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24 August 2019

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Mathias Alexander

"intelectual property" is a term with a big fat lie right there in the middle of it. It really means "trade monopoly".

Has anyone ever seen a free market?

LondonBob

Triffin dilemma, the reserve currency nation runs a trade deficit.

Trump has badly handled the trade negotiations, I think a deal was there to be made but with his poor choice in staff he undermines himself again.

anon

Babak is absolutely correct of course.us products are high quality.However I am a pocket knife collector.I even treasure Levine's guide to pocket knives.The history of pocket knife production is the history of a countries manufacturing. Sheffield england lead the way together with Solingen.Sheffield is gone and with it British manufacturing.All the us brands like case marbles winchester are all made in china now.That is the warning sign.
The workers are the key.Give them jobs and security and they will make gold.Treat them like slaves and they will make junk.China makes junk because its workers are treated like slaves.Create a society of slaves and they can only afford junk made in China.


CK

The house I live in was built in 1969. The original stove was a Sears electric. It was finally replaced in 2009. Great news for me, not having to buy new stove for 40 years; not so great news for Kelvinator, their product was so reliable that its sales were limited to the growth in housing/annum. What is good for the individual goose may not be optimal for the flock.

Barbara Ann

Thanks for the thought-provoking post Walrus, it has certainly led to some excellent, well reasoned and spirited discussion. My comment concerns the ease of winning the trade war:

With China's latest retaliation it seems clear they are not interested in a quick 'deal' and capitulation to Trump's demands and why would they be? Gifting Trump his deal will greatly help his re-election chances and China likely calculates they are better off with a POTUS who is "either senile or a lunatic marxist". I'd therefore expect China to hold out until the election at least.

Jack Ma, founder of Alibaba has been quoted as saying that he expects the trade war era to last not 20 days or 20 months, but "maybe 20 years". Are US consumers ready for a prolonged confrontation? The Cold War was winnable because there was political consensus in the West that the Soviet Union was an ideological enemy. Unfortunately there is no such consensus yet re China, with it presently being treated by the political establishment as primarily a trade competitor.

Trade wars end when one side can no longer bear the economic pain, or in transition to real warfare. Absent ideological zeal, I fear the average US consumer will quickly begin to question the cost of the trade war. Here China has a huge advantage in that President-for-life Xi’s policies are not beholden to a 2 year election cycle.

So does Trump expect to win by collapsing the Chinese regime from within? As with so many such expectations, this is delusional thinking. This is particularly so in respect of the state able to exert more control over its populace that any other in history. If minded to, the CCP could allow the sleeping giant of Chinese nationalism to awaken in order to direct internal discontent towards the external enemy. Just look at how easily they have demonized the HK protesters.

I am reminded of the following quote from Col. Lang's 2013 post on the passing of General Giap:

"He won both wars because his forces and strategy exhausted political support for these wars among the populace of his adversaries."
I fear Trump is again being railroaded towards a shooting war, this time with China, by deceivers playing up to the Dealer-in-Chief's ego. I think this war will end in defeat for Trump or far worse; victory for the extreme China hawks.

Ken Roberts

Catherine, I for one would appreciate hearing your thoughts on what we should be doing. Setting aside what one may or may not think about particular leaders at present. This is not a quick fix situation but there are certainly paths that we can follow or encourage. I am about your age as I also was a college student in 1964. One of my attempts is to engage younger people. When asked about Biden, my principal objection was that he is too way old. As are others -- Sanders, Clinton, Trump -- where is the age 45-50-55-60 talent? I retired voluntarily from political activity at age 65, and in my opinion other old farts should do the same, to make room for the new team, to give them scope to make mistakes and learn. But an old guy can still comment if asked. So consider yourself asked to comment! How would you advise someone to help fix your state so it does not remain a waste land? Cheers, KR

Jack

Spot on re Triffin’s Dilemma. The problem is the lopsided nature of it with China vs ROW. There is also an alternative hypothesis that the offshore Eurodollar market provides that function and it doesn’t have to be the trade account.

