Trump May Get Much of the World’s Manufacturing Out of China, but It Won’t Be Coming Back to the U.S.

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

“Chimerica” is a term originally coined by the historian Niall Ferguson and economist Moritz Schularick to describe the growing economic relationship between the U.S. and China since the latter’s entry into the World Trade Organization (WTO) in 2001. In the words of Ferguson: “The Chinese did the saving, the Americans the spending. The Chinese did the exporting, the Americans the importing. The Chinese did the lending, the Americans the borrowing.” Much of the pre-crisis boom in global trade was driven by this economic symbiosis, which is why successive American presidents tolerated this marriage of convenience despite the increasing costs to the U.S. economy. The net benefits calculation, however, began to change after 2008, and the conflict has intensified further after the 2016 presidential election result. Today, the cumulative stress of Donald Trump’s escalating trade war is leading to if not an irreparable breach between the two countries, then certainly a significant fraying. The imminent resumption of trade talks notwithstanding, the rising cost of the tariffs is already inducing some U.S. manufacturers to exit China. But in most instances, they are not returning to home shores.

It may have taken Trump to point out the pitfalls of the Chimerica link, but coming up with a coherent strategy to replace it is clearly beyond the president’s abilities. America is likely to remain a relative manufacturing wasteland, as barren as Trump’s own ill-conceived ideas on trade. At the same time, it’s not going to be an unmitigated victory for China either, as Beijing is increasingly suffering from a large confluence of internal and external pressures.

Chimerica helped to launch China as a global trade power. To the extent that this marriage helped the U.S. economy, it skewed toward the largely blue state coastal regions. Wall Street banks located on the East Coast happily collected lucrative commissions and investment banking fees, as China’s export proceeds were recycled into U.S. treasuries, stocks, and high-end real estate while the capital markets boomed; on the West Coast, “new economy” companies thrived, their growth and profitability unhindered by the onslaught of Chinese manufactured exports. By contrast, facilitated by technological advances that permitted large-scale outsourcing by U.S. manufacturers, Chimerica laid waste to much of what was left of America’s Rust Belt, and the politics of many of the displaced workers mutated to the extent that Donald Trump became an appealing alternative to the establishment in 2016.

The major legacy of Chimerica, then, is that too many American workers have been semi-permanently replaced by low-cost offshored labor. Prior to great advances in technology, along with globalization, displacement of the current labor force could only have occurred through immigration of workers into the country. Historically, displacement by immigrants generally began at the menial level of the labor force, and became more restrictive as when it became correlated with significant unemployment. Given the rise of globalization and the corresponding liberalization of immigration in the past few decades, however, policy no longer arrests the displacement of American workers. The policy backlash has consequently manifested itself more via trade protectionism. Trump has sought to consolidate his Rust Belt base of supporters by launching a trade war, especially versus Beijing, the ultimate effects of which he hoped would be to re-domicile supply chains that had earlier migrated to China.

Early on in his presidency, there was some hope that Trump’s protectionism was at best a bluff or, at worst, an aberration, and that the return of a Democrat to the White House in 2020 would eventually reestablish the status quo ante. But the president still can’t get a wall, and his protectionism has become more pronounced almost as if to compensate. The problem today is that even if Trump is voted out of office in 2020, corporate America is becoming less inclined to wait out the end of his presidency to return to the pre-Trump status quo of parking the bulk of their manufacturing in China. There is too much risk in putting all of one’s eggs in the China basket, especially given growing national security concerns. Hence, U.S. companies are taking action. In spite of decades of investment in these China-domiciled supply chains, a number of American companies are pulling out: toy manufacturer Hasbro, Illinois-based phone accessories manufacturer Xentris Wireless, and lifestyle clothing company PacSunare a few of the operators who are exiting the country.

But they are not coming back to the U.S., relocating instead to places like Vietnam, Bangladesh, Mexico, the Philippines and Taiwan. The chief financial officer of Xentris, Ben Buttolph, saysthat the company will never return to China: “We are trying to have multiple locations certified for all of our products, so that if all of a sudden there’s an issue with one of the locations, we just flip the switch.” Likewise, the CEO of Hasbro, Brian Goldner,recently spoke of“great opportunities in Vietnam, India and other territories like Mexico.”

