The Chronic Exporters’ Curse?

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Mercantilist trade strategies have been the rage among most countries, save the US, whose trade policies have been oriented towards making the world safe for American multinationals and investment banks. And one can see why. Sustained trade surpluses allow exporters to leech off other nations’ demand, allowing them to enjoy higher employment levels and/or better paid laborers than they’d have otherwise. It also allows exporters to enjoy both high domestic savings rate and budget surpluses. This is important because, it means the government isn’t playing a role that businesses find unappealing to reach full (or closer to full) employment. Michal Kalecki made this point in his seminal essay, “Political Aspects of Full Employment” in 1943:

In should be first stated that, although most economists are now agreed that full employment may be achieved by government spending, this was by no means the case even in the recent past. Among the opposers of this doctrine there were (and still are) prominent so-called ‘economic experts’ closely connected with banking and industry…

In the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany. This was to be clearly seen in the USA (opposition to the New Deal), in France (the Blum experiment), and in Germany before Hitler. The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter’s profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article.

The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment.

Put more simply, running trade deficits finesses the contentious political issues that arise when governments have to step in to provide for an adequate level of demand by running trade deficits. While many instinctively reject the notion that government deficits are desirable except when the economy is at full employment, the reality is that private investors demand a rate of return that would otherwise result in underinvestment (see Andrew Haldane and Richard Davies for one of many confirmations; you can also see it in rampant short-termism among investors). As a result, we’ve been in a protracted period (including before the crisis) where businesses around the world have been underinvesting. The so-called “savings glut” is a misnomer; it’s more accurately called a “corporate savings glut” or better yet, an “investment drought”.

But the general point remains: being an exporter confers a lot of advantages. So most countries jockey to try to attain and maintain that position. And under the gold standard, there was no ready way to discipline countries who’d managed to peg the value of their currency low in gold terms and kept accumulating gold. The difficulty of reining in chronic surplus nations so concerned Keynes that he made solving that problem one of the important features of his proposed but never-adopted post World War II currency system, the bancor.

But when you’ve gotten there, is it all that it’s cracked up to be? If you are a small country, say Nordic-scale, the answer is probably yes. But if you are large, the equation over time becomes more complicated.

One of the issues with being a chronic exporter is that you are effectively funding your sales. You wind up exporting capital. You sell your goods to them and take their currency in return. Now of course, you could just sell those dollars or euros or pesos and convert it into your currency, but that is pretty much never done on a large scale, since selling those currencies will drive the home currency price up relative to them, undermining your position as exporter. Now the exporter can simply hold those foreign currency payments as cash, but that is seen as unimaginative, so most recipients at least put it into something with more yield (government bills or bonds) or more speculative assets (stocks, real estate, re-investment in the country in question).

Now this still sounds ducky on the surface. The exporter can become a stealth colonizer or attain influence over the other country through holding so much in the way of its assets, right? Again, it’s not so simple in practice. For instance, it’s been a staple in certain corners of the financial blogosphere that China can tank the US any time it wants to by dumping Treasuries. But that would send the renminbi to the moon, the last thing the Chinese want. And the Fed could simply soak them up if it wanted to, as some parties argue the Fed did with a recent large sale of Treasuries by Belgium.

Yes, but foreigners can also buy the real wealth of a country, in the form of real estate, mineral resources, and productive businesses. Robert Peston of the BBC argues today that, based on the research of Diana Choyleva of Lombard Street that the Chinese will keep exporting to the West as before, but the capital exports will come less in the form of government bond purchases through official FX reserves, and more from individuals and businesses. And those two types of investors are much more likely to want higher-return assets.

This is where the exporters’ curse comes in.

Readers may recall I worked with the Japanese when they were in the same position the Chinese are in now, that of exporting massive amounts of capital, and at the juncture when private businessmen were eagerly hoovering up foreign investments. In some ways, the Japanese then were better positioned than the Chinese are now due to the strength of the yen in the later 1980s (the result of the Plaza Accord of 1985 which sought to and succeeded in lowering the dollar relative to the yen). Before then, I did some advisory work for a cross-border M&A effort of a McKinsey client, and have been recruited by boutiques that were focused on cross-border investing.