Unfortunately with Trump there’s no knowing what his objectives and strategy are. From my observation of him it seems that his need for adulation and being the center of attention is paramount and may override other considerations. In any case he’s on a course that will not settle before the election unless he caves.

I’m convinced that the time is now to take on the CCP. They cling to power only at the end of the barrel of a gun. There are significant vulnerabilities. As far as trade and the reorientation of supply chains that’s a decade long project. OTOH, we can significantly pressure the CCP and their top brass financially. Even Xi Jinping has much of his family and his wealth moved to the west, just like the rest of the politburo. That’s the level of confidence they have on their authoritarian monopoly on power.

Jan Czekajewski

Barbara An says: "The Cold War was winnable because there was political consensus in the West that the Soviet Union was an ideological enemy. Unfortunately there is no such consensus yet re China, with it presently being treated by the political establishment as primarily a trade competitor".
I do not agree. Colds War was won by the West, because the basic error of Soviet and Chinese (at that time) economy which was so called ,"planned economy". West stack to the old Adam Smith principle of market economy and won. Soviet economy collapsed or imploded.
Now China and Russia realized that the market economy has some advantage and reformed their systems. To some extend they learned a lesson from US.

In meantime US abandoned manufacturing economy claiming that the Americans are too superior for using our workers labor. We will just retrain our working class to be computer programmers, lawyers and bankers. Chinese will be our remote slaves. It looks that it did not work either. The Chinese are better in intellectual labor simply because they have much more students learning intellectual subjects in US and in China.
RE Intellectual Property theft.
In the first place there is no such thing like "Intellectual Property" which you can put in the safe and will stay there for 100 years, until burglar brakes the code to the safe lock. Invention is in the human mind. Once something is possible to do, secrets is lost. This applied, e.g to the secret of Atomic Bomb. One it was exploded in Nevada every physicist in China or Soviet Union knew that it will take only time and money to replicate it. Execution Of the Soviet atomic spies like Mr and Mrs.Rosenberg was useless. Once we sold some computers to China they replicate it and make it even better than the American eg. IBM-PC and Lenovo a copy of it.
Is it possible to make US as prosperous as it was in years 1945-1975? Maybe, but it will require enormous sacrifice to which neither US society nor US Government is ready to accept. American Prosperity after 1945 was built on devastation of rest of the industrial word, in Europe and Japan by the WW2. For many years after WW2 we in US were the only industrial economy which did not have competition.

Norbert M Salamon

The decline in quality of machinery/cars etc. can not be solely blamed on China:

many of the goods are product of US based corporations [in China], who constantly re-engineer products to cost as little as possible.
eg: the US made Maytag commercial washer I had lasted 32 years, the new one, also made in USA is 200 lbs. lighter [though the same size nominally]and depends on front/rear paneling to control vibration- doubt that it will last 5 years.

2., in certain cases sloppy specs allow some funny manufacturing inputs - where blame should be placed on the US designer for the failure of the merchandize.

3., I admit that some Chinese do cut corners intentionally to lower standards in some cases, though they also make state of the art goods both for internal and export markets.;

2., Substitution of

Barbara Ann

Jack

The unsustainable nature of the Dollar as reserve currency was the focus of Mark Carney's speech at Jackson Hole. You know you live in interesting times when the head of the Bank of England promotes a move away from the current international monetary and financial system and describes the status quo using phraseology from Yeats' The Second Coming: "Even a passing acquaintance with monetary history suggests that this centre won’t hold."

https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/the-growing-challenges-for-monetary-policy-speech-by-mark-carney.pdf

Babak Makkinejad

There is plenty of petroleum inside Earth, leftovers from when the Solar System and Earth was formed.

Offtrail

Seconded.

different clue

I don't believe our American companies needed any seduction to re-locate their production to China (in this particular case). And I believe that the " 1.5 billion people market" was more a part of their Free Trade Hasbara campaign against the American public and lawmakers than a real goal.