All is not lost for the U.S., however, as Goldner did celebrate the success of Hasbro’s facility in East Longmeadow, Massachusetts, which has resumed production of Play-Doh in the U.S. for the first time since 2004. It is doubtful, however, that this represents the recapturing of the high value-added supply chains that Trump envisaged when he first launched his trade assault on Beijing.

In general, as Julius Krein, editor of American Affairs, writes: “United States industry is losing ground to foreign competitors on price, quality and technology. In many areas, our manufacturing capacity cannot compete with what exists in Asia.”

These are not isolated examples. Defense One also notes the following development:

It came without a breaking news alert or presidential tweet, but the technological competition with China entered a new phase last month. Several developments quietly heralded this shift: Cross-border investments between the United States and China plunged to their lowest levels since 2014, with the tech sector suffering the most precipitous drop. U.S. chip giants Intel and AMD abruptly ended or declined to extend important partnerships with Chinese entities. The Department of Commerce halved the number of licenses that let U.S. companies assign Chinese nationals to sensitive technology and engineering projects.

This development consequently makes it hard to proclaim Beijing a winner in this dispute either. The country still needs access to U.S. high tech. The government announced yet another fiscal stimulus to the economyearlier this month in response to a cluster of weakening economic data, much of which is related to the trade shock. It is also the case that China is being buffeted politically, both externally and internally: externally, in addition to the escalating trade war, China’s own efforts to counter the effects of rising protectionism by creating a “reverse Marshall Plan” via the Belt and Road Initiative is floundering. China’s “iron brother,”Pakistan, is increasingly being victimized by India’s aggressive Hindu-centric nationalism. It is hard to imagine the Modi government opportunistically taking the step of annexing Kashmir and undermining Pakistan, had it not sensed Beijing’s increasing vulnerability.

Internally, Beijing is finding it increasingly challenging as it seeks to enforce its “One China” policy in Hong Kong and Taiwan. The withdrawal of the controversial extradition lawthat first precipitated widespread demonstrations in Hong Kong has not alleviated the political pressures in the territory, but simply allowed an even bigger protest culture to take root and strengthen an independent political mindset. Similarly, Taiwan has also openly supported the Hong Kong protesters, pledging help to those seeking asylum. Both regions now constitute both a huge humiliation and challenge to the primacy of China’s ruling Communist Party. And now on top of that, foreign manufacturers are leaving the country, weakening a totally leveraged manufacturing complex.

The implications of this divorce go well beyond the U.S. and China. They constitute another step toward regionalization, another step away from a quaint ideological “post-history” construct that saw Washington, D.C., as the head office and the rest of the world as a bunch of branch plants for “America, Inc.” It’s hardly comforting to contemplate that the last time we reached this historic juncture was the early 1900s, when a similarly globalized economy broke down, followed by the Great War. As Niall Ferguson points out, “a high level of economic integration does not necessarily prevent the growth of strategic rivalry and, ultimately, conflict.” There’s no doubt that both Washington and Beijing will likely making soothing noises to the markets in order to create favorable conditions for the trade talks in October, but their actions suggest that they are both digging in for a longer struggle. Today’s trade wars, therefore, are likely to morph into something more destructive, which is a lose-lose in an era where human advancement depends on greater integration between economic powers.

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46 comments

  1. John

    I always thought globalization was about the opportunity for a handful of businesses and corporations to control major industries around the world.

    Who knew that there were people in any country that benefit?

    The first country that would address affordable housing, healthcare and education so that people don’t need more jobs will win.

