Decouple From China?
Please consider Trump Again Raises Idea of Decoupling Economy from China.
“So when you mention the word decouple, it’s an interesting word,” Trump told a Labor Day news conference at the White House in which he vowed to bring jobs back to America from China.
“We lose billions of dollars and if we didn’t do business with them we wouldn’t lose billions of dollars. It’s called decoupling, so you’ll start thinking about it,” Trump said.
“If Biden wins, China wins, because China will own this country,” he said.
“We will make America into the manufacturing superpower of the world and will end our reliance on China once and for all.Whether it’s decoupling, or putting in massive tariffs like I’ve been doing already, we will end our reliance in China, because we can’t rely on China,” Trump said.
How?
- Consider US cars made in Mexico. What happens to the parts that come from China?
- What about the steel that comes from China?
- What about the Boeing planes that are assembled in China?
Questions of this nature are endless.
Nonetheless, let’s snap our fingers and assume Trump pulls it off.
What Would it Mean?
iPhone sales in China would go to zero. So would Soybean exports. So would Boeing sales to China. In fact, all trade with China would stop by definition.
The Boeing aircraft would all be 100% made and 100% assembled in the USA, with 100% US-made aluminum.
Hooray?
Not quite. Labor costs in the US would soar. We would make planes for ourselves but Airbus would own the rest of the world.
The same holds true for cars and everything else partially made in the US.
What About the US Dollar?
Inflation would rise due to rising prices. If the Fed hiked rates, and it would be forced to, the dollar would strengthen making US exports even more uncompetitive.
Manufacturing Superpower?
Trump and all the economic illiterates who support him would turn the US into a manufacturing dunce.
In 2016 Trump Accused China of Theft: What Did He Do About It?
Despite tariffs, and despite a severe recession, the US trade deficit and deficit with China is going the wrong way.
In recessions, trade deficits normally shrink.
In 2016 Trump Accused China of Theft: What Did He Do About It?
Other than look outright foolish in Tweets and actual results, the answer is nothing.
Trade Wars Easy to Win
Trump’s blustering today is more of the same “Trade Wars are Good and Easy to Win” fantasies.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
“Don’t trade anymore-we win big. It’s easy!“
Trump is totally and completely out of touch with reality.
He has no idea how international trade even works.
Trump has been touting “It’s Easy” even before he was in office.
If it’s so easy, why didn’t he do it?
Mish
There are other countries that the US can trade with, other than China. Bringing the labor back to US soil feels like a step back. Are US manufacturers are so banal that they can’t find other solutions? Seem counterproductive to me.
Nice post. I found this is an informative and interesting post, so i think it is very useful and knowledgeable. I am glad to read this post hope your next article is are so useful for me so you are meet in next process for more information click this link below
Sweta
“Fair Trade” Mish are u supporting the forced labour and environmental damage being done by China?
we can’t decouple but Trump can create headaches and headlines by targeting individual high profile tech companies
More important than bringing the jobs back to America is moving them out of China and distributing them among many small countries. We’ve turned China into a superpower. There are plenty of third world countries that could benefit and would not threaten us militarily.
The basis of Free Trade is found in Adam Smith’s The Wealth of Nations, wherein he argued that free trade eventually makes all actors better off. To the extent, ‘actors’ can buy more for less, he’s correct: global competition lowers the cost of production, and the price to buyers.
What Smith missed is that every dollar of trade deficit is ultimately a dollar of wealth transferred. Rich nations eventually become poorer. Producer/exporter nations become richer. This is why the US grew in wealth and power from the late 19thC to the 1970s. It is why Japan grew, and now China; however China is not Japan.
As we rush to support anyone-but-Trump:
We have now replaced wealth with debt, on a downhill ride that we know will not end well. Trump is the first politician to try to slow it down.
“Trump is the first politician to try to slow it down.”
…
No.
The worst trade deficits (goods + services) during the W years.
O did better than DJT.
Trade deficit by year –
2013 … $446.829 billion
2014 … $484.144 billion
2015 … $491.261 billion
2016 … $481.169 billion
2017 … $513.791 billion
2018 … $579.937 billion
2019 … $576.865 billion
Stopping trade actually requires enforcement which requires ..DING DING DING..MORE GOVERNMENT !