Their real goal was to re-locate to a place with ultra-low wages, firm anti-union prevention policies and enforcement, anti-environmental counter-standards, anti-social anti-standards, anti-safety anti-standards, etc. The reason being that producing in a slave-wage/pollution haven would be ultra-low-priced against the price of making those things in America. And if those companies lowered the prices of their "sourced-from-China" goods by less than they lowered their price of production, they got to keep the difference as a bigger-than-American profit. They wanted to work the differential-costs-arbitrage rackets.

So they didn't need any seduction from China since that was their goal all along.

And yes, some people are indeed Corporate Globalonial Plantationists in support of creating economic aggression platforms in China, NAFTAstine, etc., in order to exterminate thing-making in America while toll-gate skimming money by riding the Cost-Differential Arbitrage rackets all the way down.

Apparently the vision is that the American Colonies will sell corn/soy/wheat/beef/coal/minerals/etc. to the Chinese Mother Country. What should this remind us of?

different clue

The necessary precondition for that project would be for America to abrogate, reject, cancel and withdraw from every Forcey-Free-Trade Agreement and Treaty in which it is currently en-spider-webbed.

Only behind a Mile-High Teflon Wall of Total Protection will we be able to restore a measure of basic American thing-making. Currently, the Forcey-Free-Trade Agreements we are under make the Mile High Teflon Wall of Protection illegal. That is why we would have to exit and remove ourselves from every such agreement first.

And of course we would have to understand that if we did that, the IFTC ( International Free Trade Conspiracy) and all the Corporate Globalonial Servant-Governments of the entire world would view us with the same horror and hatred with which the victorious World War One powers regarded the infant Bolshevik regime in Russia. They would launch a world wide hybrid war of every kind against us to force us back into the New World Corporate Globalonial Plantationary Forcey-Free-Trade Order.

The entire world would treat a Protectionised America like we were a combination of Cuba, North Korea and Iran.

different clue

Yes, we paid for it. And what we got for all that payout was an advanced industrial civilization of our very own.

different clue

Which was the deliberate goal of Forcey-Free-Trade to begin with, right from the start.

different clue

We don't need against China. We need a war against the International Free Trade Conspiracy. If Americans were offered a non-deceitful long-term plan by known and credible non-liars, and if the pain our Forcey-Free-Trade trading enemies would conspire to impose on us for trying to achieve that plan, American citizens would at least have a fair chance to decide if they wanted to endure the several decades of torture a Free Trade World would try to impose on us in order to build back an American economy where citizens and legal residents get paid to make, grow and do things for other citizens and legal residents who in turn are getting paid to make, grow and do things for citizens and legal residents.

catherine

First, revitalizing American manufacturing/industry would take some time, cant be done quickly.
Therefore any tariffs need to be low enough not to slow consumer spending due to increased retail prices which would then trigger a cut back in jobs...iow,start small and give US manufacturing a chance to fully develop.
Second, there should be government loans with a tax emption for a short period specifically for start up manufacturing of 'mass products' that are easy to manufacture such as household appliances, i.e.coffee makers, small tools,etc etc..
Go try to find a coffee maker or radio or fan made in the US...you cant.
Then you have to address the cost factor of goods made in the US so you can be competitive with the cheaper imports. Labor cost is why US companies left to begin with.

So the big problem becomes 'cost' ..and how to overcome it without descending American workers further into third world wages and living standards.

The first thing you want to do is go after the US companies that moved overseas.

One tack the US could take in regard to US multinationals is to use the wage and cost of living scales in the countries they operate in as well as taxes they pay, environmental pollution factors and impose tariffs on them based on the difference between their cost overseas and what their cost would be in the US. They would have the option of raising their wages overseas or paying a tariff. A raising of wages in the cheap labor markets would have some effect on their ability to buy American imports in their country. If GE for instance chose to keep their washing machine plant in Mexico...fine...a new washing machine company will start up in the US because they can now compete cost wise.

You could actually apply this to all countries industries of certain sizes that export to the US....it would be a 'leveler', so to speak, of global product cost. Shipping cost would also effect final retail cost and could result in more people buying their own country's core products.