    Reply
  2. The Rev Kev

    There may be another aspect to this development and that is of geopolitics. You can see that in Marshall’s article when the CFO of Xentris said: “We are trying to have multiple locations certified for all of our products, so that if all of a sudden there’s an issue with one of the locations, we just flip the switch.” There is an anti-China hawks faction based in the Republican party that has made its present felt. People like Robert Lighthizer, Peter Navarro and Steve Bannon. I have seen this sentiment spill over into Australian politics but they have not reached the stage where they are asking: “Are you now, or have you ever been, born Chinese?”.
    So we have seen a long string of sanctions and tariffs at play so that China will change its laws and institutions to suit American interests. Yeah, I can’t see that happening anytime soon but hey, America First, Baby. We have also seen hawk factions against Russia, Iran and not long ago Venezuela. The ones for Russia and Iran have been long going but the ones against China and Venezuela were sudden and new. It may be that tomorrow that Trump will do the same against Cuba and threaten any country that does trade with them. Who knows what other country may fall within his sights?
    That being the case if you were running an international country, you can no longer just have your manufacturing base or service operations just in one country. If Xentris is an example, US companies may have to split manufacturing into several countries in case one fine day that Trump will sanction yet another country that your company depends on. I would imagine that it would not be so efficient but it seems business people in the government are being pushed aside by hawkish factions who do not care what effect it has on the economy or the country. Great!

    Reply
    1. Leroy

      Those are the same “hawks” that are busy destroying the rest of America as well. Another four years of this will, effectively, dismantle what democracy is left. The world trade won’t be the big issue. The departure of millions of americans will.

      Reply
      1. drumlin woodchuckles

        If that happens, be sure to thank the Catfood Democrats for it. Because they are the people who will do their very best and hardest to throw the next election to Trump, one way or another.

        Reply
        1. DHG

          Not going to happen as the Anglo-American world power remains a fully functioning power (in current political form) as its slated to be thrown into the symbolic lake of fire at the hand of the Kingdom of God. All that is going on in the world should be telling people this is close at hand.

          Reply
  3. jeremyharrison

    It seems like diversification of supply chains can only be a good thing. As it is now, China literally has the US by the jewels, and if a serious conflict ever arose, could squeeze them hard. Just their dominance in manufacturing a large percentage of the pharmaceuticals consumed by US patients alone creates a serious vulnerability.

    I really don’t think it matters if manufacturing jobs are repatriated to the US, or just set up and spread around elsewhere for now – since they’ll be obsolete jobs in the near future anyway, as robotics and AI get increasingly efficient at doing the work that human workers currently do.

    Reply
    1. rd

      Situating the manufacturing in countries that are part of the Chinese sphere of influence won’t help much in a conflict. China would probably be able to sweep through much of Southeast Asia quickly or interdict shipments if there was war.

      Reply
      1. JBird4049

        I would not be surprised, if China managed to conquer or blockade every single country with factories in Southeast Asia, but continuing to do so not so much. Vietnam would happily and readily resist any military invasion for example.

        Whatever it would gain hurting the our already dying American Empire would be lost in lives and resources including their already limited soft power.

        So while China could do what the idiotic American government did including inadvertently return replacing al-Qaeda, destroy the goodwill and create active enemies where none existed well as spend endless resources going nowhere, that would be nuts. Although America does not have a monopoly on that.

        No, if they were wise enough, it would be by diplomacy, bribes, and perhaps small scale “accidents,” while hoping that the United States blunders with screaming, threats, sanctions, and full scale military action.

        Although hopefully this is just armchair quarterbacking of something that won’t happen.

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  4. Dan

    So the status quo was preferable?

    The tone of the article seems to suggest that America should accept it place as a third-world manufacturer, as if these Asian nations have some magical sauce that can’t be replicated.

    Gawd.

    The US does have a lot of magic. Like one third of FDI related to tax evasion. Pulling Mac Book manufacturing out of Austin for the lack of one ‘screw’, etc.

    So is the premise of going after China on trade and IP policies good. I would agree. Maybe not in strategy, but at least someone has opened the box.

    Reply
    1. John Wright

      I agree with your comment, the article suggests the status quo was preferable.

      Of note, Trump has shown his supporters that something CAN be done other than follow the “resistance is futile” path of the Bill Clinton/Bush Jr./Obama administrations.

      I also suggest that the world wide presence/threat of the USA military and diplomatic corps allows globalization to be less risky for USA businesses, so, in effect, the patriotic “spreading of democracy” around the world via military actions is a factor in USA job loss.

      This is yet another cost of the bloated military to the general USA population.

      I worked in the electronics industry for 30+ years and watched high margin manufacturing move to Asia.

      Now the lower level component manufacturers (PCBs, passives) are firmly established in Asia as the USA companies have helped train worthy competitors overseas.

