U.S.-China: These Are Much More Than Just Trade Talks

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By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute.

Just when it appeared that Washington and Beijing were inching closer to concluding their trade negotiations (thereby bringing a cessation in the ongoing and escalating conflict), the U.S. president has thrown a new grenade in China’s direction. Trump “threatened to raise tariffs on all Chinese imports to 25 per cent, sharply ratcheting up pressure on Beijing to make concessions in trade talks and sending global equities markets sliding,” write James Politi, Courtney Weaver, Tom Mitchell and Yuan Yang of the Financial Times.

Win or lose, anything that creates the perception that the administration is standing up for the rights of American workers (even at a cost of repudiating decades of free trade ideology) could cement Trump’s growing popularity within a traditional Democratic Party constituency. Many blue-collar voters tried to send a message of change in 2016 when they voted for Trump. These voices are particularly germane in Midwestern states, which basically secured the necessary Electoral College votes required to put Trump in the White House.

Politics aside, the trade talks create dilemmas for both sides: capitalmarkets in both countries have revived, as expectations have grown that the two nations would resolve this increasingly acrimonious dispute, albeit on terms that largely retain the status quo.

Trump in particular has done much to elevate those expectations in his Twitter account, even as it became increasingly apparent that the nature of the deal was unlikely to do anything more than induce Beijing to make further large-scale purchases of American exports, as opposed to undertaking structural reforms of the kind that would likely rectify some longstanding U.S. grievances, such as the appropriation of intellectual property (IP), cyber-theft, and inadequate access to Beijing’s domestic markets, to cite a few prominent examples.

Similarly, President Xi Jinping is looking for a deal that gets rid of the tariffs and avoids a new shock to a Chinese economy, which is now recoveringfrom last year’s tariff-induced trauma via a significant new credit provision from the government.

The problem, as Trump seems to appreciate (albeit belatedly, if one is to judge from the timing of his latest tweet storms), is that he can’t afford to be perceived as weak on trade. It’s been one of his signature issues since his 2016 campaign. But confronting Beijing on the structural issues, and concomitantly causing a breakup of the supply chains that are the foundation of today’s “Chimerica” nexus, likely entails creating transitory economic dislocation in the United States (as well as further major setbacks in the stock market), hardly the sort of thing that the U.S. president would like to see happen in the run-up to the 2020 election campaign. As New York magazine’s Intelligencercolumnist Josh Barro starkly puts it:

One, [Trump] wants to be seen to be ‘tough’ on China trade, and two, he wants the stock market to go up. The problem is, the stock market hates trade wars, and when the president threatens (or actually imposes) higher tariffs on Chinese goods, stock prices fall.

Any dislocation, financial or economic, would also constitute a political gift to the Democrats.

So the essence of the conundrum is this: is Trump willing to take a short-term hit among certain traditional GOP constituencies in order to secure the longer-term changes that his chief U.S. trade adviser, Robert Lighthizer, has long advocated as essential to preserve the livelihoods of American workers? Not only is there a political hit, but the very magnitude of the potential retaliation Trump and Lighthizer have proposed—vastly increased tariffs, along with the aggressive use of various World Trade Organization (WTO) sanctions to counter Beijing—also constitutes a repudiation of over half a century of American trade policy and ideology, as well as disrupting traditional political alliances with key Republican constituencies.

In regard to the latter, Trump’s actions could well herald the start of a major political realignment. This may already be starting. In response to the Republican Party’s increasing embrace of Trumpian-style populism, for example, the U.S. Chamber of Commerce is now looking to “disentangle its brand from the GOP,” writes the Washington Post. It has spoken about rebuilding the center, ironically echoing the language of the self-proclaimed progressive, Speaker of the House Nancy Pelosi, who has similarly warned Democrats to hew to the centerin order to beat Trump next year. Barring a Sanders or Warren nomination, therefore, the Democrats could well find themselves with an unlikely new champion in the form of a Chamber of Commerce endorsement next year.

