China’s membership in the WTO and its trade with America has been framed as a threat. Specifically, American reliance on Chinese imports for critical goods could give China economic leverage over America. Proposed solutions to the problem of Chinese trade dominance include increased defence spending, tariffs, and government investment in critical industries.
The author misunderstands the nature of the threat. The US imports too much from China (and the rest of the world) and does not export enough. You cannot run current account deficits forever.
What happens is that parts of your country end up being owned overseas - your shopping malls, your companies, your housing, your farmland, your mines and resources. Over a 4 year window (political time) it is nothing and even over a 20 year period it is nothing, but it accelerates through time and over 100 years you become the colony. The foreign owners become wealthy and your country becomes impoverished. Anything of value like IP is transferred back to head office.
America and the West enacted these strategies for decades, and China is on the verge of returning the favour. Again, not in 4 or 20 years, but over the long term.
What would this mean exactly, especially if we will be living in an era of abundance, for the US and say Europe to be colonies of China? Well, if anything, the norms of Chinese society will seep in to our countries. Norms such as deference and obedience to the party or to the hierarchy, will become norms in the US. Social credit structures will penalize you and your family if you disagree with the party or society at large. Even democracy, which Chinese officials would argue is inappropriate given the low knowledge and intelligence levels of the average citizen, would be at risk. Is this what you want for your descendants?
Well some of you may say that in 100 years, we will have a global system of one government, and while I am sceptical this is in the interest of western countries, if it is to be wouldn't you want it to be based on freedom and democracy ?
And still others will say they have no descendants and don't plan to so do not care one way or the other what happens in 100 years, and to those people I would have other things to say, that aren't suitable in this comment.
Sounds similar to the MMT arguments of a few years ago that fiscal deficits aren’t a problem. People convincing themselves that something is fine. Motivated reasoning.
Again, nice straw man try. I never said that and don't think it, however there is a connection between current account deficits and fiscal deficits, I'll leave it to you to check the literature.
"What happens is that parts of your country end up being owned overseas - your shopping malls, your companies, your housing, your farmland, your mines and resources"
What do you think foreign investment is? They invest money in America. They buy companies, employ people, produce products which are sold as exports which bring dollars into the country.
What do you think these crafty foreigners are going to do, ship malls and houses and factories and farms and mines overseas? What do you think Americans (Note: "Americans", individuals, not the country) do with mines and farms, if not produce crops and resources? Do you want Americans to stop exporting altogether? We'd have to stop importing too. Is that what you want? What's the point of all this isolation?
Yup we invest overseas and overseas invests in us. When it is unbalanced for a prolonged period of time, ie decades, the results are disastrous and you become impoverished and someone else’s colony. The point of cutting off China’s role as the producer of everything is to damage it more than we get damaged and then start over.
Oh nonsense. Your first mistake is saying "the US" imports and exports. Countries do not import and export; people do, individuals, and they alone decide what is enough by voluntary trading.
You are also appallingly ignorant about trade balances. First off, trade balances between pairs of countries in a world of 200 trading partners are utterly meaningless. If country A exports mostly to country B which exports mostly to country C which exports mostly to country A, all have trade deficits, and all are meaningless.
Secondly, dollars out have to equal dollars in, unless foreigners are counterfeiting or burning dollars. Whether those dollars in come from selling exports or foreign investments, whether exports are goods or services, whether investments are in business or Treasurys, makes not a whit of difference.
This is elementary definitions, not a matter of policy. Foreigners get the dollars necessary to buy our exports by us buying imports from them. Trump and other idiots like to scream about goods only, forgetting services. Trump thinks he can grow foreign investment while simultaneously shrinking the trade deficit; that's as mathematically sound as saying he can change an angle to increase both sine and cosine. It is mathematical nonsense.
Ignorance like that destroys your credibility. Read Henry Hazlitt's Economics In One Lesson to enlighten yourself before showcasing your ignorance.
Of course countries don’t import or export that is meant figuratively. And of course trade balances only matter across all partners, that’s why I added “and the rest of the world”.
At the end of the day, if you are running a net current account deficit (across all countries), you are consuming more than you are producing as a country, and that is not good. You are either selling assets or buying on credit to make up the difference. China on the other hand is running a net current account surplus and is building their wealth, part of which they are using to build a war machine to use against the west or at least to influence world affairs to their benefit.
Foreign investment of the sort that is used to place residual dollars as a result of a current account surplus, as in China's case, is not being invested in American plant and equipment or other infrastructure that will benefit the US, it is being used as a store of wealth which will earn a rentier's return. (You can simply expand this argument to a multi-country model.)
The original notion of “comparative advantage” had countries purchasing goods from each other even where one country had no absolute advantage, ie even when they produced all things at a higher cost than the other country, they would still sell their product, because transacting based on comparative advantage was a net benefit to both sides.
However, markets do not operate on comparative advantage, markets clear based on absolute advantage. And the US/West is quickly coming to the point where they have an absolute advantage in nothing vis-a-vis China. Steel, cars, tech, even German Middlestand equipment makers. There is soon nothing that America can produce that China will want to buy, and that is a problem. Financial services ? Nope. Entertainment ? Nope. Silicon Valley ? Nope. Ad if China won't buy from us, how can you think anyone else will. Maybe agri products, raw materials and other low value adds. We are half way there and some people think it is all hunky dory.
The author misunderstands the nature of the threat. The US imports too much from China (and the rest of the world) and does not export enough. You cannot run current account deficits forever.