      It took 25+ years to move much of USA manufacturing overseas, indicating to me that it will take a long time to bring it back significantly, well outside the Trump time frame.

      But I suspect Trump voters will appreciate Trump’s headline efforts.

      If the Democrats push for more Free Trade as good for the USA, it will hurt them at the ballot box.

      Reply
      1. Marshall Auerback

        There is nothing to suggest that the status quo was preferable. I honestly don’t know where you got that impression. The status quo is what got us Trump, who at least pointed out the Chimerical quality of the relationship.

        Reply
  5. GramSci

    The second time as farce. How tragicomic that Trump has succeeded in little more than repatriating the manufacture of Play-Doh.

    On the other hand, the shipping cost of unbaked brick seems a rational factor in Hasbro’s decision. A GND that shortens supply lines would be more effective in repatriating heavy industry, but then printed circuit boards aren’t all that heavy….

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  6. a different chris

    The thing is Trump, as usual, got his strings pulled by the Deep State when he went for actual implementation of a campaign promise. The DS doesn’t care about working Americans, they are simply against China.

    So he goes and puts tariffs on a country, not a product. And surprise, said product doesn’t come back on-shore. Comical (and yeah, cosmically a bit just) that Vietnam is getting so much of that manufacturing.

    Wasn’t what he was elected for.

    Reply
  7. Glen

    In general, as Julius Krein, editor of American Affairs, writes: “United States industry is losing ground to foreign competitors on price, quality and technology. In many areas, our manufacturing capacity cannot compete with what exists in Asia.”

    As a engineer up to my elbows in manufacturing for forty years, this was awfully easy to predict way back then (I gave up complaining about it about 2000), and then watch happen – real time. And to once again state the obvious, China did not TAKE American jobs, American CEOs GAVE them our jobs. We will not fix this problem until we identify and fix the root cause.

    Now the only way to fix it is (once again obviously) massive government investment such as mandated by the GND. We need the GND, it is not only required to save the world, it will save our country.

    Reply
    1. Leroy

      Fully agree Glen. How can we say China stole our “technology” when we placed it on their doorstep and asked them to make some of these for us please ?

      Reply
    2. Watt4Bob

      Agree, it was predictable, and it was predicted.

      What we’ve been talking about is the “Giant sucking sound” Ross Perot foretold would happen prior to the passing of NAFTA.

      It wasn’t hard back then to see that he was right, but it took a few decades for the public to feel the impact, boiling frogs and all that.

      Back in the early 80s I saw a massive warehouse full of machine tools, Bridgeport mills, and such lined up, it seemed forever, the guy there said they were going to China.

      I asked my Dad about it, and he told me we were selling them to the Chinese for the price of scrap.

      The whole thing is mindless and pathetic, but the really maddening thing is the slippery way our ‘leaders’ can keep dodging the blame by simply pointing a finger in whatever direction, and everybody’s eyes move in unison.

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      1. rd

        NAFTA and China are two completely separate things. I have actually supported NAFTA in principle because we should encourage trade to be focused on our immediate neighbors. A wealthier and safer Mexico and Central America would create markets for us and virtually eliminate illegal immigrants as the southern border.

        China is on the other side of the world and is not part of NAFTA. While we should have cordial relations with it, if we are looking for inexpensive labor, south of the border is the better place to focus on that. So Trump’s tariffs on China are not the wrong thing to do per se. The problem is that they are being done in a vacuum of general trade policy where he is looking at everything as transaction bilateral relations with every country on the planet, which requires an immense amount of detailed thought and negotiation, neither of which appear to be a focus of this administration.

        The countries that the companies are talking about moving their operations to are generally part of the new TPP which the US is not part of. So, we have removed ourselves from having trade relations with countries US CEOs are setting up operations in, but those countries are now starting to work together to counter both China (original TPP purpose) and the US (now that the US has bailed on it). Sounds like a recipe for a replay of China’s giant sucking sound.

        Reply
        1. Watt4Bob

          The argument/discussion is not about how and where to outsource our jobs, it’s about how stupid it was to do it in the first place.

          Anyone smart enough to breath knows that Mexico is next door, and China is on the other side of the world, but they are both part of the same giant sucking sound.

