You don't need to be afraid of China to realize that outsourcing a very large fraction of all manufacturing for half the world to a single non-democratic country doesn't serve our interests in the long run.
I can't seem to find anything in news headlines, probably because the event I remember hearing about likely happened before Google's founding (I think it was the 1990s or 1980s?); but at a point in time the plastic used for either all or a lot of ICs was manufactured in one single facility. That plant happened to catch fire and it was a major supply issue. Even if that event was really a hypothetical recounted by a professor years later just to educate the class, it does serve as a good example.
Markets are more stable with more than one single manufacturing site, more than one supplier. Economics will still push towards as much consolidation as possible, so for the good of countries and consumers, regulators must press on the scales and ensure _competition_ remains. Ideally every big country can at least pivot manufacturing centers to be entirely self sufficient if they need. Maybe superpowers have multiple facilities even for small items. Maybe groups of countries (E.G. the EU, NATO, etc) pool their resources and distribute manufacturing accordingly.
Shipping also isn't free and externalities like pollution should not be allowed; they should be part of the cost to ensure that smart decisions about production happen.
"Semiconductor Industry Faces Problems After Resin Plant Explosion"
https://apnews.com/article/8fe2925b68d34d33f19a53e4892c74a2
It caused a significant spike in DRAM prices:
https://www.chicagotribune.com/news/ct-xpm-1993-08-06-930806...
Today's low personal computer prices, particularly those on machines made by smaller companies, are likely soon to shoot up more than $100 per machine because of a panic in the world memory-chip market.
Prices already have doubled for computer owners who want to expand the capacity of their machines to handle memory-hungry new programs based on Macintosh System 7 or on Microsoft Windows or the OS/2 operating system for IBM compatibles, industry officials said.
https://www.chicagotribune.com/news/ct-xpm-1993-08-06-930806...
An expectation of surge pricing may also work here. Figuring out some standard contract wording that quickly pushes the price spike all the way down the supply chain to the consumer and publishing it might help.
> Shipping also isn't free and externalities like pollution should not be allowed
Hard to regulate that without a world government.
Just because a country is a democracy does not mean it will be a reliable trading partner. Democracies can easily swing from free market to protectionist trade policies -- and back. Outsourcing a very large fraction of all manufacturing for half the world to any single country is an incredibly risky idea.
Sanctions are crystal clear thanks to the IEEPA [1]. The president needs only declare an emergency, which is typically done in the exact same executive order imposing the sanctions. We're currently under at least 42 different national "emergencies", of which 34 are to impose sanctions. [2] The legal basis for tariffs is less clear, but in effect no different. Trump's tariffs [3] were all passed unilaterally, appealing to all sorts of acts that grant the president conditional tariff powers, but where the condition is framed in a broad enough way to include nearly any rationale.
[1] - https://en.wikipedia.org/wiki/International_Emergency_Econom...
[2] - https://en.wikipedia.org/wiki/List_of_national_emergencies_i...
In China, Xi can decide to impose tariffs or sanctions, and there's nothing anyone can do about it.
The NPC has immense power. They can override anything Xi Jinping does, and even have the power to completely recall him, or amend the constitution. But of course this won't happen. They have a one-party system with relatively minimal internal conflict. So even though the NPC is genuinely powerful and has every check and balance imaginable, they will not be using them.
1. Democratic countries that mostly abide by international law and the rules-based order.
2. Non-democratic countries that also mostly abide by international law and the rules-based order, because they benefit from it more than not doing so.
3. Non-democratic countries that reject international law and the rules-based order.
The US trades with #1 and #2, and was hoping to make China into #2. But unfortunately it doesn’t look like that’s going to happen, China is in the grey area between #2 and #3 and probably trending toward #3.
They didn't declare war, which is unfortunate but congress did approve.
They understood that building cheap and in great numbers is the key to success. They did this with the J-7 and now the J-10.