This wouldn’t trouble many of the non-traditional Republicans, who currently dominate trade policy in the administration. As far as trade itself goes, Trump seems to be inching toward the kind of right-wing populism initially advocated by figures like Steve Bannon and self-proclaimed “blue collar conservatives,” such as Rick Santorum or Pat Buchanan. These figures (and many others) have long sought to reconfigure the GOP as the party for American workers, even at a cost of closing off portions of the American economy via protectionism, if it means more jobs at home for U.S. workers. Rightly or wrongly, this kind of political recalibration could well be one of the by-products of the prospective trade agreement with China. It would therefore have significant electoral implications in 2020, where the Midwest Rust Belt is likely to remain the key battleground region that will likely determine the winner of the presidency.

On the other hand, even if the talks do break down (this now appears more likely), and Trump follows through on his threat to raise tariffs on all Chinese goods to 25 percent, such overt protectionism could well reinforce the GOP’s working-class support, especially if such tariffs are accompanied by other forms of direct state intervention and more restrictionist immigration policies that would structurally tighten up the labor market (and enhance workers’ bargaining power as a result). True, a stock market fall could well hurt those at the top tier, but that could actually reinforce the optics of Trump’s populist message if he simply makes the case that he is going to the mat for U.S. workers, even if means some short-term pain for the investor class.

The corollary also could work toward furthering this realignment: if the Democrats were to nominate an old guard “Free Trade”candidatewho represented a proxy for the status quo ante, one who still largely champions standard trade agreements of the kind secured over the past 40 years or so (such as current front-runner Joe Biden), this could well widen the political gap between the Democratic Party and some of its historically loyal constituencies.

Even if Trump settles for a traditional bilateral deal in which Beijing pledges to buy more U.S. goods, it could well catalyze this political reconfiguration to the extent that it reinforces his “America First” nationalism vs. the traditional multilateral liberal order that is perceived as more friendly to existing American elites. Why? Because one outcome of a U.S.-China trade agreement is that it will likely penalize some of Beijing’s other major trade partners if China’s ultimate concessions simply redistribute purchases away from other countries (e.g., Brazil, which is also a major exporter of soybeans to China, or member states of the European Union). A new bilateral U.S.-China trade deal could also increasingly marginalize the World Trade Organization, particularly if (as is rumored) the agreement contains bilateral resolution provisions that effectively sideline the multilateral trade body, as well as disrupting today’s global supply chains that, as the Financial Times’ Edward Luce argues, are largely predicated on the existence of a stable trade regime with a clearly defined set of politically neutral regulations.

That would be political gold to Trump, and his America First agenda. In fact, it will likely be a feature of any proposed new agreement rather than a bug. Both Trump and Lighthizer are keen to re-domicile as many manufacturing supply chains as possible back to the American heartland (which also happens to be one of the key constituencies of Trump’s base, the multi-decade losers of globalization, whose concerns have traditionally been ignored by both parties, except during election season). If this antagonizes America’s traditional trade partners, so be it. Trump has not hitherto proven himself to be particularly solicitous to the views of Washington’s historic friends and allies.

Of course, all of this posturing by Trump may be another sign of the proverbial carnival barker at work, but in the absence of a compelling alternative narrative from the Democrats, it could well prove to be a powerful elixir in the president’s efforts to secure a second term in office.

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28 comments

  1. ObjectiveFunction

    Great post. Veteran China business lawyer and blogger Ed Harris has been cranking out reams of great (and not over the top ideological) stuff on this topic lately, including this trenchant piece:
    https://www.chinalawblog.com/2019/04/the-china-us-trade-war-and-the-winner-is-mexico.html

    “Chinese labor rates and Mexico’s proximity to the U.S., especially important in the e-commerce era of quick shipping had been chipping away at China’s dominance even before the trade tariffs.” It is just so much easier and cheaper to fly to and from Mexico (which is only one hour earlier than Seattle — the same time as Denver) is as compared to China. This matters. And just ask how many people at your company speak Spanish as compared to Chinese.

    Reply
    1. John

      Hard to say that Mexico is winning. A lot of manufacturing has been outsourced to Mexico for the past 30 years but in order for the average Mexican to live a decent life they have to emigrate to the US. I’ve always thought that outsourcing was just a form of neocolonialism … it seems our economic system needs an institutionalized underclass.

