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My impression after obsessively monitoring this situation for days (of course) is that neither side will fold, tariffs are here to stay, and everyone will be poor and mad for it. China of course won't fold, the idea that they're at risk is preposterous, they can well weather complete cessation of export to the US.
Broadly I have concluded that the main problem the US faces is racism towards the Chinese; the ill-earned sense of centrality and irreplaceability. I believe that Trump, Navarro and the rest of that gang are as misinformed as the average MAGA guy on Twitter, given how they speak and that amusing formula. Americans still think that their great consumption is the linchpin of Chinese economy, 10-30% of their GDP (it's more like 3%); that the Chinese produce apparel, “trinkets” and low-quality materials (they also produce things that Americans plausibly cannot start producing at the same quality in years); that American IP is vital for their industry (they're making their own software, OSes, CPUs…) and so on. The idea that American de-industrialization is a product of betrayal by Wall Street Elites who offshored jobs to China also feeds into the delusional notion of possible parity – but the truth is that there has never been a point in history where American industry had scale or diversity comparable to what's going on in China now. The issue with their bad financials is also overblown; as for losing markets, they have the capital at hand for consumption stimulus. This guy from Beijing writes:
Accordingly, with a higher real GDP, their effective debt to GDP ratio may be as low as 150%, not 200-300%. They have US assets to sell too.
So China can trivially absorb half of the overcapacity freed by reduced trade with the US, and might find buyers for the rest.
My thesis is that in picking this fight, Americans don't understand that they're actually not that big of a deal. Unfortunately, their delusions are globally shared and become reality in their own right. But perhaps not enough to offset the gross physical one.
The actual dangerous thing for China here is that Trump seems determined to immiserate the whole planet, completely irrespective of any geopolitical rivalry, because he's an illiterate anarcho-primitivist and thinks that all trade is theft unless it's barter, basically. America vs. The World, especially with a chain reaction of tariffs on Chinese (and likely also Vietnamese etc…) capacity spillover, results in massive reduction of productivity for everyone. For now, nations like Vietnam are unilaterally dropping tariffs on American crap, but that can't be a big effect because their tariffs were low to begin with, and Americans just don't and cannot produce enough at price points that people of those nations can afford. (We may see IMF loans for 3rd world countries importing overpriced American beef or Teslas or whatever to placate Don, but I doubt it'll be sustainable). I suppose in the long run the idea is that Optimus bots will be churning out products with superhuman efficiency, at least Lutnick argues as much. But that's still years away. Perhaps this extortion of zero balance trade (so in effect, the demand that trading partners buy non-competitive American products) is meant to finance the transition to posthuman automated economy. Bold strategy.
I am of course very amused and curious to see how it'll go. Will Fortress America intimidate the rest of us into submission, likely forever? Or will it be so stubborn, brutal and ham-fisted that humanity will finally rebel and ostracize the rogue state, letting it broil in its own supremacist fantasies? Can Bessent et al. turn 1D “trade le bad” checkers of the King of Understanding Things (懂王) into 4D chess? We shall see.
Yes I agree, much of US GDP is nonsense, it's like an inverted pyramid with the manufacturing base too small and services too large. There are of course real services like R&D but there are also more or less fake services, HR training sessions and legal compliance, managing tax... There's real education and fake education, those schools in America where nobody can perform to grade level, useless or negative-value degrees...
Just because money is changing hands, it doesn't follow that it's a good thing. Fentanyl raises the GDP after all. Metrics of production should be prioritized over financial flows.
I don't think it's really possible for this to be true on a grand scale. After all, if the American GDP is in some way fake how come the median American can buy so much Chinese production with his or her dollars? The ratio of durable goods consumption to GDP in the US is not vastly lower than it was in the 60s, and that small decrease we would expect given that the average person obviously has many more 'consumer' services to spend his money on these days in a way that is obviously real consumption than he did in the 60s.
Consumption is indeed high but production is too low. That's my point. It's an unstable position to be in. There are lots of people in the US who are very wealthy and prosperous but shouldn't be.