What Smith missed is that every dollar of trade deficit is ultimately a dollar of wealth transferred.
Smith didn’t miss this. What he and his successors said was that it was impossible to run an actual trade deficit.
We are seeing this in the case of China. While they haven’t spent their balance of USD on importing even more goods, they have spent it on stocks, real estate, and a fairly large chunk on US Treasuries.
Producer/exporter nations become richer.
As pointed out by Smith, Bastiat, etc…. if you are a producer/exporter nation it means you are also a consumer/importer nation. It is Trade which is key, not one side of it… exports.
Your sentence above was exactly the sort of thinking that Smith was trying to rectify with his thoughts on free trade.
“What Smith missed is that every dollar of trade deficit is ultimately a dollar of wealth transferred.”
If an apple farmer trades 10 apples, for a chicken from a chicken farmer, exactly how is “wealth transferred” from the apple farmer to the chicken farmer? Or was it the other way around?
Ditto if a painter trades 10 paintings for a chicken?
Or a gold miner trades 10 gold pieces for a chicken?
Or, if the paintings that the painter above traded, happened to be of Washington’s head?
Or, perhaps, if the Washington painter trades 10 of his paintings, for 10 gold pieces?
Exactly where does the fairytale-magic, or perhaps the hobgoblin-black-magic, enter the picture, such that one trade suddenly become some ominous “wealth transfer,” while the others do not?
“Trump is totally and completely out of touch with reality.”
…
Two months before election … that is all you need to know.
Just add this to his many other ideas … that, uh, did not pan out.
Succinct and the truth.
You have to be pretty high to believe Biden is “all there” and Trump is not. Why do you think Biden is hiding in his basement or taking interviews from the likes of Cardi B?
Wow…
You are a hoot.
Where have I said a single word supportive of Biden?
Furthermore, I’ve probably made several thousand comments here in 2020 … please find a SINGLE comment where I’ve praised a Democrat.
Don’t let your preconceptions get the best of you.
tRump lacks basic understanding of international trade 101. He sees every trade as win-lose. He cannot understand Win-Win. In every deal, he wants the other party to be a loser, even if that may result in his losing too. Indeed maybe the Greatest President ever.
There are tons of countries who would like to be victimized like the USA, all those countries sending them commodities and manufactures and food for pieces of paper that they print up themselves, e.g., South Sudan … How is that not winning?
What is Biden’s (or rather, Kamala Harris’) position on international trade?
Could it possibly be any worse than proposed or what we have experienced in the last 3 years?
The stock market and house prices have all gone up. Does anything else really matter?
You know that’s because of 15T of FedGov intervention. Are you really proud of this ?
Nope, not proud at all. However, your delusional if you think the Big Gov party is going to be different. They will be worse!
Do you think the Republican party is not the party of big government too ? It is worse because they spend more money on fewer people and who simply hoard wealth and don’t spend it in the United States. It turns out if government is actually competent and functional, it spends less. This is why the deficit was going down in the final years of the Obama and Clinton administrations. Hell even Bush Sr was better than Trump or Reagan. It turns out if you let things like 9/11 and Coronavirus happen and don’t contain threats, you end up with MORE government spending then you otherwise would have needed.
What matters more is Trump’s position. This election is a referendum on him. The problem with Trump is that his position on EVERYTHING shifts daily if not hourly. Any kind of business even without international trade cannot be conducted in America with this type of leadership.
Love this mindset: “Biden’s position doesn’t matter, just Trump! Don’t worry about the alternative because the Administrative State will take care of you! Trust us!”
Actually, it’s more “a psychotic moron is burning down the country, and there’s only one way to make him stop”
Last I checked, its psychotic moronS burning down the cities and it ain’t Trump. Spare me the “Well, Trump made them do it because he’s so mean!”
You can tell when you get a trumpling close to a truth they don’t like… they get angry, and then pretend they aren’t and change the subject. trumple on!
What truth ? Taking anecdotal evidence and spreading it as”cities are burning down” or “Republicans aren’t the party of big GOV” is simply LYING. I voted for Trump in 2016 in case you didn’t know. The country is not better off then it was 4 years ago.