          The fact that you support both NAFTA ,think it was unwise to back out of the TPP, and think the issue is the present administration’s lack of “…detailed thought and negotiation…” indicate a truly unbelievable level of denial.

          Reply
        2. drumlin woodchuckles

          NAFTA and MFN for China were two different actions towards the same goal . . . the use of Free Trade to dismantle thingmaking in America and re-mantle thingmaking in foreign export-aggression platforms to use against America.

          Free Trade is the new Slavery. Militant Belligerent Protectionism is the new Abolition.

          Reply
      2. John Wright

        I remember when a Midwest Democrat (Stabenow?) tried to get a law passed that would prohibit a US corporation from deducting, from their federal taxes, the cost of moving factories overseas.

        A very minor disincentive, but a disincentive nonetheless.

        The Repubs beat it down as “anti-business”.

        Concern about American workers is something to express in political speeches around election time but not in legislation.

        Reply
  8. Ignacio

    Hidden within this narrative is the fact that some countries, and not only China, have for long been playing beggar-thy-neighbour policies by restraining internal consumtion and redirecting savings to the rest of the world that in turn finance their exporting machines. IMO, the biggest mistake made by China has been not to force fast enough a transition from a saving economy to a consumer economy with more balanced external relationships. These kind of policies are confrontational. As confrontational as tariffs or even as economic sanctions in my view. Yet, the prevailing economic narrative is that saving and exporting is the right economic thing to do. In this sense I think it matters a lot to which countries are being re directed investments of american companies leaving China. My intuition is that, for instance, Vietnam migth be willing to play this game while Mexico not. Investing in countries that save too much migth be counterproductive.

    I very much regret this aggresive narrative that has become common place in which countries are identified simply as competitors, if not enemies, in a global chess game. Political moves are confrontational and or humiliating. These Game of Thrones dynamics are played precisely when some international consensus in more important things like figthing climate change would be more than desirable. We are headed to truly bad times.

    Reply
  9. laodan

    Here is an article by Steve Dickinson from the layers office Harris Bricken McVay Sliwoski that is based on his Co’s China practice.

    Steve’s conclusion goes as follows:

    The Chinese system put in place from 1992 to 2005 was a unique system and not likely to be replaced in S.E./South Asia or in any other region of the world. So for manufacturers, moving to a new region means doing the analysis from the ground up. Simply taking what they do in China and moving it to a new location is not likely to be a workable solution.

    Also the Chinese internal market continues to attract MNC’s and this attraction will continue to grow far into the future. China’s middle class is already larger than the total population of the US and it continues to grow rapidly. While down presently the Chinese internal consumption continues to grow at an annual rate of some 8.5%.

    Personal savings deposited in bank accounts reach the equivalent of some $US 30 Trillion ! Compare that to consumer debt at some $US 6.5 Trillion. In other words China is growing into the largest consumer market on earth and the biggest advantage that its internal market procures is its ‘economies of scale’ that make Chinese productions hyper-competitive. In other words China is gaining the kind of advantage that the US had along the 20th century. The advantage of a super large market size that dwarfs other national markets.

    Trump’s approach to trade is isolating the US, blocking its Co’s from the Chinese market, and incentivizing the Chinese to offer better conditions to Co’s of the rest of the world. How can that help the US ?

    The biggest problem of the West and particularly the US is its ideological approach to economics. The Chinese adopted a pragmatic approach and it has served them well. Time to relearn the meaning of political economics (économie politique).

    Reply
    1. JTMcPhee

      I read Dickinson’s PR piece linked by laodan. I used to work for a big law firm that had an international practice group focusing on moving US businesses to China ( I was not involved in that practice area, did environmental law and litigation.) The firm’s PR department tasked lawyers with certain expertises to generate these kinds of come-ons as part of the compensation weighting scheme — publish, and bring in business, or lose out in the annual “whining for dollars” partnership division of spoils. Eat what you kill.