      The civil Rights movement and women’s rights movement is partly to blame.

      Reply
  2. Ptb

    Re: the political analysis component of this article, I wonder how much the China posturing matters specifically, vs the “economy being good” – low unemployment, interest rates, taxes. Strategically located energy and defense expenditures.

    Regardless of what Trump personally believes, I wonder if the China puffery is more a product of the “national security” side, i.e. bipartisan. They just get to offload the blame on the loudmouth in the white house.

    Politically, Trump’s GOP support is quite solid. The “Never-Trump-Republicans” that democratic strategists occasionally fantasize about winning over are just 3-4% of registered voters. Similarly, Democrats are solidly anti Trump.

    Independents (numerous) and low-turnout working class voters are perhaps up for grabs. By definition, they’re not tuning in to the details, but “the economy” is still Trump’s biggest selling point.

    The immediate effects of the tariffs would hurt Ag states and help Defense states. Trump’s reelection hinges on neither I think (other than maybe AZ, as defense heavy). PA is the big one – it has a factory-industrial and rural energy segment that Repubs will go after. I think Trump has FL in the bag already, and MI and WI are lost to him.

    Reply
  3. Robert Valiant

    Does “bringing manufacturing back to the US” include constructing dormitories for the “not in the workforce” slackers where they can live 6 days a week, working 24 hour on-call shifts assembling iPhones in order to qualify for federal benefits like SNAP?

    I bet it does.

    Reply
    1. Jerry B

      ===constructing dormitories====

      I have come across a few articles that discussed the lack of affordable housing in tourist/vacation areas. At this moment I do not recall the exact places. As I live near Chicago, the articles might have been about the Wisconsin Dells and Door County, Wi. The articles mentioned building dormitories in the Dells for the summer workers.

      A while back there was a post on NC about the lack of affordable housing in Door County Wi due to many wealth people buying property. I recently came across an article that mentioned there are a lot of jobs (mostly low paying service/retail) in Door County but very little housing that people with those jobs can afford.

      https://doorcountypulse.com/commentary-one-persons-hunt-for-housing/

      https://doorcountypulse.com/distillery-workforce-housing-proposed-egg-harbor/

      I would not be at all surprised if in the near future Amazon builds dormitories for it’s fulfillment center warehouse workers. There is already a growing group of retirees that own/live in Motorhomes/RV’s and drive around the country picking up temp jobs at various Amazon Warehouses.

      https://www.wired.com/story/meet-camperforce-amazons-nomadic-retiree-army/

      https://www.amazondelivers.jobs/about/camperforce/

      Reply
      1. Left in Wisconsin

        The dormitories in Wisconsin Dells are for teenage and young 20s seasonal workers from eastern Europe. Despite a very large population of the same age cohort in Milwaukee whose employment in such jobs would yield considerable benefits to the workers and the state, no one sees fit to call these businesses on their blatantly racist practice of hiring white Europeans on temporary visas over black Wisconsinites.

        Reply
  4. The Rev Kev

    If Auerback is correct, then there are some seismic shifts going on in the political landscape of power in the US and that usually means a lot of conflict and friction. I would like to add one or two threads here that may or may not be valid. First is Trump. My guess is that he wants a grand slam deal with China before the end of the year so that the benefits will start to flow early next year in time for election season. That way, he can go to voters and show new deals with China and NAFTA to help himself get re-elected in November of 2020. I think that this has become more important to him as after the Mueller witch-hunt the past two and a half years, he knows that people will be gunning for him after he leaves office. Maybe try to put him on trial after he is no longer President which sounds very Roman in practice. So his time line is all leading up to November of 2020.
    However, and this is just speculation here, there may be another thread and that is the real power center in the US. They are fighting furiously to make sure that this will remain a unipolar world and the thought of another power – China in this case – surpassing them is anathema to them. Even a multipolar world to them is not to be tolerated. And here they have a much longer timeline to accomplish this mission and I am betting that Lighthizer and Bannon are in this school of thought. I would even bet that as far as they are concerned, Trump is an expendable asset in this fight and it does not matter if a Democrat or republican is President as the aim stays the same so the clash between Trump and this faction’s time line may become a factor. Again this may all be tin foil hat territory here but it may explain some things that I am seeing.