What I have seen directly and second hand: in the overwhelming majority of cases, foreign investors get leftovers. The best deals don’t get shopped broadly, but are snapped up by domestic buyers. The one exception is in very high end residential property in major cities, where the market is thin and the buyers are international top wealthy.

Foreign investors also have trouble on other levels. For instance, they can’t get the best deal lawyers to work for them. If they go to a famous white shoe firm, they’ll get the second team. Even if they are looking at making a significant acquisition, they’ll be seen as at best intermittent clients, and thus vastly less attractive than financial buyers (PE firms) and major domestic corporations who buy all sorts of legal services in addition to M&A. If the foreign investor has really good connection or insight, he might be able to find a small firm with savvy attorneys who’d see them as an important potential client. But the foreign investor isn’t well qualified to judge the caliber of counsel, so even if he is sophisticated enough to try to find that sort of player, it’s an open question as to whether he can vet them successfully.

I saw again and again how the Japanese were treated as marks. For instance, Japanese banks were big takers of leveraged buyout loan syndications. Sumitomo Bank, which was widely regarded as the best managed bank in Japan, had only very aggressive revenue targets for its branches, and no notion of adjusting revenues for capital used or risk assumed. So they were delighted, for instance, to lend $500 million to Campeau, a notorious end-of-cycle deal that went bust. All they could see was the $30 million up front fee, which they booked as profit. That magnitude of fee should have served as a huge warning about the level of risk, but that simply wasn’t a concern. If a big reputable bank like Chase offered it to them, surely it must be OK.

I thought a lot of my job running an M&A business was trying to protect Japanese clients from being exploited without killing a deal. And you can see the evidence in how many bad investments the Japanese made: ridiculously overpriced golf courses and resorts, or even good assets turned into bad investments by paying too much for them (the purchase of Rockefeller Center was a classic example). I was even on transactions where people in the bank who’d managed to invade my deals were working against the client’s interest by pushing him to grossly overpay (one of the rules of M&A is “get the buyer’s price expectations up” because if the buyer is paying a really rich price, everything else becomes surprisingly easy to negotiate). Over time, that client came to realize I was the only person trying to protect him, which given that this was one of the bank’s most important clients, put the Japanese at the bank on tilt.

The same appears to be happening to the Chinese who venture out on the risk curve. Remember how the Chinese were snapping up farms and other agricultural assets in Africa? On paper, that seemed smart. China has lots of mouths to feed; food security is only going to become a bigger issue over time. Mineral deals in Africa might seem a bit safer, since at least you aren’t expropriating, um, buying resources that could increase hunger among the locals. But Africa is a long way away from China and the Chinese ability to enforce their rights in a not exactly stable part of the world seemed to be an open issue. And the security of transportation is another big potential fly in the ointment.

It turns out those deals are now seen as not having been so sound. From the Wall Street Journal last week, in Beijing Shows More Caution on Africa Resource Deals:

China is taking a more cautious approach to Africa after a series of big loans and investments in resource deals over recent years have failed to pan out…

China’s foreign direct investment in Africa is falling. Chinese companies invested $2.5 billion in 2012, the latest official available figures, down from $3.2 billion in 2011 and a peak of $5.5 billion in 2008, according to China’s Ministry of Commerce…

China’s big push into Africa, which began as its economy revved up more than a decade ago, has led to some successes. But it has also caused problems. Some African officials have berated China for acting like a colonial power. Deals have foundered amid claims that Chinese companies breached safety and environmental standards.

Other projects have gotten bogged down in the complexities of doing business in Africa.In some cases, China is trying to renegotiate contracts—many involving loans to build infrastructure in return for resources—that no longer make sense after commodity prices fell sharply from record levels.

“Chinese were out there throwing money at anyone who would take it, and a lot of strange decisions were made,” said Derek Scissors, a resident scholar at the American Enterprise Institute in Washington. Now “they’re not as frantic.”

If you notice, private businesses have pulled back, but the Chinese government, which has more leverage, is trying to find a better way to make these investments. Perhaps they’ll be successful, particularly since they’ve had the opportunity to learn from their mistakes. But this is inherently difficult.

