As I read the interview with Josh Barro at New York Magazine on the “worst case scenario” in the trade war between the U. S. and China, it struck me that my idea of “worst” is a lot different than Mr. Barro’s. I think the worst case scenario is a return to the status quo ante. In that scenario China retains its position as the preferred vendor of low value-added goods, displaces the U. S. from its present position selling high value-added goods (that’s the purpose of the “Made in China” policy), and the U. S. continues its headlong rush to becoming a country whose economy consists of retail, fast food, and professional services (heavily subsidized by government at all levels). I think that’s a very bleak scenario.
When negotiating, you must consider several interrelated factors. First, what do want to accomplish? Second, what does your interlocutor want to accomplish? What’s the least you will accept? What’s the least your negotiating partner will accept?
I think we’ve been dealing with China wrong over the period of the last 40 years and the very least we should accept is for China to conform to its international agreements and institute a rule of law within China. Changing the balance of trade a little in our favor isn’t nearly enough. It continues to approximate the worst case scenario.
The least that China will accept is continued control by the Chinese Communist Party. Consequently, they won’t accept our sine qua non. That’s why I think that the second best scenario for us is not trading with China at all. If the Chinese people prefer the CCP and poverty over prosperity and being a responsible member of the world community, they’re entitled to their choice.
China may or may not do the best thing for their country, but I dont think it will matter that much for the US. We will just keep moving our factories elsewhere. Besides, our own internal issues are just as much or more of a problem than China.
http://conversableeconomist.blogspot.com/2018/12/us-not-source-of-chinas-growth-china.html
OT- I can no longer hire Canadian physicians. Trained at top 5 residency and fellowship programs, in a specialty hard to find. And they even speak English, eh!
Steve
Total manufacturing and manufacturing employment in the U. S. have been increasing for a decade. That is the right direction. I don’t want manufacturing to resume the pride of place it had 40 years ago—I just don’t want it to decline any farther.
I believe it is necessary for us to have a diverse economy with healthy primary production, agriculture, manufacturing, etc. I think that retail is far too important a segment. We’re moving in the right direction today.
Why are you unable to hire Canadian physicians? None to be had, they don’t want to come to the U. S., pay issues, something else?
Visas. If they are on any kind of visa we pretty much cannot hire one. I have a couple that have sent me CVs that I could desperately use. (We use what is considered the top immigration law firm in Philly and they advised we just dont try to hire any Canadians right now. (This is Canadians training in the US I am talking about.)
Steve
China’s domestic economy is built using a credit-backed fiat currency, and their money/credit supplies are leveraged off of dollar based financial securities. They are able to acquire these securities through the trade surplus with the US. So, China’s trade surplus with the US is not the direct source of China’s growth, but it is nonetheless.
The US does have a manufacturing capital investment problem, and that is due to an ‘unlevel playing field’ with China and other emerging markets. China and the other EMs benefit from the US’s military enforcing unencumbered trade routes, in addition to other worldwide policing matters.
The US has decided to institute various regulations to ensure a more liberal/modern/progressive social safety net, environmental safeguards, and humane work conditions, but in an effort to avoid these costs, many manufactures have decided to relocate to places where these do not exist.
The products produced under these conditions should be sold in locales with these same conditions. The lower cost of manufacturing is possible because there is little or no regulations, and the lower price due to this lack of regulations is a benefit for this locale.
When these products are imported into the US, the costs to sustain an advanced society has been avoided, but the benefits are still utilized. The public infrastructure (ports and highways), court systems, public services, monetary system, and financial systems are utilized without adequate reimbursement, or more simply, these resources are stolen.
There is a reason why the importers refuse to sell their goods in Venezuela, Somalia, Afghanistan, and any of the other worldwide shitholes, and it is because they lack the benefits of a modern advanced country.
In any case, the idea that a country of low income debt serfs can be sustained indefinitely is ludacris.
” The lower cost of manufacturing is possible because there is little or no regulations, and the lower price due to this lack of regulations is a benefit for this locale.
When these products are imported into the US, the costs to sustain an advanced society has been avoided, but the benefits are still utilized.”
Big businesses knew that and moved the factories there so they could make more money. If not China, then elsewhere.
Dave- I think we have a much better chance of bringing back more of the manufacturing than we do the jobs, but even that happens only if we improve our own internal structure. As was noted in the Taylor link…
“Conversely, the US economy has not done a great job of investing in the fundamentals of economic growth. The US once led the world in share of workers with higher education, but now it’s middle-of-the-pack. The US is a low-saving economy, with low rates of investment in both private and public capital. US spending on research and development has been stagnant for years, while other countries have been expanding. Rates of business start-ups have been declining. Mobility of US workers is down. Economic mobility between generations in the US is not high. Further, the US has made little progress–and little effort–to address ongoing issues like the projections of large and growing budget deficits, or rising health care costs, or a much higher level of income inequality than a few decades ago.
These US economic issues and others are in any substantial part not the result of trade with China, or the result of international trade at all. ”
Steve
Hmm, a question for economists, how does one account for intellectual property theft in trade flows? Its been estimated at something like $100-300 billion / year for at least 10 years. I don’t know, a trillion here, a trillion there, eventually that’s causing to cause a lot of problems.
Mr Taylor is asking why there is less and less R&D investment??
That’s a point I raised in a post 15 years ago. There’s no particularly good answer. It affects the return on investment and risk premium.