      Dickinson is talking his book, of course. I have no idea if his read of the history and the current state of affairs in China and the “Asian Tigers” (does anyone use that term any more?) is accurate and complete, but what he describes is his firm’s readiness to help supranational (emphasize SUPRAnational) and post-national corporate entities get a leg up in the race to the bottom. He’ll help you find the places where the ruling class will give away the biggest share of the “national birthright” so the corporate entity can maximize profit by streamlining production and consumption, and of course growth. All the stuff that is killing the planet. But his time frame, his personal time frame, presumably, as well as the framing of the corporate shark entities which he is a remora to, cares nothing for the bigger economic and ecological effects of more stuff, more shipping, more energy use, and of course more combustion and consumption.

      And I’d note that he carefully omits all the baksheesh and greasing of palms that i read is such an important part of “doing business” at any kind of scale, to varying degrees everywhere in the world. I wonder if his custom analyses of the relative merits of, say, Vietnam vs. China vs. Cambodia vs. Taiwan includes sketching out the bribes that have to be paid to close on the sale of national birthrights on the way to the bottom that the globalist business model drives everything toward?

      I’m sure he would be happy to have the ear and hourly billings of all the great decision makers of all the various kinds of businesses, high to low tech, wanting to take full advantage of the “opportunities” that may be on offer, on how to ride the asymptotically downward curve of the race to the bottom, for fun and profit…

      Looks like China has had a pretty effective industrial policy, unlike the US where corporate vampire capital dominion and corruption have bled the mopery white… (not a racial reference, of course…) Do economists and policy wonks in the US even dare to use the phrase “industrial policy” any more? Or is it just presumed that “shareholder value” trumps all else? Especially as the author puts it, again quoting Ferguson, where we are “in an era where human advancement depends on greater integration between economic powers.”

      Right.

      Reply
  10. JTMcPhee

    And a couple of pages over, many of us were talking and lamenting about climate collapse and how it’s all rooted in growth and consumption (the behavioral hallmarks of metastatic cancers and parasites, with very often fatal effects for the “host.”)

    Now all this wise discussion, teeing off of observations by Niall Ferguson, not the strongest observational base, about the tinkering that could be done by “nations” with the just-in-time supply chains that depend on consumption and combustion, ever bigger, as a means to what end? Sounds like it’s just about how to feed more of our children to the priests of Moloch, to be burned in its innards. While people like Tony “I want my life back” Hayward, who brought us the Deep Water Horizon disaster in the Gulf of Mexico, go on to prosper and indulge their every whim and fancy, consequence-free.

    This model and mode of thinking are seems to be killing the biosphere, but hey, anyone remember the back story of the Solent Corporation in that poignant movie, “Soylent Green”? https://en.m.wikipedia.org/wiki/Soylent_Green That’s the globalist business model’s inevitable outcome, far as I can tell. I don’t think that was what my Grandma had in mind with her Depression-era wisdom, “Eat it up. Wear it out. Make it do. Do without.” But what a beautiful ellipse — we humans eating ourselves, after eating ourselves out of house and home, while the forking tiny Uberclass lives out their lives in what’s left of the high life…

    One of my pet catch phrases is “People of the World, UNITE! You have nothing to lose but your SUPPLY CHAINS!”

    Am I missing something?

    Reply
  11. Alex Cox

    Soylent Green is based on a book by Harry Harrison, Make Room! Make Room! Both are set in a future New York (1999 in the book) reduced to extremes of poverty by massive population growth. The movie takes a rather boring and predictable turn with a corporate-cannibal sub-plot (Charlton Heston raging, “Solyent Green is people! You’re eating people!”) but is worth a watch. The book is quite excellent.

    +1, JT. The main issue all these articles deal with, in the end, is human overpopulation.

    Reply
  12. Susan the other`

    The relentless neoliberal race to the bottom, outsourcing, and austerity that marked the death blow to American Labor is over. In that light it makes little difference whether our corporations pull out of China, go to Vietnam, or come home. The exploitation of the poorest is coming to an end. And none too soon.

    Reply
    1. Merf56

      I agree. I could not believe the government has allowed the entire supply chain of building blocks of ALL our antibiotics to be sourced almost solely from China. To me THAT’S the national security issue we need to deal with immediately. As well as other vital drugs..

      Anecdotally, I have started making this my number one political conversation issue – replete with references ( because of course not a soul believes it at first).. I have yet to find a single person Repub or Demo who isn’t horrified and against it ….
      Any nation with this much power over our drug supply they could kill millions of us in short order…

      Reply
      1. drumlin woodchuckles

        Jackpot design engineering. Kill millions by withholding antibiotics or anti-biotic precursors at a critical moment and get the dying millions to blame China for it.