There’s an additional issue, which is that an asset can legitimately be worth less in the hands of foreign owners than domestic ones. When at McKinsey, I was asked to value a privately-held Mexican air conditioning company that a US firm was keen to buy. There was a 10 times difference between what the buyer wanted to pay and what the seller was asking. When you did the valuation from each party’s perspective, allowing for tax issues (the domestic owner could play games to keep revaluing assets and minimize taxes that a big rich US multinational wouldn’t be allowed to do), the extra labor costs (a US buyer would have to be much nicer to the local union), and the very large difference in return requirements, (any US investor at this time assigned a huge risk premium to investing in the peso), plus other adjustments, each party’s valuation was actually pretty much correct. But a foreign buyer will have to pay the domestic price, even when he faces costs or complications that no domestic owner has to contend with.

You can see how the Germans are in a similar fix relative to the rest of Europe, although for the most part, their capital recycling has taken place through loans rather than foreign direct investment. While the Germans as exporters have managed to squeeze the periphery countries harder than I had thought possible, it’s hard to see how they aren’t going to have to acknowledge losses at some point, whether directly, or through the deflation they are imposing on the periphery eventually infecting the core. But the Germans seem determined to delay restructurings as long as possible, which seems likely to increase their eventual cost.

There are no simple answers. But the mercantilist ideal of exporting one’s way to economic power isn’t as simple or risk free as it seems. And as we’ve discusses separately, no country in modern times has made a crisis-free transition from being export-driven to having a large domestic consumer base. Development economists, late to recognize this issue, now recommend a more balanced growth model that places less emphasis on exports and more on building internal markets. But the current export champions seem unwilling or unable to abandon their past successful formula, even when it’s not working as well for them as it once did.

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  1. Moneta

    But the general point remains: being an exporter confers a lot of advantages. So most countries jockey to try to attain and maintain that position
    Political and corporate leaders of exporting countries = 1%ers.

    1. Mel

      But the trouble China will have spending its dollars on assets is just a mirror reflection of the advantages of being a chronic importer: you can live high on the hog without having any assets. Now that China (like Germany) has hollowed out its importing counterparties, do they really not want a strong yuan? Running the industrial base will need resources, non-local ones will have to be paid for. Strong yuan would work out as a domestically-based Middle Kingdom economy that primarily took care of itself. How it took care of us would depend on what kind of price we succeeded in getting for our resources.

      I just can’t see the other way. Weakening the yuan, chasing declining world demand with lower prices, Walmartizing the world.

    2. susan the other

      This means we need a new settlements institution – the BIS operates under mercantilist rules – what we need is a new globalist (almost zero sum?) settlement system that merely functions to keep money going ’round and ’round. No profit; no loss.

  2. allcoppedout

    Thoughtful analysis. I can’t think now that any of the development economics can work. The slogans like ‘working smarter’ are all somewhat contradictory – I almost want to drag people saying this kind of stuff in meetings to bottom 25% ‘remedial classes’ at a local school, or to look at the skills a standard business graduate actually possesses. And creating competitive diamonds (whatever) is peculiar in its lack of strategic-market analysis of competition that can clearly use the same ‘theory’. In Britain we have been encouraged to be American, German and Japanese on the basis of the great successes of these economies, though always at some teeny-bop level like expanding business schools, quality circles and education done cheap instead of the real stuff. Anything about worker-control was always dismissed before the model was copied for our use and the idea was always that the planet had inexhaustible resources and demand. Free-trade was assumed, as indeed was the “success” of these economies. It was all as dumb as a duck. The German educational and training system is way ahead of USUK, but even being better leaves them with a fair proportion of poverty wages and questions on what they get back.

    While Yves was doing her stint at McKinsey, I was probably on my “crusade” to save British shipbuilding. I was sent to the US, Sweden, Japan and Korea to learn the lean manufacturing secrets. Subsidies were in place everywhere, but to speak of such or the massive flouting of health and safety in Sri Lanka or Bangladesh met deafening silence, as did detailing of modern mass production techniques. We would be saved by giving our engineers bicycles, quality circles, kaizen, poga oke and ‘tooth-paste tube’ scheduling (don’t ask!). One training programme to re-educate our managers contained a case study on the “success of Concorde” (given away at £1 each to Richard Branson).

