I found Joseph Sternberg’s prediction in the Wall Street Journal of victory in Trump’s trade war in China so problematic I hardly know where to begin. Let’s begin at the beginning:
A new year brings new optimism that the U.S.-China trade war might not blow up the global economy after all. The two sides are on track to sign a “phase one†deal within weeks. Oddly, no one has stopped to ask if America is ready for what will happen if President Trump “wins†the trade war.
Mr. Trump’s premise is that China exports too much, and the U.S. exports too little. That’s an economically dodgy proposition—trade surpluses and deficits are neither “good†nor “badâ€â€”and as a factual matter Mr. Trump’s thinking is roughly a decade out of date.
But I have issues with this:
While China still runs a trade surplus with the U.S., its trade position with the world as a whole is changing dramatically.
China’s current-account surplus—the amount by which its exports of goods and services and income from overseas investments exceeds imports—has shrunk for years.
China doesn’t just run a trade surplus with the U. S. Based on the World Bank figures for 2017, the most recent year for which data are available, China runs surpluses with every North American country, every European country except for Finland (cellphone technology) and Norway (oil), most South American countries, most African countries, and India. Yes, most of its trade surplus is with the United States. What is actually happening is that China imports raw materials and exports manufactured goods.
It’s likely to tip into a deficit early this decade, meaning China will import more goods and services (and receive less profit from overseas) than it exports.
Why would he say that? It isn’t the trend. I presume he’s speculating based on demographics:
One reason is that China’s population is aging, and its working-age population declining. As this happens, older households spend down their savings. This boosts demand for imported goods. It also upends an economic model dependent on financial repression—that is, funneling household savings (for which Chinese savers receive outrageously low interest) into inefficient state-owned enterprises that fuel the export machine.
China remains an authoritarian country Translation: the rules of economics are not the only rules that apply. And this statement just baffles me:
Another is that China has exhausted its ability to boost exports by undercutting other producers on price to poach market share. China can’t absorb all manufacturing capacity for every good in the world.
To me that appears to fall under the category of wishful thinking. The only thing that would stop China from continuing to absorb manufacturing capacity is financial collapse, something increasingly likely to happen. That is explicitly what the Made in China 2025 plan means. Then he makes the single statement with which I agree wholeheartedly:
Beijing’s alternative would have been to use China’s own economic growth to boost global demand—making the global pie bigger so that China’s piece also could grow in absolute terms. Alas, the Communist Party’s decadeslong use of industrial policy centered on suppressing domestic demand foreclosed this option.
That’s what victory would look like to me. Not China importing more raw materials or exporting less. The balance of his piece is a lot more wishful thinking.
Contrary to Mr. Sternberg, I think that Hong Kong tells us the future of China. Power will continue to be concentrated into Xi’s (or his successor’s) hands. There will be increasing repression. Ultimately, there will be an attempt at undoing 1979. The Chinese Communist Party has little alternative if they wish to retain control and they do. There really is no other game in town for them and they have no regard for ordinary Chinese people.
My experience in life is that there is a nearly irresistible temptation to double down on failing strategies and China’s leaders are no different. They would rather reign in hell than serve in heaven.
China’s economy, as you note, is based on exporting manufactured goods and importing raw materials. The only alternative is to go back to being a starving, dirt poor, subsistence farming economy with essentially no manufacturing base. So the present system must continue because China lacks natural resources. Britain, Germany, Japan, the Koreas, Viet Nam are in the same boat. The US and Russia have the great gift of resources, and do not need an export market to survive.
Of course, the Wall Street financiers sold off our industrial base, and now we need to export resources and import manufactured goods, a losing proposition that is actually killing our white working class.
Merely moving industry from China to Viet Nam or Indonesia does nothing for our working class, nor our own manufacturing base, nor our greatly reduced tax base. How much of our federal deficit is caused by the loss of the taxes on working class wages and manufacturing?
Finally, re Hong Kong, the truth is that it has been eclipsed by the rapid growth of other Chinese cities, and it no longer has any real economic importance to the Chinese economy. The loss if economic function is what has driven the demonstrations there. Xi and his friends can just let it wither on the vine.
I haven’t studied all taxes but, if the wages of the middle 2/3s of the people had grown just a little faster, Social Security would be on a sound footing. As it is the fund will be insolvent in 2037.
Tyrants gotta cling to power because they’re deathly afraid that their surviving enemies once in power will do to them what they did to other enemies. This is what will happen to Xi when he falls. A fitting reward for his breaking the escalator of power ascension Deng put into place.
‘Beijing’s alternative would have been to use China’s own economic growth to boost global demand—making the global pie bigger so that China’s piece also could grow in absolute terms. Alas, the Communist Party’s decadeslong use of industrial policy centered on suppressing domestic demand foreclosed this option.
That’s what victory would look like to me. Not China importing more raw materials or exporting less.’
China’s economic policy is entirely based on zero sum games, I win, you lose, the size of the pie is fixed. They cannot conceive of any other way to aggregate wealth, even as it stares them in the face every time they are driven down a city street. They believe that because they are richer the US is that much poorer and thus that much closer to economic collapse.