No. You don’t get it. This election is a referendum on Trump. You dont get to have it both ways once you become President. This isnt Burger King.
Biden’s anything policy is just to find his slippers. Which he just knows he left under his robe somewhere.
While Harris wants everyone to know that she is tougher, louder, meaner and manlier than even Hillary was.
Mish, are you old enough to remember when you could walk through a hardware store and every single item was made in the U.S.?
If you don’t think you can walk into a hardware store right now and buy an American tool, you are an American tool.
Or are you complaining about having the best of the entire world at your shopping disposal in today’s world?
Had a Skil power drill for 30 years. good drill, but bought a replacement, better spec, a couple of years ago for 1/5 of the price I paid for the old one.
Or, a generation before that: Every item on every shelf, was made right there on your own darned homestead!
Mish, arguing with a Wharton alum?
I would have thought this dog whistle to the TDS2-ers would unleash a storm in the comments but I guess a lot of people are into labor day.
“Labor costs in the US would soar.. Inflation would rise due to rising prices. If the Fed hiked rates, and it would be forced to, the dollar would strengthen making US exports even more uncompetitive.”
Except if this started to happen, profits at US corporations would fall. A very good thing as they are at historically massive unprecedented levels because labor costs are so very low.
If profits fell, stock prices would crash. Also a very good thing as this would roll back record inequality – which is VERY bad for economic efficiency and the well being of society.
And crashing stocks and asset values would produce a capital flight from America, causing the $dollar$ to crash, causing demand for US made goods made by “rising labor costs” to soar. Product Made In The USA that you think are so very bad if they are made by rising labor costs instead of exorbinant profits for iPhone, Amazon, Google.
Result?
Lower, crashing dollar, Higher wages for working folk, lower profits for the super rich and corporations, the rich get less rich, the working folk benefit.
Please tell me how I can vote for that.
“Labor costs in the US would soar…” Isn’t that the point? You just convinced me. Decouple now. Isn’t that the point, the whole point, and nothing but THE point? What you see as bad I and working folk the world over see as good. There’s a reason Trump defeated Hillary. He talked about helping working folk. The other side called them deplorable irredeemables and spent the previous 8 yrs serving markets, the rich, starting wars, and giving us GWB’s 3rd & 4th term.
It is all arbitrage. CEOs arbitrage labor by building in China and Mexico with cheap labor. They arbitrage pollution controls by building in China and Mexico with low standards. This works as long as long distance transportation costs are lower than the amount they save via arbitrage. Since the US has oceans close by and a decent rail system it works.
Because of this so-called arbitrage, you and the rest of the USA–and in fact the rest of the world–enjoys a higher standard of living; since this seeking and finding of the lowest available costs allows your income to purchase more of what you need and want to improve your life. All of trade depends on it, and has since the beginning of time.
Would you prefer the alternative? Ie. catastrophe?
I liked when a washer and dryer could last 30 years, a refrigerator 50. Some avocado green and harvest gold ‘Frigidaire by GM’ refrigerators still around.
Then either spend the shekels on better quality appliances, or start taking better care of them. The good stuff is still out there. You can still buy a Kirby vacuum if you want to shell out the bucks. You don’t think the millionaires of this world buy Bissells from WalMart do you?
We all realize, right, that by buying appliances (or whatever) at the bottom end of the market, we are getting obsolescence in return for our savings… RIGHT?
“they arbitrage pollution controls by building in China and Mexico with low standards.”
Being poor, by necessity entails having lower standards than being rich. China isn’t really al that poor anymore, but back when they were then, yes; they had, again by necessity, lower standards than Americans did (at least back when Americans were still rich.)
There’s nothing magic, nor different, about “pollution”, or freedom from it. Clean air is a consumer god. Like any other. The wealthier you are, the more of it you can afford. Hence, complaining that “China” has lower “pollution standards”, is no different from complaining they have lower standards for car sizes, riding mopeds instead of driving Cadillac. Or food standards, eating rice instead of more expensive beef.