        Reply
  13. RBHoughton

    Even getting manufacturing out of China will not bankrupt that country as intended. If USA is intent on pursuing a nationalistic basis to sanctions, I think its bound to fail. Trade always finds a way as we can well remember from our own commercial / industrial development.

    Chinese manufacturers have the wealth and experience to teach production line workers and make things anywhere. Western companies manufacturing in China have belatedly looked for facilities in neighboring countries and found the Chinese are already there. What’s still available is land far from roads and rivers with little power supply.

    Another thing is preserving wealth. US Industrialists will keep their money offshore and remit only as much as they need in the homeland.

    A major problem imo is a mental restraint in USA thinking. Life is all about competition and winning. The actual activity, whatever it is, provides no joy unless you win. That fearful tag “No-one remembers who came second” is banded about. Thats not a philosophy for happiness. It forces the population into displacement activities few of which are wholesome. Here endeth the lesson.

    Reply
  14. TG

    It’s not a bug, it’s a feature!

    Trump doesn’t give a damn about getting manufacturing jobs back into the United States! (Or at least his advisors don’t).

    The trick is to move them out of nationalistic China, which is setting itself up as a competitor for power, and move the jobs into nice docile low-wage colonies, like Mexico and Indonesia and Bangladesh.

    The only catch: China has all the integrated supply lines and is stable. Moving your manufacturing into a dozen different uncoordinated unstable third-world banana republics has its own down side.

    Reply
  15. Sound of the Suburbs

    The UK repealed the Corn Laws to embark on free trade.

    This reduced the price of bread, and lowered the cost of living, so UK employers could pay internationally competitive wages.

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

    Employees get their money from wages and the employer pays through wages, so the employer is paying for that bread through wages.

    Expensive bread leads to higher wages making UK employers unable to compete in a free trade world.

    “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist

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

    Employees get their money from wages and the employer pays via wages.

    Employees get less disposable income after the landlords rent has gone.
    Employers have to cover the landlord’s rents in wages reducing profit.

    Ricardo is just talking about housing costs, employees all rented in those days.

    The appalling conditions UK workers lived in during the 19th century were well documented.

    Low housing costs, lead to lower wages so UK employers were able to compete in a free trade world.

    William White (BIS, OECD) talks about how economics really changed over one hundred years ago as classical economics was replaced by neoclassical economics.

    https://www.youtube.com/watch?v=g6iXBQ33pBo&t=2485s

    He thinks we have been on the wrong path for one hundred years.

    Free trade requires a low cost of living and what was known in the 19th century had disappeared by the 20th. The West’s high cost of living means high wages and an inability to compete in a free trade world.

    Never mind our companies can off-shore to where employers can pay lower wages for higher profits.

    Look at the US cost of living Donald; this is why those jobs ain’t coming back.

    It’s hard to make a good profit in the US, when employers have to cover the US cost of living in wages, reducing profit.

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

    Reply
    1. Sound of the Suburbs

      Half-baked idea from the US.
      Everyone pays their own way.

      Let’s think it through.
      Employees get their money from wages so the employer pays through wages.
      Employers weren’t that keen on paying and off-shored.

      That’s the fully baked, complete thought process.

      The CBI (Confederation of British Industry) discovers my equation.

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

      “Wait a minute, employees get their money from wages and businesses have to cover high housing costs in wages reducing profit” the CBI
      They couldn’t work it out without my equation.

      Reply
    2. drumlin woodchuckles

      Abolish Free Trade and make America semi-autarchik over the next few decades. Ban economic contact of any kind between America and any entity which has lower worker-pay costs and/or social standards costs and/or environmental protection costs. Then American thingmakers could charge American thingbuyers enough to pay American thingworkers enough to join all the other American thingbuyers in buying American things at an American price.

      But absolute and total anti-Free-Trade defectionism ( defection and self seal-off from the International Free Trade-Rape Order) is the necessary precondition for achieving any trace of any of that.