    The money needed to maintain non-Royal-navy shipbuilding in Britain (apart from a few niche yards) was given to finance. Indeed, nearly all the work we did in keeping what we could afloat was finance – JIT inventory controls and so on. I found myself running apprentice training (acronyms WEEPS, YOPS, YTS, Community Projects, Community Enterprise Projects) in which the training was for old jobs replaced by machines I’d had a hand in importing, and at a time when, say, 20,000 men with the full skills were already unemployed in the town. Then I discovered “entrepreneurial” members of my management group were stealing plant and equipment from these schemes for new ventures.

    The bulldung has not changed in the 20-odd years since. We need ‘Plan B’. But we did in the 80s, the time at which we were so dumb we fell for the message that all we had to do was copy non-existent “success” elsewhere.

  3. John

    An interesting post. I was in Japan during their boom and their long bust period. I also spent time in Korea and I was in heavily polluted China recently. I will add that during the boom export periods living standards increased for each of them. Of course, Germany is another story. They are coming off a boom period and their living standards have stagnated or have gotten worse. They squeezed their own citizens to wring out more exports. People in Spain were financially better off (measured by home ownership) than they were.

  4. Moneta

    Interestingly, in the name of diversification and higher returns, many pension and sovereign funds invest a large chunk of their assets globally. If these assets are so good why wouldn’t the locals with deep pockets keep them for themselves?

    The fact that they are not investing these funds locally or nationally is proof that they are all investing unproductively as they are all looking for free lunches. Countries looking for other countries to pay for their retirees. As if that’s going to work!

    1. allcoppedout

      I guess we could excuse this on ‘portfolio spread’, though I’m with your drift. There is a strange thing in comparative advantage – countries resent such as direct war reparations yet subscribe to working themselves to death to supply everyone else on the basis of superior competitive economy.

    2. Fiver

      Pension money shouldn’t be in the market at all. For sovereigns, a strategy of diversification may well serve more than one purpose.

  5. Jay

    An insightful, interesting, and well-informed post. Hopefully you will elaborate further.

  6. allcoppedout

    Jeremy Rifkin (admittedly a bit of a bandwagonner) has put together something readable on the ‘collaborative commons’ – – I’m not a fan, but the changes we need have to be radical. Yves mentioned in another thread that the ‘buffoons’ in DC make policy from slogans. I can remember when I thought our equivalent knew what they were talking about, because I didn’t realise what trash economics was. Piketty tells us economists know nothing about anything. The metaphor that appeals to me is that of “court manners and etiquette”. One can sound intelligent using the rhetoric, wearing the right clothes, brown-nosing power and be as dumb as a duck – American Psycho.

    We often think, in academe, that if only the dolts in general society would adopt out theories for real, instead of perverting them in the regime of ignorance, things would be hunky-dory. Instead, we teach the manners of a failed elite and fear of creativity, rebellion and sensible project planning. We browbeat attendance as surely as a church through Hell. Who would turn up without the false promises we give out on earnings and jawbs? Economics and education in general is now Bacon’s ‘Idol of the theatre’.

    I like Susan’s idea of “giving inequality to the rich”. Across the USUKEU ‘democracies’ we have been taught chronic reliance on the leadership elite. Parasites do this. We could insist on a green project economy with money linked to green capacity creation until the rich have been given so much inequality it disappears. Given they are unlikely to like inequality so much when given it themselves, they might even throw in with the efforts to keep the base-line quality of life high. Fantasy as this sounds, I remind us that the biggest opposition to women’s equality came from women themselves – and we should be able to think of ourselves as in a similar duped condition. Indeed, if we look a polls across USUKEU, we tend to think that we should have more equality and that there is far more of it than there actually is. The suffragettes were a minority and so are we. Yet they were part of radical social change few would want to roll back.

    If we shake the ideologies involved, we might also come up with solutions that are not big government and get to very different notions of economic and financial control.