Its not as complicated as it sounds. Use small tariffs while the US retools, apply some quotas to countries like China , protect certain industry until US manufacturing gets on its feet, level out the factors that create enormous price differences without decimating the workers or the environment.

walrus

For Neanderthals like “Anon” who believe that all China can produce is “junk made by slave labor” I have news for you. The Chinese beat the world champions in textile product quality- the Swiss no less, in about 1965. We were selling both to manufacturers.

They are perfectly capable of making great high quality products if asked. If you are stupid enough not to insist on quality then indeed you will get junk - it’s the Chinese way to cut corners, ferchrissake they put melamine in baby formula!

They aren’t slaves working in loin clothes in mud huts either. They are into the latest and greatest manufacturing technologies.

I am reminded of pre WW2 comments about the Japanese army navy and airforce. I caution you not to make the same mistake about Chinese capabilities today.

Barbara Ann

Jan

I carefully chose the word "winnable" and deliberately did not say "won". This war might be winnable if the American people understood the, to use your words, "enormous sacrifice" that may be required. They do not and Trump has made every effort to con them into believing victory will be quick and easy - it most certainly will not be.

Personally, I do not lack the ideological zeal for this fight. The CCP, its obsession with facial recognition technology and its nice system of social credit (which can already prevent individuals from buying rail or airline tickets) is the early manifestation of a real Ingsoc. Or perhaps even the Beast of Revelation 13:

16 And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads:

17 And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.

ancientarcher

China might not be the only country but it is the only one doing it at an industrial scale with overall direction from the top. If you think it is okay to steal intellectual property because 'all do it' just get rid of patents and stuff. This highway robbery needed to be stopped and stopped long back. You just don't give your technology for free to your competitor. even Great Britain had capital punishment for stealing textile technology when that was the new new thing which allowed them to dominate that market.

No one give away their jewels for free. if walrus would like to, let me do that with the stuff he has invented and see how that feels!

Fred

Confused,

So Canada is going to dump US soybeans in China the same way they helped China dump steel and aluminum into the US. That is very kind of the prime minister. I'm sure that helps some lobbyists and politicians get just compensation for their value add.

ancientarcher

Absolutely right.
I think the media is not talking about how much under stress the financial system in China is under. The growth in their social credit has been much larger than that of subprime in the US a decade back. The crash when it comes will be all the more worse.
3 banks went bust in China in the last few months. The last one was a few hundred billion dollars big. The govt. made the institutional and corporate creditors take a 30% haircut when Baoshang bank went down.
Many of their exporters have margins in the single digits. With the tariffs that Trump is proposing, a lot of them will be unable to continue being in business. Hence, the immediate currency devaluation by China which allows its exporters more room. But that buys a little time.
I predict increasing pressure on the financial system in China, which is over burdened anyways, and on the exporters. Hold on to your boats guys. A little push might bring the house of cards down in China.

Fred

Norbert,

So the left has completely failed in running education at all levels. And Obama care is corrupt? Who knew!

Jack

Barbara,

One of the challenges with contemporary financial media is their inability to express fundamental principles and frame debate in philosophical terms. One reason of course is none have spent much time on understanding how our financial system evolved over the centuries and the debates at each juncture. Consequently they are easily bamboozled by the sophistry of the Ph.Ds.

The other consequence is the conflation of different aspects of the architecture into an incoherent narrative. From the Financial Times to the WSJ to the Economist and CNBC we don’t see perspective or context. It is always the current propaganda du jour presented in hysterics.

Central banking and monetary policy is one issue. Fiat and asset backed currency another. Trade, investment and trade finance as well as currency convertibility. Then there is government finance and debt. And of course banking and credit markets. There have been philosophical debates on these topics for centuries. Nothing is new except the packaging of ideas by the Ph.Ds in boxes of shimmering glitter.

Reserve currency is not an unalloyed good for the issuer. Carney’s “currency” is what the SDR was supposed to be. The dollar is king precisely because it is unmatched in market depth and liquidity. IMO, our debates need to be framed in first principles and consider the debates we’ve had in the past.

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