      Reply
  16. Sound of the Suburbs

    A multi-polar world became a uni-polar world with the fall of the Berlin Wall and Francis Fukuyama said it was the end of history.
    It was all going so well, until the neoliberals got to work.

    The US created an open, globalised world with the Washington Consensus.

    China went from almost nothing to become a global super power.
    That wasn’t supposed to happen, let’s get the rocket scientists onto it.

    Maximising profit is all about reducing costs.
    China had coal fired power stations to provide cheap energy.
    China had lax regulations reducing environmental and health and safety costs.
    China had a low cost of living so employers could pay low wages.
    China had low taxes and a minimal welfare state.
    China had all the advantages in an open globalised world.

    It did have, but now China has become too expensive and developed Eastern economies are off-shoring to places like Vietnam, Bangladesh and the Philippines.

    An open, globalised world is a race to the bottom on costs.

    “The Washington Consensus was always going to work better for China than the US” the rocket scientists.

    The West never really stood a chance.

    Reply
    1. drumlin woodchuckles

      Several years ago Naked Capitalism ran an article about how a young George Ball was one of the New Immoralists for International Corporate Globalonial Plantationism. And that was before neoliberalism.

      Reply
  17. Phillip Allen

    “[A]n era where human advancement depends on greater integration between economic powers.”

    Oh, by all the gods, no.

    And what, pray, defines ‘human advancement’? What the hell is Mr Auerback talking about?

    Further integration only propels the speed at which resources are extracted and the planet dies incrementally more. The future will not be one fully integrated planet guided by whatever-the-hell oligarchs and their ‘meritocratic’ servitors deign the best options. The future will of necessity be vastly more local, vastly more hand-made, vastly less energy- and resource-intensive, and there will be vastly less intercontinental and intra-continental trade. World-spanning – even continent-spanning political-economic arrangements have no long term viability whatsoever. Trying to maintain such is a foolish waste of effort and resources that could be more usefully be directed at de-growth and de-industrialization.

    And with that, The Lord Curmudgeon shook his cane one last time at the kids on his lawn and returned to the troll’s cave from which he came.

    Reply
    1. Merf56

      I hope you have read James Howard Kunstler’s World Made By Hand novelettes. They outline such a future. Interesting and quick reads if you haven’t …

      Reply
    2. Watt4Bob

      Shaking one’s cane is not mandatory for joining the Curmudgeon Club, and we have real trolls here in abundance, I hope you don’t really think your observations are considered trollish.

      Reply
    3. drumlin woodchuckles

      Perhaps we can come up with inspiring words and phrases for that downshifting and localizing process. Mr. Archdruid came up with the word “ecotechnic”. Mr. Heinberg came up with the phrase “power down”.
      Some activists in England have tried to advance a one-town-at-a-time Power Down concept called Transition Towns. Towns transitioning to Power Down.

      Re-craftification. Artisandustrial production.

      Power-Down transition towns pursuing eco-technic artisandustrial re-craftification.

      And remember . . . we don’t have to outrun the bear. We just have to outrun Darwin’s Discards.

      Reply
  18. Sound of the Suburbs

    The last engine of global growth, China, has now reached the end of the line as they have seen their Minsky Moment coming.

    China was the latest victim of neoclassical economics.

    The biggest danger to capitalism is neoclassical economics; it brought capitalism to its knees in the 1930s and is having another go now.

    https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

    1929 and 2008 look so similar because they are; it’s the same economics and thinking.

    Richard Vague has analysed the data for 1929 and 2008 and they were even more similar than they initially appear.

    Real estate lending was actually the biggest problem in 1929.
    Margin lending was another factor in 2008.

    This has happened globally.

    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
    https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6

    The 1920s US mistake is now global.
    Japan, the UK, the US, Euro-zone and now China.

    The last engine of global growth, China, has now reached the end of the line as they have seen their Minsky Moment coming.

    The debt fuelled growth model not only runs out of steam, all the debt in the economy then acts like a drag anchor holding the economy back.

    Japan has been like this for thirty years.

    Richard Koo explains the processes at work in the Japanese economy since the 1990s, which are at now at work throughout the global economy.

    https://www.youtube.com/watch?v=8YTyJzmiHGk

    The repayment of debt to banks destroys money and this is the problem.

    Reply

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