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This post is about Tariffs, again, lest I be accused of burying the lede. Just read the last two paragraphs if you don't enjoy window dressing.
China tightened regulations on real estate developers in 2020. Xi Jinping stated 'houses are for living, not speculation.' Ghost cities, huge numbers of Chinese citizens owning multiple houses as investment vehicles, I assume you're all familiar with the stories after five years of news stories and discussion. Economists and western commentators largely agreed that the policies were A Really Bad Idea due to the ensuing chaos and meltdown in property prices.
To which I have to say ...what? They said they wanted to reduce housing costs! What did you think that would look like? How else are you going to do it? And what do you think it would look like to 'make housing more affordable' in the USA? If the YIMBYs and
neoliberalsabundance socialists get their way, home prices are going to tank here too. This is a good thing! Maybe there's some Chestertonian benefit to the upwards spiral of housing costs, but this here's a fence I'm ready to take a torch to.Anyways, to inch closer to the issue at hand - I have to confess that I had some tepid enthusiasm for Trump returning to office. Despite it all, I'm still an Elon stan and I thought some of the Dogemaxxers might have cogent arguments. I had some hope for racking up some China tariffs, eating bitterness for a few years and coming out the other end as a cohesive autarkical bloc of NATO + AUKUS + Japan + South Korea + anyone not named Putin or Jinping we can convince to join the squad. Setting aside my disappointments with Trump 2.0...
I'm utterly perplexed by the dialogue around tariffs? I can remember breathless fearmongering about shortages, empty shelves, inflation all spring. People on reddit posted invoices where what used to be a 10,000$ order from China was now over 50,000$. And yet...none of this chaos has come to pass? As far as I can tell, TACO is somewhat responsible, but also, average US tariff rates are just over 50% on Chinese goods?. Is it all TACO? If 50% tariffs have been painless, do you expect me to believe that 100% tariffs will truly be apocalyptic to the US economy? Do any of the firmly anti-tariff crowd have an explanation or prediction to make?
And on the other side, I fully expect victory laps and crowing about 4D chess from the 'Trump BTFOs retarded soyboy economics ExPeRtS crowd' again, but if the tariffs are painless and everyone is still buying cheap shit from China, aren't we losing??? Isn't the inflation, the spike in prices and the empty shelves the point of this whole exercise? Why are you promising people it will be painless, rather than YesChadding and telling them that the pain is the goal? You can have affordable housing when you're willing to accept that your own home will depreciate in value, and you can have low-skill manufacturing in your country when you're willing to accept higher prices for your goods. Eat bitterness with a smile on your face. Tell your daughter she only gets two dolls instead of 30 this Christmas because
communismuncle Jerry with the high school degree needs a better job.I think you're misunderstanding the housing issue in China. Their problem is that all that housing was financed with debt taken on by the local governing bodies who are up to their eyeballs in it and also get most of their revenue from building the housing. The Chinese stock market doesn't make returns and Chinese citizens are limited to where they can put their savings. Housing being cheaper is fine, good even but that sector was propping up the local governments. Chinese people have something like 70% of their savings in housing and housing makes up something like 30% of chinese GDP. Chinese local governments are facing debt crises as a result.
Building on this- the problem is what the nature of that debt, and the collapse of housing investments for future returns, implies for future economic development.
For example, the implication of the private household debt is how it shapes China's ambitions of escaping the archetypical middle income trap. The classical understanding of the cause is that a country makes good money as an export nation working the lower value chain, tries to work its way up the value chain, but the main basis of national growth (a productive low-cost but also low-income manufacturing worker class that produces exports) goes away before the worker class is able to transitions to a higher-income level of productivity that corresponds with the higher value chain. Some of the country does, but not enough (proportionally), resulting in more stagnant growth, both in terms of national economy and average wages. It's not 'bad,' but it's, well, middling. No longer economically viable for the thing that made it good.
The classical theory of how the higher income countries escaped this is that they transitioned from a manufacturing-export economic model to an internal-consumption model. The internal economics for wages and such are driven more by how the country spends and consumes within its own market, rather than how it exports to foreign spenders and consumers. Ideally, it's to some respects self-reinforcing, for the typical economic multiplication effects that let commerce grow the economy.
This was the basis of the economic question of if China would get old before it got rich. It was referring not to the country GDP as a whole, but to the wealth of the population and its ability to power a consumption-economy model. Could the Chinese public get rich enough in their economically productive years to power a transition to a consumption-based economy, before they grew so old that their savings were instead consumed in end-of-life support?
Well, that's a great deal harder for a family to contribute to if a family's lifetime of savings and investments no longer exists. Like, say, because it was invested in buying an apartment that never was built, or was built and torn down before it could be sold, or which lost its value due to the property crash.
China may yet escape that. It's unclear if the middle income trap is an issue of proportion or absolute number, in which case a proportionally small core of rich-enough Chinese could maybe drive a system. But the middle-income trap would be a lot less likely if a lot more Chinese had a lot more of their lifetime investments have a lot more value.
And, of course, if losing investments didn't contribute to the vicious cycle of ongoing deflation. Which is generally agreed to be bad, but makes individual actor sense if you recently lost much of your money but now find yourself in a position where things look like they will get cheaper the longer you refrain from buying them.
The Chinese local government debts, by contrast, are a bit 'simpler.' These are debts by lower governments, or government enterprises, that the Chinese national government is ultimately likely on the hook for. That's not a macro-economic-structure crisis, 'just' the official debt numbers being radically off and at risk of a liquidity crisis if ill-structured debts create bank runs. Which, technically, might be solved by simply printing more money and forcing the mostly Chinese holders of the debt to accept it, but...
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