You do realise that a sizeable chunk of the world's oil and gas are sourced from "non-democratic" countries in the Middle East, yet somehow we leave them alone to openly torture, abuse and murder their citizens? And on top of that they're left alone to operate a cartel (OPEC) that holds the world to ransom when they decide one day to cut production and push up prices. Feels like there's a whole load of double standards on display here.
We are causing a lot of trouble by shoveling money at bad countries run by bad people -- the Ukraine war wouldn't have happened if large (and important) parts of Europe 1) hadn't bought so much Russian gas and 2) made itself so dependent on the ability to keep buying it. This provided Putin with 1) the ability to wage war and 2) the feeling, bordering on certainty, that it was safe to do so.
Huh, like maybe "a sizeable chunk of the world's oil and gas are sourced from "non-democratic" countries in the Middle East" is the problem, and the reason those countries get a pass? So like we shouldn't be outsourcing manufacturing, we shouldn't be outsourcing energy production to terrible countries.
Where it matters is they can impact the global prices and thus what people pay at the pump. Though the actual profits from such spikes in American gas prices end up going to suppliers in America or Canada.
For now and whilst those extraction costs are cheaper domestically. The US needs the Saudis as a backstop and for infill of the types of crude oils the North American continent doesn't have access to or is in limited supply.
They're also a handy client state to do the US's dirty work in the Middle East, see Yemen for example. The US also needs the Saudi's and their non-democratic allies to keep buying weapon systems to prop up Lockheed, Boeing et al. You need to look at the bigger picture.
That's a local Saudi/Iranian conflict.
The big picture is that the US needs middle east countries to price their oil in USD. Everything else is just a bonus.
The petrodollar is an interesting theory, but it doesn't really hold up to very much scrutiny.
And since FidoBucks are now directly tied to access of a critical commodity, it will have also have a guaranteed minimum "value" that's tied to the cost of oil. So people can feel pretty comfortable holding and trading Fidobucks. In fact the new stability of your currency means you'd likely see people starting to trade it for far more than oil, to the point that gas becomes just a fraction of its trade.
This is essentially what the petrodollar did, but it of course started from a far higher point than zero of course. Once we ended the fixed convertibility of the USD to gold in 1971 [1], demand in the dollar started rapidly declining, and its relative value began decreasing. After the petrodollar this all reversed, hard. It's to assign a specific value to any of these changes, because it's all dynamic - just like in our simplified FidoBucks example so much would depend on the dynamic scarcity of gas, how many FidoBucks you print, the total value of outside trade, and a million other variables. What is safe to say is that it dramatically strengthened the position of the currency, and is a large reason that until extremely recently, if China and Russia were trading - they'd settle that trade in USD. Now they're trying to create the next FidoBuck backed by a combination of land, gold, and other finite resources.
What actually props up the USD is the US taxes being paid in USD. Even transactions like selling burgers for Bitcoins suddenly force someone to not only get dollars to pay their taxes on that sale but set it aside for significant periods. This is the basic mechanism which forces all fiat money to have value, which then causes it to be used for loans and whatnot which further increases value.
Beyond that, this is all about international issues. Those gas stations are oil producing countries, and the people buying from them are countries. Being the person who can "print" the world reserve currency gives you immense geopolitical power, and an inability to economically fail regardless of how hard you try. When foreign currencies are no longer so closely tied to the USD, and demand for the USD declines, its international value will likely start to sharply decline, exactly as it did in 1971. But this time I don't really see anything we'll be able to cling onto.
[1] - https://www.dailyfx.com/usd-cad/link-between-canadian-dollar...
As to US Canada currency that relationship would be mathematically identical if oil was traded in Canadian dollars rather than USD with the exact same changes to each currency as oil’s value spiked. It’s a result of the balance of trade not the specific commodity being exchanged let alone the currency the transaction was valued in.
Oil happens to have high price volatility and significant value, but wood or maple syrup has similar effects though on a smaller individual scale.