    Reply
  5. Smell of Sulfur

    “Similarly, President Xi Jinping is looking for a deal that gets rid of the tariffs and avoids a new shock to a Chinese economy, which is now recovering from last year’s tariff-induced trauma…”

    You cannot say this without providing any kind of supporting evidence. In fact, China’s trade surplus grew last year (see: https://www.census.gov/foreign-trade/balance/c5700.html). As people like Micheal Pettis have been saying for a while, China’s economy has been due for an extended deceleration for a while. If you are going to claim that the cause of its recent slow down is US tariffs you need to do more than just say so. Did China’s economy suffer a trade-induced slow down in years past when its balance with the US actually shrank (2015-2016)?

    Reply
    1. Yves Smith Post author

      No, the onus is on you to provide proof, since it is unquestionable that China took a hit when the tariffs were announce. The stock market fell by 25%. China announced the lowest growth rate since 1990. Car sales were down. Businesses report on a widespread basis that payments are slow:

      https://www.cnn.com/2019/02/11/business/china-economy-growth-data/index.html

      Chinese indexes regained almost half their lost ground this year, but that was significantly due to the assumption that a trade deal was on.

      And the tariffs so far have reduced the US-China trade deficit. And this analysis doesn’t allow for stockpiling in anticipation of tariff imposition and then threatened increases:

      New analysis shows that U.S. tariffs on Chinese goods are chipping away at the trade deficit with China.

      But there are other questions to answer when it comes to whether the tariffs are having their desired effect.

      Are they reducing the U.S.-China trade imbalance? Yes.

      After accounting for frontloading to get out in front of the tariffs early in the year, the rate of tariffed goods exported from China slowed, a new report from the Institute of International Finance shows, and will likely continue to slow without a resolution.

      China’s reciprocal tariffs on U.S. goods are slowing American exporters’ sales, too.
      But because the U.S. imports more from China than it exports there, tariffs should continue to lessen the trade deficit.

      https://www.axios.com/trump-tariffs-china-trade-war-impact-8dd42cf5-983a-4eb9-a111-16132eeef1f8.html

      Even reliable Chinese government booster admits the tariffs hurt China, but argues other things hurt it more:

      https://www.cnbc.com/2019/03/22/stephen-roach-on-chinas-economic-slowdown-us-china-trade-deal.html

      Reply
  6. Jerry B

    Thanks to Objective and Rev for their insightful comments.

    I am always grateful to read anything that instead of reacting to “surface” issues (pick an issue) tries to peel back the layers of the onion to get to the core motive. In the Dan Harris link that Objective provided, I learned more about what I already suspected: that this whole US-China trade/tariff issue it mostly about power or weakening/isolating China. The trade/tariff machinations have little to do with benefiting workers or any nationalistic motivations of the US and mostly to do with playing “chess” with China.

    Consistent with Rev’s comment above, if I remember correctly one of the main points of Obama’s Trans Pacific Partnership deal was to block/isolate China. Obama’s “Pivot to Asia” was about military and economic focus on China’s growing influence. So the beat goes on.

    I have read more than a few articles about Robert Lighthizer’s influence on trade relations with China and it seemed that his motives were focused on getting China to “play nice in the sandbox” i.e. intellectual property theft, currency manipulations, etc. I think Rev is right in one of Lighthizer’s motives is a unipolar (US) world but I also believe that Lighthizer is trying to right decades of China’s one sided trade practices:

    https://foreignpolicy.com/2018/08/06/you-live-in-robert-lighthizers-world-now-trump-trade/

    The core of the Chinese threat is the loss of the U.S. edge in technology through what Lighthizer summarized in March as “forced technology transfer; of requiring licensing at less than economic value; of state capitalism, wherein they go in and buy technology in the United States in non-economic ways; and then, finally, of cybertheft.”

