa like crops produced anywhere else are now traded on the international market. France actually imports very little from its former colonies. A casual glance at the world factbook will show you it's not a major trade partner of any of them.
The idea it makes billions from it is simply preposterous. Just check the composition of France's GDP if you don't believe me. It will probably take less time than it took you to write your original comment.
>China's industrial policy has mostly been a flop
> China’s attempts to promote specific industries are relatively recent — in the 80s, 90s, and early 00s, China did very little of this. Barry Naughton, probably the premier Western scholar of Chinese industrial policy, explains this in his short book The Rise of China's Industrial Policy, 1978 to 2020, which you can read online for free here. He discusses how from 1978 through 2005, China essentially just focused on liberalizing their economy — if the government targeted specific industries, this was done at the local and provincial level, as in the U.S.
https://noahpinion.substack.com/p/chinas-industrial-policy-h...
You're right about PRC operating at PRC scale upsetting balance, but it's more inducting PRC into WTO gave US, historically and currently the worst breaker of free market due to domestic policies and sheer historic economic heft, a taste of being victimized by industrial policy from another large economy. Look up WTO DSS database, US is by far the worst WTO violator, and it's not even close. PRC adjusted of ascension time is closer to a medium sized country such as JP, i.e. relative to her trade volume, PRC is probably one of the top adherents of the WTO system and globalization in general, which makes sense since it has benefitted her so much. Finally there's a reason US is holding WTO dispute settlement body hostage, despite all other parties wanting appellate bodies to presume. Why it lost it's shit at WTO for siding with PRC on steel, and also against Canada and Mexico for NAFTA auto shenanigans, showing that currently, US domestic politics can't even cope with regionalism / friendshoring.
The TLDR is US logic is it no longer benefits from globalisms as much as others, particularly PRC, not that US doesn't still disproportionately benefit relative to most parties. But it would rather crush system for everyone else than enable PRC to keep reeping benefits of globalism which could long term displace US in variety of sectors. Which to be fair, might be in US interest.
E: I think this image really highlights the issue
https://i.imgur.com/YGx2fQy.jpg
PRC excess production capacity, it's ability to over supply after meeding domestic demand, hammers shares from incumbent industrial leaders. Part of it is industrial policy, but part of it is also PRC has the infra, talent in absurd quantities where over supply is almost inevitable. As PRC move up value chain, it's going to systemically take market share from US/western companies, but especially US who leads in many fields. Ergo, within US interest to stall that process (Tech sanctions / WTO drama), and try to fracture market into west/rest to maintain her racket.
https://www.bloomberg.com/opinion/articles/2019-10-10/inequa...
Not really surprising considering it is owned by a few European old-money families, who stand to lose tremendously from an Asia-centric multipolar world order.
[0}: https://press.uchicago.edu/ucp/books/book/chicago/C/bo181707...
But what Keynes realized is that the bottleneck isn't actually on the saving side, people actually save more than enough to grow the economy very quickly but they don't deploy those savings and hence they don't result in the expected growth. So insisting on austerity just adds a bigger pile of savings onto an already over supplied capital market while at the same time decimating consumer demand for the capital seeking investment opportunities. People don't invest because the economic outlook is bad for the next year or the year after. Faced with uncertainty they would rather just keep liquid money in their bank accounts and wait for the economy to recover but how is the economy supposed to recover if everyone is pessimistic about the future?
The level of arrogance and stupidity required to witness the (still ongoing) catastrophe in global supply chains from the COVID-19 pandemic and not reassess any of one's opinions on globalization is simply staggering. It's either criminally negligent or deceitful not to even mention COVID-19 in a discussion of globalization in 2023.
> The death of [the hope for a democratic China]—combined with the migration of a million manufacturing jobs to Chinese factories—caused America to fall out of love with globalisation.
Ok, so the author is acknowledging that globalization cost the US a lot of manufacturing jobs (though there's an obvious downplaying of that loss here). Great!
> Reindustrialisation will raise prices, hurting the poor most.
Now the author is arguing the other side of the exact same point! What about the manufacturing jobs the author just said were lost to globalization? Does the author have brain damage?
> Democrats and Republicans alike worry that the loss of America’s lead in advanced chipmaking to Taiwan will undermine its ability to develop artificial intelligence—on which, they predict, armies of the future will rely to plan strategy and guide missiles.
This totally misunderstands the nature of the conflict. TSMC is the biggest fab of the most sophisticated microprocessors in the world, processors which we all rely on every second of every day. The entire global economy needs these chips to function and US companies need the best chips to put in their products so they can be competitive. For simple economic reasons and complicated historical reasons China really wants to reintegrate Taiwan into the PRC. The US can't tolerate that because it would put China in direct control of the world's biggest supply of advanced semiconductors. It has nothing to do with artificial intelligence and everything to do with control of economic resources.
> America must also woo emerging powers. By 2050 India and Indonesia will be the world’s third- and fourth-largest economies, projects Goldman Sachs, a bank.
Minor quibble, but why include this appositive? Does anybody who reads The Economist not know that Goldman Sachs is a bank?