What happens is that parts of your country end up being owned overseas - your shopping malls, your companies, your housing, your farmland, your mines and resources. Over a 4 year window (political time) it is nothing and even over a 20 year period it is nothing, but it accelerates through time and over 100 years you become the colony. The foreign owners become wealthy and your country becomes impoverished. Anything of value like IP is transferred back to head office.
America and the West enacted these strategies for decades, and China is on the verge of returning the favour. Again, not in 4 or 20 years, but over the long term.
What would this mean exactly, especially if we will be living in an era of abundance, for the US and say Europe to be colonies of China? Well, if anything, the norms of Chinese society will seep in to our countries. Norms such as deference and obedience to the party or to the hierarchy, will become norms in the US. Social credit structures will penalize you and your family if you disagree with the party or society at large. Even democracy, which Chinese officials would argue is inappropriate given the low knowledge and intelligence levels of the average citizen, would be at risk. Is this what you want for your descendants?
Well some of you may say that in 100 years, we will have a global system of one government, and while I am sceptical this is in the interest of western countries, if it is to be wouldn't you want it to be based on freedom and democracy ?
And still others will say they have no descendants and don't plan to so do not care one way or the other what happens in 100 years, and to those people I would have other things to say, that aren't suitable in this comment.
Read this. Came out today.
https://www.hoover.org/research/trade-deficits-arent-problem
Here's another.
https://www.cato.org/commentary/things-everyone-should-know-about-trade-deficits#
Sounds similar to the MMT arguments of a few years ago that fiscal deficits aren’t a problem. People convincing themselves that something is fine. Motivated reasoning.
Are you really so completely ignorant that you think *trade deficits* are debts?
Good grief.
Again, nice straw man try. I never said that and don't think it, however there is a connection between current account deficits and fiscal deficits, I'll leave it to you to check the literature.
Then there's this nonsense:
"What happens is that parts of your country end up being owned overseas - your shopping malls, your companies, your housing, your farmland, your mines and resources"
What do you think foreign investment is? They invest money in America. They buy companies, employ people, produce products which are sold as exports which bring dollars into the country.
What do you think these crafty foreigners are going to do, ship malls and houses and factories and farms and mines overseas? What do you think Americans (Note: "Americans", individuals, not the country) do with mines and farms, if not produce crops and resources? Do you want Americans to stop exporting altogether? We'd have to stop importing too. Is that what you want? What's the point of all this isolation?
Yup we invest overseas and overseas invests in us. When it is unbalanced for a prolonged period of time, ie decades, the results are disastrous and you become impoverished and someone else’s colony. The point of cutting off China’s role as the producer of everything is to damage it more than we get damaged and then start over.
Nope, still ignorant. What part about "dollars out have to equal dollars in" do you not understand?
It cannot be unbalanced for "a prolonged period of time". It is mathematically impossible.
Of course currencies balance because the residual of trade gets invested. Investments in the country are not goods or services. Straw man much?
Oh nonsense. Your first mistake is saying "the US" imports and exports. Countries do not import and export; people do, individuals, and they alone decide what is enough by voluntary trading.
You are also appallingly ignorant about trade balances. First off, trade balances between pairs of countries in a world of 200 trading partners are utterly meaningless. If country A exports mostly to country B which exports mostly to country C which exports mostly to country A, all have trade deficits, and all are meaningless.
Secondly, dollars out have to equal dollars in, unless foreigners are counterfeiting or burning dollars. Whether those dollars in come from selling exports or foreign investments, whether exports are goods or services, whether investments are in business or Treasurys, makes not a whit of difference.
This is elementary definitions, not a matter of policy. Foreigners get the dollars necessary to buy our exports by us buying imports from them. Trump and other idiots like to scream about goods only, forgetting services. Trump thinks he can grow foreign investment while simultaneously shrinking the trade deficit; that's as mathematically sound as saying he can change an angle to increase both sine and cosine. It is mathematical nonsense.
Ignorance like that destroys your credibility. Read Henry Hazlitt's Economics In One Lesson to enlighten yourself before showcasing your ignorance.
Of course countries don’t import or export that is meant figuratively. And of course trade balances only matter across all partners, that’s why I added “and the rest of the world”.
At the end of the day, if you are running a net current account deficit (across all countries), you are consuming more than you are producing as a country, and that is not good. You are either selling assets or buying on credit to make up the difference. China on the other hand is running a net current account surplus and is building their wealth, part of which they are using to build a war machine to use against the west or at least to influence world affairs to their benefit.
Foreign investment of the sort that is used to place residual dollars as a result of a current account surplus, as in China's case, is not being invested in American plant and equipment or other infrastructure that will benefit the US, it is being used as a store of wealth which will earn a rentier's return. (You can simply expand this argument to a multi-country model.)
The original notion of “comparative advantage” had countries purchasing goods from each other even where one country had no absolute advantage, ie even when they produced all things at a higher cost than the other country, they would still sell their product, because transacting based on comparative advantage was a net benefit to both sides.
However, markets do not operate on comparative advantage, markets clear based on absolute advantage. And the US/West is quickly coming to the point where they have an absolute advantage in nothing vis-a-vis China. Steel, cars, tech, even German Middlestand equipment makers. There is soon nothing that America can produce that China will want to buy, and that is a problem. Financial services ? Nope. Entertainment ? Nope. Silicon Valley ? Nope. Ad if China won't buy from us, how can you think anyone else will. Maybe agri products, raw materials and other low value adds. We are half way there and some people think it is all hunky dory.
Thanks for some actual light in place of the usual sturm und drang.
But I guess someone had to bring in the sturm und drang.