    It seems that any trade resolution between China and the US will do very little to help the US worker and as the Dan Harris post shows, the business/ corporate sectors mercenary chase of the cheapest labor will continue as companies move from China to Vietnam, Mexico, etc. While I am not in favor of the concept of open borders, I can see what the World Socialist Website means when they strive for international socialism as opposed to state socialism. With state socialism, the business sector/capital owners will just move to different countries with cheap labor and lax regulations/protections.

    Lastly as I read Objective and Rev’s comments I am reminded once again of Susan Strange’s work such as States and Markets and Retreat of the State. We are all just pieces on the Capital/Multinational chessboard of power and money.

    Recently I have been reading Jonathan Nitzan’s and Shimshon Bichler’s book, Capital as Power: A Study of Order and Creorder. Their work seems appropriate to this discussion.

    https://en.wikipedia.org/wiki/Jonathan_Nitzan

    http://bnarchives.yorku.ca/

    One of these days I will write a short comment instead of my usual novellas, I promise!! :-)

    Reply
  7. Steven

    If after HRC and 2016 the Democratic Party tries (in deference to its new Wall Street base and the political geniuses currently in control) to foist on the voting public a free trade-hawking candidate like Joe Biden it will be committing political suicide.

    So how about a trade and tariffs policy based on two simple tenets:
    1. require China and other developing country employers to pay their employees wages equivalent to those paid in the US and other Western nations (so what if it would allow them to live like royalty?);
    2. impose tariffs offsetting the competitive advantage these countries and their employers derive from environmental arbitrage.

    Throw in a carbon tax like that proposed by the Citizens Climate Lobby and Trump would choke on the words if he even tried to compete.

    Reply
  8. Susan the other`

    Trump is a skilled opportunist. He might even be considering the flood devastation along the Missouri and Mississippi in terms of reduced soy exports to China and he is just making political hay out of reality. When China retaliates by cancelling soy orders it will really be only 6s. And as far as Biden goes – he’s a total disaster for the Democrats. Why on earth did they ever let him out of his cage? The only thing I can conclude is that Biden was sent to deflate Bernie’s campaign – but that won’t work either. Biden is godawful with a godawful decades-long record. And nobody’s dumb enough these days to be conned by him. I’m sure the “polls” showing him ahead are total BS.

    Reply
  9. cnchal

    > . . . some longstanding U.S. grievances, such as the appropriation of intellectual property (IP), cyber-theft, and inadequate access to Beijing’s domestic markets, to cite a few prominent examples.

    The penny drops. It’s about Wall Street running their frauds in China.

    Reply
  10. Chauncey Gardiner

    Issues here besides domestic political calculus. The geopolitical aspects of the trade talks and the interrelationships are receiving scant attention. There are some emerging views that diverge sharply from conventional wisdom. One such view is that due to a secular decline in China’s current account, Xi overreached with his “Belt and Road” initiatives, that China is running short of U.S. dollars and is increasingly reliant for support on both the other nations involved and private finance, which is in turn leading to Chinese concessions.

    https://www.bloomberg.com/opinion/articles/2019-05-01/western-capital-shouldn-t-help-build-china-s-belt-and-road

    Further, I think it is noteworthy that China has said it will not curtail its purchases of Iranian oil despite U.S. sanctions.

    Reply
  11. DHG

    Lets be real, Trump is not going to solidify any backing outside his sycophants. While he does this out the front door he is busy shafting those same workers by seeking to change how poverty is defined. Even his most ardent farmer supporters have about had enough. This is the most corrupt administration ever seen. XI is playing the long game while Trump fiddles, there will be no agreement coming.

    Reply
  12. barrisj

    Frankly, the near-term dislocations caused by reversion to “on-shoring” of manufacturing, supply chains, etc., would doom Trump’s re-election hopes, regardless of whom was chosen by the Dems to run against him. Consumers and farmers bearing the cost of tariffed goods, the markets cratering…not a winning scenario. If the Trump “strategy” is actually what Auerback has laid out, it should have been launched in Year One of Trump’s current term of office, not something that will bleed heavily into his fourth year, and probably sink his candidacy. But then, nobody claims that Trump is a shrewd strategist.

    Reply
    1. Synoia

      Ideally the money raised by tariffs should be used to create Local Manufacture and Import substitution.