    1. susan the other

      I gotta say now, and forever, Aco, that I am (as you have guessed already) dumb as a duck. In the course of reading and commenting on NC posts like Yves’ here, I have turned myself upside down many times. And I still do not know where I am. My only consolation is that I am now sure the titans of capitalism also do not know where they are. I just (bottom line) do not think any such thing as “profit” exist in our reality, however partial it may be.

      1. allcoppedout

        There’s the Duck 22 problem though, If you were as dumb as a duck, you wouldn’t be able to see you are as dumb as a duck. The first step in beating incompetence is recognising you have it. And maybe you hit another nail on the head in that being turned upside down several times and now only being sure the titans don’t know where they are either and profit is dubious at best. Very Cartesian doing this doubting until one knows what one is sure of – so no show of modesty required!

        I fancy we have to use a device from philosophy and try to catch a lot of these problems from the side, or when they are sleeping. Like it being pretty tough to deny all knowledge doesn’t have subjective roots, until it dawns on you that there was a time before humans. And it has to be obvious the smart-arses sell invisible cloth that doesn’t let water run off our backs.

  7. The Dork of Cork

    Again with this false full employment thingy.
    We have a employment programme in Ireland.
    Its called Industrial sabotage.
    A state run apparatus runs lets say a energy monopoly until the big bank comes in and instructs the psedo state to privatize it.

    This crashes the productivity of the company.
    More young people are subsequently employed as salesmen for natural monoply products rather then workers in primary and basic secondary industry.
    This reduces the collective wealth base but preserves the relative wealth structure.
    The UK is approching full employment but not many rational people can claim its anything but a hellhole for most people.

    To keep this as simple for yee dumb socialists.
    The function of a economy is to produce wealth for its people – not to produce jobs so as to preserve the structure of the scarcity engine.

    1. F. Beard

      The function of a economy is to produce wealth for its people – not to produce jobs so as to preserve the structure of the scarcity engine. Dork of Cork

      Yep. What is needed is justice, not jobs. And with sufficient resources such as land and income, people can always find meaningful work to do.

      My consolation is that justice is coming, one way or another. And by advocating for it now, whether people listen or not, I have more hope of being among the survivors who will enjoy it.

  8. Schofield

    Not only do good market fundamentalists believe economies self-equilibrate they also believe along with this that money’s “neutral” and never like China “euthanizes” other people’s economies through currency rigging and use of Functional Finance to subsidize exporters by allowing central banks to write off or roll-over non-performing bank portfolios. Nor indeed do they understand that this “neutral” money can “euthanize” their own economy by allowing their private banks to blow asset bubble debt (sometimes with fiscal assistance from their government and central bank) which inevitably bursts like a neutron bomb leaving demand zapping debt behind.

    1. allcoppedout

      Couldn’t put it better than that. And what tools did they give us to fight this? Shoddy management theories!

  9. The Dork of Cork

    The increase of the Irish employment through a major increase in female participation and a reduction of male employment as a result of increasing the eduacation cycle and a reduction of male centered primary Industry.
    The period is between 1971 & 91.
    See table 3;jsessionid=170E7240BBC7794BBF6E176B92FFFDC6?sequence=1
    Ireland was forced my the local estate managers to become increasingly productive and to reduce local consumption of local products through a series of punative taxes and politically correct laws during these EEC years of integration with that Hydra.

    Essentially the population started to work for the machines rather then machines working for them.
    Notice the dramatic decline of primary (productive) activity to be replaced by manic consumption of goods people did not need in the secondary and service sector of the economy.
    We can see the true goal of the progressives back then was simply to get more people into the tax net.
    Needless to say the 1990s and beyond has been a sort of biblical disaster for the local populace & society as when the Bank started to run out of local females to throw into the pit of dispair it used every available desperate worker it could get its hands on (both in Europe and beyond)

  10. Dan Lynch

    I don’t advocate mercantilism, nor do I advocate the MMT position that imports are real benefits and exports are real costs. Instead, I advocate self-sufficiency.

    — when I (a very small businessman) export my manufactured product, I am paid in dollars, not in the importer’s currency. So the whole currency thing is a non-issue from my perspective. It is the buyer, not the seller, who must worry about exchange rates.