You're absolutely right that balance of trade plays a part in this, but not in the assumption that the currency is irrelevant. If countries were paying Canada in CAD instead of USD, then Canada's reserves of CAD would be constantly increasing while the rest of the world's would be decreasing. The CAD would become extremely strong, extremely quickly. The realistic scenario is that countries would simply stop buying oil from Canada because of this, but if they couldn't (for instance if Canada somehow convinced oil seller's to sell only in CAD...) then the result would be a never-ending and effectively uncapped appreciation of the CAD, subject only to the discretion of Canada itself.
This is literally exactly what happened with the ruble. Russia used to sell their oil in the USD. After we did our sanctions stuff trying to tank their economy, they started selling oil only in the ruble. And the value of their currency not only immediately reversed all of the sanctions inflected weakening, but rapidly became even stronger than before they invaded. It led them to the bizarre scenario of having to actually have to try to weaken their currency, while facing 'nuclear' sanctions, to make sure they didn't (as above) price themselves out of the oil market, by having too strong a currency.
You can use the same physical 20$ dollar bill to buy a soda several times over a year. You hand it to the 7-11 on Monday, they take it to the bank on Tuesday, the bank puts it into their ATM on Wednesday, you get out of the ATM on Thursday, and then take it back to that same 7-11 on Friday.
Digital currency can cycle the same way just faster. Mexico Joe trades peso’s for OilBucks from Dubai Bank at 9:00AM, use them to buy oil from someone in Bolivia at 9:01. At 9:02 Frank in France trades Euros to Bolivia Co at 9:02 to get those same Oil Bucks for a trade at 9:03 with someone in Saudi Arabia…
Anytime your pet economic theory results in some asset spiraling to infinite value it’s inevitably wrong. There’s always a point where people say no and do something else because they simply can’t spend infinite money on anything. Instead there’s always some factor not included in your model that moderates the impact you simply aren’t including it.
Until recent times, keeping inflation up was difficult in spite of all of this - which is why we've had 0 interest rates desperately trying to devalue the currency. The big inflection point was 1971. That was the end of the USD being 'hard backed' (fixed exchange rate) by gold. The 'soft backing' (unfixed exchange rate) of oil would begin in 1974, organized by no less than Kissinger. You can see many of the measures we took here [1]. A critical table [2] that site is missing is the trade deficit.
Ultimately the test for all of this will come imminently. BRICS has been developing a new backed (presumably 'hard backed') currency, set to be announced as early as August of this year. And IMO, BRICS as a whole is making their move at this exact moment precisely because the USD is in a situation where this will have maximum impact. Something to keep your eyes on if you're at all genuinely interested in these things!
[1] - https://wtfhappenedin1971.com/
[2] - https://www.macrotrends.net/countries/USA/united-states/trad...
You'll note that after Biden called Saudi Arabia a Pariah state, he was forced to reverse course and head over, hat in hand, and beg for more production. Not because of the 12% (or 10% or 8%), we directly consume, but because of the impact on inflation and the world economy.
So yes, we are beholden to middle east oil, not because we directly consume it, but because of the impact on energy prices and inflation. If we were maximizing our own energy production, not just for domestic consumption but for export, we could lessen that impact and the influence they have.
https://www.eia.gov/energyexplained/oil-and-petroleum-produc...
“About 9% of U.S. total petroleum imports and 9% of U.S. crude oil imports were from Persian Gulf countries in 2021.” However the US produces 20 Billion barrels of oil vs 8 Billion barrels of imports. So that 9% is really 9% * (8B / (8B + 20B)) = 2.6% of the US’s total oil supply.
Further that 8 Billion barrels of imports almost exactly equals our 8 Billion barrels of exports. There are many reasons to imports and export oil over the course of a year for example seasonal demand varies, but if it goes to 0 we can also stop our exports.
Accidentally mangled the quote while cutting and pasting.
There are many such issues worthy of attention, perhaps they are indeed being opined about... on other threads?
The human mind functions better when focusing on a single problem at any given moment.
Nuclear weapons created an era with highly concentrated destruction. Major wars are much less frequent, but the next world war will be cataclysmic. Up until the next world war one should expect unprecedented peace and prosperity. Hopefully we can avoid undoing all of those gains and more in the blink of an eye.