      But
      If China wants to play hard ball, erecting sanctions on the US and refusing to send any new goods to the US would be a form of retaliation. It is questionable that the Chines Government could survive their local unrest as the consequences of such an action.

      However, economic war always runs such risks.

      Il’m not fond of the current Neo Liberal US regime. I’m less enthralled by a Chinese run world. Better the devil you know than the devil you don’t.

      Reply
  13. Dr. George W. Oprisko

    Having lived and worked in China for 3 years…….

    My take on this matter…….

    The latest OBOR Summit was a success….

    Matahir of Malaysia came on board the Kunming to Singapore railway….

    Kahn got what he needed to kick start Pakistan’s economy….

    Iran got a new buyer of it’s crude…..

    Venezuela got a new buyer of it’s crude….

    Iran and Venezuela are now trading with the DPRK….

    The Friendship pipeline and the Iran – India pipelines will be built….

    TAPI continues to be “just around the corner”

    The Taliban are now welcome in both Moscow and Beijing……

    The MC-21 assembly line has domestic suppliers….

    The 737MAX will be grounded indefinitely by Russia, China, DPRK, Pakistan, and Iran. Over flights will be prohibited… Landings ditto,
    Takeoffs ditto…

    China will buy the MC-21, and the C919…. Iran ditto, Venezuela ditto,
    Laos, Thailand, Malaysia, Vietnam, Pakistan, ditto.

    China will stop use of Qualcomm chips altogether ($240B / yr )

    China will get ag prods from Russia, Venezuela, Cuba, Nicaragua, instead of US/NATO sources. Public reason…. Glyphosate residues…..

    China is not the world’s largest consumer market….

    INDY

    Reply
  14. Left in Wisconsin

    I think Trump’s actions are purely political theater and I am convinced that, as with immigration, the Dems will completely oblige Trump with their outrage over his violation of, in this case US free trade, norms. There is no earth-shattering deal to be had with the Chinese. As with the new NAFTA, Trump will ultimately sign something insignificant all the while claiming he has won a great victory for the working man. In the interim, all the normal suspects will get all bent out of shape over the headlines and norm violations and plenty of brain power that could be of use doing productive things will be wasted on trying to analyze a complete fiction – “What Trump really wants from China.” Mostly all he wants are some headlines and then the expected frenzy that he can play up as “I’m the only one fighting for the working man.” And then business as usual.

    Trump has no interest in doing anything that is hard work and plenty of interest in doing things that generate outrageous headlines that prompt the Dems to behave stupidly (which granted is not that hard – see point 1).

    Trump, ahead of the rest of the Repubs, has actually learned something from R “hypocrisy” on budget deficits. In terms of actual behavior, you just do what you want to do (take care of your class). But in terms of theater, you fight “for the little guy” “on principle,” whether that be “not saddling your grandchildren with debts they will need to pay off” (NOT) or “making the Chinese play fair,” “bringing back the jobs,” etc.

    Reply
    1. Jeremy Grimm

      I agree with your assessment of Trumps motives for what appears to me also as political theater. I don’t think this view of Trumps motives is inconsistent with Auerback’s insightful analysis of the difficulties Trump will have in making his political theater payoff.

      Reply
  15. Jeremy Grimm

    I fear the “Chimerica” nexus has progressed to the point where it will be extremely difficult to undo — although judging from clothing labels labor arbitrage is already moving to new places. I believe the long narrow supply chains that characterize “Chimerica” will remain however much they may shift around to new source areas “creating transitory economic dislocation in the United States (as well as further major setbacks in the stock market).” It will take more than fiddling with tariffs to restructure the US economy in a way that might have any real benefit to the US workforce. I believe the structural issues besetting the US economy have far more impact on the US workforce than any structural issues or reforms “of the kind that would likely rectify some longstanding U.S. grievances” in its trade with China.

    Reply
  16. Sound of the Suburbs

    The West never did work out what was going on, but now the more developed Eastern economies are seeing the same thing, e.g. wage stagnation, off-shoring etc.

    Higher returns on capital are affecting their economies as they off-shore to places where they can pay lower wages for higher profits.