The Chinese had lower standards, across the board, because they were poorer. It’s what being poorer means.
One “lower standard” isn’t magically and mystically, somehow different from the other “lower standards”. Only child-brained progressive dronelings are dumb enough to fall for that childish attempt at indoctrination. Don’t be one.
China will be the guinea pig for trump to try and write off a chunk of the dept. First thing DT will do if reelected is to use the Covid scam as cover to announce the US will default on the trillions owed to Beijing as reparations for “unleashing” this Covid nonsense! Chicoms gonna be pissed gettin stiffed outta of trillion$$ LOL!
Why doesn’t Trump do that now? He’s in a bad way say the polls. To win reelection he needs to do something radical now, like what you suggest, or, better, a quick tactical strike to take out the Kims in North Korea. That might boost his chances in November. But he’s delaying, not doing anything, like Mish says he’s all talk and no action. A Huuuge disappointment!
No own reply box, so here.
Equally the theft is by the US, because it is buying on credit from China, because it is complicit in accepting set rates by China, which in turn takes earnings off chinese and puts them in the hands of government.
I don’t pretend that you can just shift manufacturing from China to US, over a long period maybe, but higher wages means the income goes to US citizens, who in theory will be able to afford the difference because they are earning it. This would be inflationary for others in the US during transition to whatever the new price levels would be. The existing trend to support asset prices and the use of public spending to keep the monetary /financial bubble / flow functioning is not inflationary ?
As for exchange rates, i.e. the price of US exports to foreign buyers, well I suppose the idea is not to be reliant so much on foreign trade ? What works in cost terms or is of value from the US would be bought, a reduction of purchases from the US would see the dollar drop in value normally, until supply and demand matched.
This is all theoretical argument for the sake of it that I am writing, there are clearly real world practical limits to the rate or nature of any transition.
The above is an old argument various have disagreed with Mish on, questions of national economy vs. global economy and how fair or correct each is in the whole. Point is maybe that if there were say a gold standard the picture would look very different, in fact part of the reason for the US abandoning it was probably so as to set up its position in the fiat dollar financial hegemony system that exists today – i.e. it ran out of gold it was willing to part with. So I find it a bit contradictory that Mish criticises a return to more sound national accounting , even if the reason given is that it is not easily possible, which I agree with.
You seem very confused. None of what Mish is saying is controversial or debatable. He is essentially quoting Smith, Bastiat, Mises, Hayek and Hazlitt, among many others. He has the prodigious weight of human history on his side. Ending trade with China would impoverish the USA as surely as detonating nuclear bombs over every major American urban center would.
“but higher wages means the income goes to US citizens, who in theory will be able to afford the difference because they are earning it.”
There is no way of getting increased wages out of decreased efficiency. If it was, everyone decoupling from everyone else, would be economic panacea.
Even hundreds of years ago, Adam Smith noted that improved standards of living, ultimately “wages”, resulted from the efficiency derived from specialization. The further specialization can be sustainably pushed, the greater the efficiency, hence the greater value add, hence the greater wages. IOW, if something can be done more efficiently somewhere in China than in your back yard, doing it in your backyard anyway, only result in less value being added; you becoming less competitive and hence able to hire fewer people at lower wages.
Anything else is just a, even if possibly sweet sounding, straight up fallacy. The Latin Americans fell for this nonsense back when both they and East Asia were coming out of WW2. “Building their own industry” by protecting them from imports. Ostensibly “only until they could stand on their own feet.” While the Asians kept tariffs low, hence allowing their producers access to the most efficiency improving products from abroad, while simultaneously letting local producers not up to snuff know, in no uncertain terms, that they were not. Such that now, Asia is leading the world, yet still buying from abroad that which abroad can make more efficiently. While Latin America, and possibly even North America, is now poorer than they were when that manly, sweet talking, sensible patriot Peron ruled the roost and laid the foundation for what was later to become modern politics.
So how would that work. What specific actions would Trump have to take …
You do realize those trillions are just a number on a score card, sitting inert on a balance? There’s no dollar bills sitting there waiting to be spent.