    — as a manufacturer, I make real stuff and exchange it for little pieces of paper (or electronic tokens). That’s what manufacturers do, duh. Whether I sell my product to an American or to a European makes no difference.

    — Most manufacturing is knowledge-based. The more you manufacture, the more knowledge you gain, and the more market share you gain. These are good things.

    — if the manufacturer has excess capacity (as nearly all do) then there is minimal real cost in using that excess capacity to supply foreign consumers.

    — When you outsource manufacturing, you lose that knowledge, and the other country gains that knowledge.

    — I advocate that Americans should manufacturing the things that America uses. I don’t want to depend on foreigners to buy my products, nor do I want to depend on foreigners to sell me the things I buy. This is not an economic principle, this is a personal value.

    — Exporting the most sense to me when it is a way to utilize excess capacity, but with the core customer base being domestic. I would not want my business to DEPEND on exports, the way Germany/Japan/China does.

    1. Podargus

      Dan,your comment makes perfect sense to me. But I am a protectionist not a free trader. I also support MMT in principle but I don’t understand the import/export part of it.

    2. backwardsevolution

      Dan – “I advocate that Americans should manufacture the things that America uses.” Yes, that is the way it should be. Good post.

  11. Vince

    If China (or Russia) do not get a good value for their dollars, they might just use their military to reappropriate real estate (Senkaku Islands… Ukraine… Taiwan… Alaska…)

    In the 1980’s Japan didn’t have a military.

  12. john c. halasz

    Chronic CA surplus accumulators have only 2 things that they can do with their excess FX: buy deficit countries’ good or their “assets” on the cheap. However, the reversal of financial flows involved, “necessarily” implies the FX appreciation of the deficit countries’ currency and the corresponding relative depreciation of domestic assets and goods. So there is an implied long-run loss of “capital”. On the other hand, if deficit countries can borrow cheaply from surplus countries and recycle their borrowings into higher returns abroad, especially given appreciation of foreign assets, due to short-run deficits, then there is a capital gain. Guess which country has pursued such a strategy.

  13. Roland

    We might look at imperialism as a set of “global management and enforcement services” which constitute “invisible exports” of supposedly net debtor states. Only if there is fatal loss of confidence in the “services provider” would the cost of the chronic imports be actually felt.

  14. Paul Tioxon

    It is not the exporting that is the cause of the problem, it is how the exporter was integrated into the international trade system. Japan and China were brought into our system, capitalism and our domestic market which paid them both in USD. And of course, you can only spend USD in USA. The relation to the USA is a dependent relationship, even if profits are being accumulated in vast amounts. If China tries to accumulate profits by letting the profits it has already accumulated do the work, as opposed to being an exporter, it will find making he transition from being an industrial production giant, supplying all of the USA WalMarts and Targets with all of our consumer goods and much else, a difficult climb from dependency on our open market for their goods, to breaking free to become a savy investor with all of the dollars it made selling to us.

    This cycling of manufacturing goods to make profits from high cost to low cost producers keeps the low cost producers in a relationship that for in order them to keep making money, they have to accept the role of keep making the goods for our markets. If they try to break the cycle by investing the profits in our nation, they become doubly dependent. First by dependency on our open market for their goods at a low price, second, for our open capital markets, with limited capital controls on what they can buy into. The Japanese destroyed a lot of capital by purchasing trophy properties, as well as other luxury goods, such as artworks by European Masters etc. The Germans destroyed a lot of capital buying Chrysler only to watch it go to the Italians for a song. Of course, who is profiting from this cycling? Yves, her employers and sometimes, the clients. The Chinese, the Japanese and the Germans were all incorporated into our system, but on our terms, with our currency and our understanding of internal rules of the system in a way that they need a guide as shrewd as Yves to navigate, and not be a double crosser. It is a wicked world, and there is no honor among thieves.

  15. Fiver

    Good read.

    I do wonder, though, similarly to Paul Tioxin above, whether this is where economics fails to fully acknowledge power, in the sense that players operate within a system they neither created nor control, cannot opt out of peacefully, where resources and historical circumstance have placed them in wildly varying positions with respect to ability to play this sort of game – and where the Owner of the Dice has no compunction changing the rules. It’s no accident the US shot past the others given uniquely favorable circumstances.