    They are actually working out what is happening.

    Richard Koo has discovered the assumption economists used when they said free trade should be a nett positive for any nation.

    Trade must be balanced, but the US runs a large trade deficit.

    The negative effects over a long period of time have brought Trump to power.

    https://www.youtube.com/watch?v=AtwxhT8e7xQ

    Richard Koo notes nearly all the Hillary supporters were against free trade as well.

    The experience of NAFTA has left deep scars on the American public and they remember how the jobs disappeared to Mexico.

    Richard Koo is getting there but was trained in neoclassical economics so he can’t see the obvious.

    Disposable income = wages – (taxes + the cost of living)

    Neoclassical economics renders the second term in the brackets with taxes invisible.

    Employees get their money from wages and employers have to pay through wages.

    Employers have to pay the high cost of living in the West through wages unless they off-shore to where the cost of living is lower. Here they can pay lower wages and make more profit.

    Richard Koo found American firms were looking to expand in Mexico, not the US, as they can pay lower wages and make more profit there due to its low cost of living.

    An open globalised world was always going to work against the US to its high cost of living.

    America’s neoclassical economists couldn’t see the obvious.

    The rise of China and decline of the US was baked in.

    Reply
    1. Sound of the Suburbs

      The rise of China and decline of the US was baked in.

      The 1% would get better returns from investing their capital in the rapidly growing Asian economies than the mature economies of the West.

      Where did the great wealth of the British Empire go?

      The 1% would get better returns from investing their capital in the rapidly growing American economy rather than the mature economy of the UK.

      The free flow of capital allows the current superpower to build the next.

      After WW2, more money was flowing into the US from European investors than was flowing from the US to Europe with the Marshall Plan.

      Wealthy investors just want to maximise returns and are not concerned with national or regional interests.

      Reply
    2. Sound of the Suburbs

      How could they make such a fundamental error?

      Ricardo supported free trade and knew it required a low cost of living, which is why he supported the Repeal of the Corn Laws.

      The repeal of the Corn Laws was essential to usher in the era of Laissez-Faire, and lower the cost of living in the UK, so employers could pay internationally competitive wages.

      Housing the workers in slums got housing costs down, which also had to be covered in wages.

      A low cost of living is a requirement for free trade.

      What was known by Ricardo was lost at the end of the 19th century.

      Capitalism has two sides, the productive side where people earn their income and the parasitic side where the rentiers live off unearned income.

      The Classical Economists had shown that most at the top of society were just parasites feeding off the productive activity of everyone else. They couldn’t miss it as the European aristocracy never did a stroke.

      Economics was always far too dangerous to be allowed to reveal the truth about the economy.

      How can we protect those powerful vested interests at the top of society?

      The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between “earned” and “unearned” income and they conflated “land” with “capital”.

      They took the focus off the cost of living that had been so important to the Classical Economists to hide the effects of rentier activity in the economy.

      The landowners, landlords and usurers were now just productive members of society again.

      Reply
      1. Sound of the Suburbs

        Keynes’s ideas were a solution to earlier problems, but we forgot why he did what he did.

        Keynes looked to create a low cost economy that gave more disposable income on lower wages.

        He came up with redistribution through taxation to produce a low cost economy, which dealt with the inherent inequality capitalism produced.

        The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living

        Disposable income = wages – (taxes + the cost of living)

        Strong progressive taxation funded a low cost economy with subsidised housing, healthcare, education and other services to give more disposable income on lower wages.

        Employees get their money from wages and employers pay the cost of living through wages.

        Employers and employees both win with a low cost of living.

        Keynesian ideas went wrong in the 1970s and everyone had forgotten the problems he originally solved.

        It is employers that have to cover the cost of living in wages, reducing profit. This drives off-shoring from the West due to its high cost of living.

        Reply
  17. Knute Rife

    For any of this to even remotely produce a meaningful job resurgence in the US, two things have to be true: 1) The jobs have to return to the US and not simply be relocated to some other low-cost location, but all the evidence is to the contrary; and 2) we have to have enough skilled labor to tool manufacturing back up, which we don’t and haven’t for decades.

    Reply

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