If this could be pulled off, no one would want any USA bonds/bills anymore, which is as good as defaulting on the credit of the US. World-wide the payments systems would be completely interrupted. Most production of manufactures would grind to a halt (do you have any idea how complex secondary and tertiary supply chains are?). As the lack of manufactures and spare parts cascades through all other economic activity, everything would grind to a halt, empty stores all over the world.
Most folks would be better off if a huge crater it the earth, or Kim started a nuclear or EMP strike on the USA.
LOL….What in God’s name are you talking about? How could America default on Chinese owned treasury bonds? They could sell them to Europeans at a deep discount, and who is this Chicom person you seem fixated on? Seriously, take it easy with the koolAid!
Dear friends,
I expected the “pivot to asia” (announced under Obama — but, courtesy of those emails from a banker picking his cabinet, everyone should’ve learned by now that the figurehead is not nearly as important as we are led to believe) to morph into exactly what we are witnessing now. Worse, I fear where this British-American empire is taking us. And it won’t matter which figurehead “you” elect come November.
Because empires create their own fake news and history and immerse their subjects (us) in it daily (what hunter s thompson was referring to when he said “all the hired bullshit”) learning the truth about them is just as if not more difficult than understanding financial markets and their corruption.
To aid in your understanding, I respectfully suggest you add to your weekly reading diet the following:
http://www.moonofalabama.org
caitlinjohnstone.com
http://www.corbettreport.com
Thanks but no thanks. I thought CorbettReport was that comedian doing economics…but a quick review shows it’s a 9/11 conspiracy site (“9/11 Truth and false flag terror “) which doesn’t interest me. If I want to read unfounded opinions I’ll read The Onion, which is looking more and more like real news every passing day.
Then you will be forever looking at a chess board and misinterpreting it as checkers, not knowing what you are missing — or what moves might come next — because you refuse to look.
I get it, we’re doomed, the game is rigged in favor of…(who?) It makes no difference on this slideway to hell. The masters of manipulation are inescapable. The only right person is the cynical one who says that we’re all going to die anyway, starving, alone, in the dark.
Learned helplessness is the genuine goal of some
Corbett has done good work but I’ve soured on him over the past year. He goes too far into EVERYTHING being a conspiracy. He brings up good points in his 9/11 and US foreign policy coverage, but I wish he’d keep focus on the Fed rather than water fluoridation, 5G, the Apollo moon landing, etc. Not all conspiracies are created equal and our banking system merits far more attention than a lot of what he talks about.
Sometimes he goes so far that I’m surprised he isn’t a flat earther. I think he genuinely means well but he wanders off into the weeds too often.
There would be a sudden end to “Everyday low prices”
So, “Everyday high prices”?
Forget Trump. Focus on that schlock economist Navarro
I’m reading the Navarro book co-written with Glenn Hubbard, “Seeds of Destruction” (2010) and it’s pretty simple minded, with a few good points. His big point is that China steals IP, which may be true but short of prosecuting a few alleged spies, the US has done little to make R&D more profitable in the USA. Smoke and mirrors…
Every company/country working on the cutting edge are looking for IP they can copy/steal. It always was and will be. Most IP was given away for cheaper costs and higher profits.
No wonder teachers unions are allowed leeway to bankrupt entire states, when the states’ population is sufficiently indoctrinated into utter pliant idiocy, to believe doing basic math, is stealing arithmetic from your math teacher.
I agree that’s the traditional model, akin to Marx’s observation that a capitalist will sell the rope used to hang him. I just think in theory there’s a better way. With a better patent system throughout civilization, we’d have flying cars by now 😉
Excerpt: On Flying and Aerodynamics – from Simon Winchester’s “Joseph Needham: The Man Who Loved China” (2008)
Someone asked the Master [Ge Hong] about the principles of mounting to dangerous heights and travelling into the vast inane. The Master said: Some have made flying cars with wood from the inner part of a jujube tree, using ox or leather straps fastened to returning blades so as to set the machine in motion. —FROM THE BAO PU ZI, AD 320, From Science and Civilisation in China, Volume IV, Part 2 of Needham’s work
You don’t have to be right, you just need to get the votes.
Wrong. You dont even need the most votes. If the population is dumb enough you can win.