Physical production? I don't see why this is a problem if service production rises to compensate (except for e.g. national security reasons which has nothing to do with whether some service jobs are 'fake' or not). Yes the US runs a BoT deficit but the durables deficit is like an order of magnitude bigger than the overall deficit - that is to say service exports wouldn't have to rise that much to eliminate the deficit, which would certainly be easier than trying only to boost physical goods exports in which the US obviously has far less comparative advantage, especially in mass production.
How could this even be true in an inter-country sense? If production is too low, what sustains consumption? Foreign investments in American instruments? But surely these prove that investors are satisfied in the likelihood that future American production, on which they are trading, will be able to make good their investment? Service exports would be the other candidate, but then these, if they are competitive on the open world market, clearly 'deserve' their price.
I don't really understand tbh, and I don't mean that in a rhetorical sense. How do you perceive the supposed 'instability' of the US position unravelling?
A lot of Americans have completely made-up jobs, working in DEI or consulting or HR, compliance (with bizarre laws), educating people with ridiculous nonsense... it's not productive activity. Some of those jobs are useful but much are not.
They're basically sucking wealth away from productive enterprises since they consume wealth but do not produce wealth. The US runs huge trade deficits to support a high level of prosperity, relying on the social construct of 'the US is the greatest country in the world, with the strongest military and the safest currency' so that people maintain confidence in the US dollar.
See this doesn't necessarily any problem with trade as such, as this is an internal dynamic - if regulation produces non-productive workers who piggyback off productive workers in 'real' sectors, it's just shuffling around the fruits of production among Americans.
If this is the explanation for how the US sustains non-productive work, how come other Western economies have observed a similar turn toward services?
I meant to say sucking wealth away from productive enterprises around the world. Suppose Zhang in Chongqing makes an iphone that goes to a product manager who doesn't do any useful work, just sits around in meetings all day. This is an unstable dynamic in my book. It would be unstable even within a country if you have a class of elites who laze around all day and a class of workers who make goods for them. When Onlyfans whores delight in their paid-off houses it incites a lot of resentment amongst people with shit jobs. Elites are supposed to lead wisely, that's why they're supposed to get goods from the workers.
Other Western countries are poorer than the US. Not everyone is cut out for productive work, there are internal status games and politics... But the US is unusually rich and has a high trade deficit, the US is the biggest offender. The rest of the West (with some exceptions, though German industry seems to be declining fast) is relying on prestige, not production. Degree mill universities, immigration ponzi schemes, selling enterprises overseas. Selling assets to pay for consumption is bad, profits and capabilities head overseas.
Ah I see. If this were true though the system would surely have collapsed long ago. In order that an American can buy that phone, the people of Chongqing must be willing to either buy American production (or buy the production of a country which in turn buys the production of America), or invest in America securities, assets etc. But since these are essentially a claim on future American productive capacity, if America didn't have much there would already have been a total crisis of confidence.
In any case the total American BoT deficit is not that large all things considered, about $120 billion - US imports from China are near $500 billion. This would seem to imply that the net size of the American 'fake' economy in relation to foreign countries is $120 billion at the most, because the rest of total imports beyond that figure are directly compensated for by the sale of American production overseas. Given that the size of the US economy is $22.7 trillion, this seems a fairly trivial problem. Again, I'm not necessarily arguing that the total fake economy in the US isn't larger than $120 billion if US productive workers are subsidising the non-productive industries, but this doesn't matter in relation to trade.
This seems like a particularly bad example because they clearly create a product which people are willing to pay for. Their job is no more 'fake' than an independent cobbler or carpenter just because the good they sell isn't durable - indeed the cobblers and carpenters are clearly willing to exchange their shoes and tables for subscriptions. The case of product managers, HR is different but an Onlyfans model seems analogous to other makers of frivolities insofar as their existence is a symptom of prosperity as we have enough productive capacity that people are willing to trade it away for non-essentials. But this isn't 'fake' any more than LVMH is a purely 'fake' company. Value has no meaning except what people are prepared to exchange on an open market.
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