    We’ve seen how all major capitalist countries, including the States, have first protected their own markets to build up enough capital to attain self-sustaining growth. Japan and Germany were so resource-poor they felt compelled to ‘secure’ certain markets in the same way the British had for the previous century. This of course brought major war.

    I wonder if China should even be considered as a case comparable to Japan, or Germany, the Asian Tigers, or other emerging markets in general, given the extent of the Government’s commitment to this strategy and how that came about via US pulling the WTO strings. The Chinese Behemoth was in many respects the intended outcome, at least insofar as how US and other global corporations plowed into China at an unheard-of pace.

    But success even at this scale is too much for US sensibilities, and China, I suspect, is going to realize it really is doing an awful amount of work for digital, therefore virtual, promises.

  16. BigRed

    Much of what’s in this article isn’t written often enough, so thank you for that. I would also add that buying attractive assets can simply be blocked by governments. Weren’t there issues with Chinese and Saudis wanting to buy port facilities and the US and having been prevented a few years ago?

    There’s also some things in this article that are written too often and it worries me that they show up here again.

    In particular

    Sustained trade surpluses allow exporters to leech off other nations’ demand, allowing them to enjoy higher employment levels and/or better paid laborers than they’d have otherwise.

    As you all probably know rather well, Germany’s focus on export has resulted in quite a

    “But the general point remains: being an exporter confers a lot of advantages.”

  17. BigRed

    Much of what’s in this article isn’t written often enough, so thank you for that. I would also add that buying attractive assets can simply be blocked by governments. Weren’t there issues with Chinese and Saudis wanting to buy port facilities and the US and having been prevented a few years ago?

    There’s also some things in this article that are written too often and it worries me that they show up here again.

    In particular

    Sustained trade surpluses allow exporters to leech off other nations’ demand, allowing them to enjoy higher employment levels and/or better paid laborers than they’d have otherwise.

    As you all probably know rather well, Germany’s focus on export has resulted in quite a bit of a wage squeeze – so much so that roughly 20% of the working population is in the low-wage sector, and many of those need support payments from the government to make ends meet. So best, the “lower” unemployment rates have been traded off by lower wages. When one looks at U6, those rates don’t look better than the non-austerity ravaged European South’s anymore.
    When one then look at where those low-wage jobs exist, the majority are in services for domestic consumption, and in temp work, precisely not in the exporting sector.

    Which brings me to

    But the general point remains: being an exporter confers a lot of advantages.

    Correct me if I am wrong but being an exporter means that one is strongly dependent on other countries’ demand, and therefore economic development. If the countries one exports to tank, as in the last five years, it becomes much harder to sell them something. So being an exporter seems to shackle one as much as the gold standard or a fixed exchange rate does: other countries’ economic decisions restrict what oneself can do. So shouldn’t producing for domestic demand actually confer the stronger position?

  18. Fiver

    With respect to China’s purported bad investment experiences in Africa, I rather suspect it is the explosive growth and scope of the US military presence in Africa that has given China pause – US policy vis a vis the former Soviet Union was to lay ruin to any country where it could not ‘win’ politically, from Vietnam to Central/South America to Africa (Angola, the Horn of Africa, etc.) as well as the Greater Middle East/Persian Gulf.

    Though the Chinese cannot be portrayed as attempting to spread a noxious ideology, as was always the excuse in days gone by, just the fact China is even attempting to secure sources for raw materials, new markets, etc., has made Africa a strategic ‘asset’ the US is determined to own/control. This resurgence of interest in Africa has been going on for years now, under cover of the bogus ‘global war on terror’ – which just happens to be taking place in many of the poorest countries on the planet where the older generations of better educated, secular, liberal democratic, or socialist people’s movements were destroyed in proxy wars, leaving US/IMF dictatorships in sprawling, massively over-populated capitals and grinding poverty across enormous expanses of rural Africa.

    It appears the States is incapable of learning anything from its prior disasters – I rather expect as well that the Chinese would prefer the US be swallowed whole by Africa rather than dreaming up ways to ‘contain’ a non-existent Chinese threat.

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