What's really killed globalisation is the realization that in the absence of the self-correcting tendencies of democracy you end up arming your adversaries. Russia has absolutely no qualms about using decades of hydrocarbon sales to try to smite the West. China is an even worse danger as they are actively positioning themselves as being essential to the world economy, but not being dependent on it. Their "unlimited friendship" with Russia is part of that given that Russia can provide critical oil and gas that China cannot produce themselves.
It has absolutely led to less conflict. Just because Russia's insane dictator is hellbent on destroying his country doesn't mean the concept isn't valid.
What is the alternative? If we didn't have globalization, our ONLY option would be war. Instead we took away McDonalds, armed our allies, and we've so far stalled a full scale invasion that previously would have succeeded instantly.
Precisely, it was misguided.
This invasion did not, and will not, ever, benefit anyone. The decision of invasion was not based on a shared interest in peace and integration (!) but on an imperial domination vision.
So you can't blame the rules most countries follow in autonomy, peace and development interests (economic integration, international order), because one particular country decided (violently) not to.
The true enemy is this idea of local/regional exceptionalism, that justifies overreaching, that's growing (that Russia and China, among a few others, nurture carefully).
With that said, maybe other nations are starting to think the payoff isn't worth the price?
(apropos Jobs/Sculley: at least in my country coke actually is "sugar water". https://youtu.be/S_JYy_0XUe8?t=30 )
Today's Washington consensus - US political elites, along with the national security state and think tank / media amplifiers - embrace conflict and I suspect are confident that the third world war will deliver similar benefits to the second. They are probably right
I think what we are seeing now is a re-balancing of priorities due to a significantly changed environment. This is not an extremist position. Pure, unrestrained globalism is.
As a sidenote, why does the West allow China to run social media apps inside its borders whilst China blocks all foreign media inside its own borders? Would this be acceptable in any other trade context?
Is US Industrial Policy Undergoing Japanification? - https://www.ft.com/content/5c2f8bd2-e586-435c-9a0c-2ec165521... (archive.today: https://archive.is/ZGTxl )
The author makes the point that by adopting protectionism to subsidize new or ailing domestic industries that politicians and their voters or donors favor, the US is doing what it accused Japan of doing for many years. But he says there is a contrast: Japan was always looking for an economic advantage in its industrial policy, while the US approach is not mainly about creating/saving jobs but about resisting a particular rival and potential enemy, China, and is targeted to that end.
The implication is despite the apparent irony of hypocrisy, the United States is not actually turning its back on free trade, forever or in every context.
Because there's no longer a Soviet Union posing an existential threat to America, so why should we keep underwriting it? Target resources to address the threats of today, like China, rather than the threats of forty years ago.
Somehow they ignore the fact that those things existed pre-Reagan and the pathetic state they were in economically, socially and politically regardless.
tl;dr as others have pointed out 'globalization' is another term for Bretton Woods , i.e. subsidizing countries to be the USA's friend to defeat USSR, and now that USSR isn't a threat, the subsidies no longer make sense.
Hard to read past this. I don't want an authoritarian government that's committing genocide today and still lying about and covering up the reality of covid becoming too rich and powerful. That means I want to impoverish billions of people?
Why is China one of the only countries in the world (other I can think of is Israel) where criticizing their government is a racist attack against their entire population?
>But President Joe Biden’s abandonment of free-market rules for an aggressive industrial policy has dealt it a fresh blow.
Free Market is NOT the same as Free Trade. In fact, Free Trade is often in direct opposition. The Free Market is essentially an optimization system for seeking to constantly find local minimums within a given set of constraints. It requires things like information symmetry and cost internalization, as well as maintained competition to avoid falling permanently into a artificially high minimum, and a society can set the constraints to include floors and bounds on what they want in terms of basic human needs. But the sorts of Free Trade the Economist and similar have often pushed undermine all aspects of that. If a factory in Country A has to properly internalize all its costs (such as pollution) but a factory in Country B doesn't, then the output of factory B will be artificially cheaper due to getting to externalize costs. Manufacturing may move from A to B, but it's not because B has figured out how to do things more efficiently and properly won by improving the overall economy, it's because B is stealing from people. That's the opposite of what should happen. Same with other aspects, like competition or property protection. China in particular has made that heavily one way as an aspect of state policy, banning foreign entities from competing domestically on a level playing field. Which sure they can do, but there shouldn't be any coddling of that with equivalent access either.
I agree that subsidies are badly inefficient, and that simple dumb protectionism is a bad idea too, but "Free Trade" should be normalized between borders to match the local Free Market or, well, we'll see exactly what we've seen has indeed happened. The Economist have been rare fools IMO for not beating the drum on that hard, and it's not a modern thing but goes back for decades at least, as long as I've been closely reading it. And the result has been a failure which has rightly angered people and mixed the genuine new wealth (efficiency) generated with artificial wealth made on the backs of others/declining living standards. That there'd be backlash is natural, and that said backlash would be broad stroke and threaten to throw the baby out with the bathwater is unfortunate but also unsurprising because it was ever thus. The Economist of all people should have been well placed to suggest principled solutions to this long ago, so it's too bad that opportunity got missed back when it would have been a lot easier to pull off.