Economic Globalism: The United States of China

global economics

I find it sort of ironic that, while Republicans make the kinds of globalism advocated on the left suspect and even part of a grand conspiracy, economic globalism has been trending for years. Trade has been a global concern in America since the triangle that involved sugar, rum, and slaves.

Wikipedia:

Sugar (often in its liquid form, molasses) from the Caribbean was traded to Europe or New England, where it was distilled into rum. The profits from the sale of sugar were used to purchase manufactured goods, which were then shipped to West Africa, where they were bartered for slaves.

Imports and exports have played a role in the economies of just about every nation. However globalism went viral in the 1980’s and beyond when factories started to leave America (and other industrial nations) to tap into an unused work force that was plentiful and which did not require high wages or benefits. The temptation to keep overhead costs and employee costs low while creating new buyers and opening new markets was apparently just too tempting.

There were other perks of relocating factories such as being able to keep profits away from America where taxes were high and place them in tax-sheltered situations. Although Trump wants American manufacturers to come home to the continental United States and bring their money with them, although he wants these wealthy Americans to practice a new-old policy of “America First”, economic globalism is highly unlikely to become isolationist any time soon. I have heard of no big rush to repatriate profits sitting abroad. Neither have I heard any patriotic fervor for bringing factories back home. While a few businesses may come home, a few more businesses are always leaving. Unless we invent a fuel to use in space and a ship designed to burn it and become a center of space exploration and colonization, unless an amazing new science of cheap, safe, and efficient space technology is found, I don’t know how we become a hub of industry again as we were in the past. That’s why we need all the talented physicists and engineers we can train and attract. Getting to space is once again a race.

It is tempting to look at the way we kept our economy booming in the past and then to simply try to replicate it. If the whole culture decays and times become more primitive a new industrial age might replicate the 1890’s – 1950’s but having to take so many steps backwards just to hope that we can recreate past innovations would mean that something catastrophic had occurred. In that case we are just as likely to languish in a primitive state as we are to reinvent the combustion engine, and the assembly line.

Annoying our trading partners, blowing up established trade relationships, does not seem like the most productive way to keep the world economy (and therefore the American economy) ticking along. If we are angry at China or Mexico or any other trading partner there must be ways to negotiate trade agreements that are not harmful to our own economy. China may be experiencing temporary challenges with its debt and its currency, but the Chinese economy looks like it still has much more room for growth than ours does. Just look up the population demographics.

I am no economist but a couple of very respected economists wrote articles this week about the complex considerations we need to keep in mind when speaking of economies and trade and globalism versus nationalism.

Sam Natapoff writing in Salon begins his recent article like this:

“The U.S.-China trade war is heating up in a battle that may last for years to come. Last week President Trump imposed new tariffs on $200 billion of Chinese exports to the United States. The Chinese government responded with tariffs on $60 billion of U.S. goods. The economic effects of this trade war between the world’s two largest economies (the U.S. at $19 trillion and China at $12 trillion) are slowly emerging. While many around the world are ignoring this, the recent damage is only the beginning.

This U.S.-China trade war was primarily caused by confusion. The Chinese government does not understand Donald Trump’s trade goals, because they are not primarily trade goals. Donald Trump has the bit between his teeth. He wants both a victory and public adulation, to feed his ego and to keep a promise to his 2016 voters that he would renegotiate unfair U.S. trade deals. He also fantasizes that he is teaching China who is boss. What’s really going on is that China has been gaining ground on the U.S. in key strategic areas, such as military power, economic influence, and scientific accomplishment, and the U.S. is now turning to aggressively confront a new rival.

At heart, everyone should be worried. The U.S., China, and all trading nations will feel real economic pain as a result of this trade war. …

This clash of economic titans threatens all multilateral trade norms and would replace them with rising tariff and non-tariff barriers around the world, placing pressure on multiple economies and eliminating any winners from this process. More concerning, this trade volatility is triggering a run by global investors into dollar assets, increasing pressures on countries with unstable currencies that were already worried about inflation and depreciation.

Even though the U.S. is being harmed, there is no chance Trump will back down. He feels that he alone can change the global trade order, make the U.S.-China trade relationship fair, and, most importantly, he wants a personal win. This position is reinforced by several of Trump’s officials and even some outside forces, for very different reasons.”

https://www.salon.com/2018/09/29/the-u-s-china-trade-war-this-is-only-the-beginning/

There was also an interesting article in the NYT about an invisible recession and its implications for the future.

Neil Irwin writes:

In 2015 and 2016, [in the United States]…

“There was a sharp slowdown in business investment, caused by an interrelated weakening in emerging markets, a drop in the price of oil and other commodities, and a run-up in the value of the dollar.

The pain was confined mostly to the energy and agricultural sectors and to the portions of the manufacturing economy that supply them with equipment. Overall economic growth slowed but remained in positive territory. The national unemployment rate kept falling. Anyone who didn’t work in energy, agriculture or manufacturing could be forgiven for not noticing it at all.

Most important, the mini-recession of 2015-16 offers a cautionary tale for any policymaker who might want to think of the United States as an economic island.

The episode is stark evidence of the risk the Trump administration faces in threatening economic damage to negotiate leverage with other nations on trade and security. What happens overseas can return to American shores faster and more powerfully than once seemed possible.”

https://www.nytimes.com/2018/09/29/upshot/mini-recession-2016-little-known-big-impact.html

The last article I will talk about said things that some might find controversial but that I thought were illuminating. The topic here is five myths about corporations. Its written by Steven Pearlstein who writes about economics at the Washington Post.

“Thirty years ago, in the face of a serious economic challenge from Japan and Europe, the UnitedStates embraced a form of free-market capitalism that was less regulated, less equal, more prone to booms and busts. Driving that shift was a set of useful myths about motivation, fairness and economic growth that helped restore American competitiveness. Over time, however, the most radical versions of these ideas have polarized our politics, threatened our prosperity and undermined the moral legitimacy of our system. (A recent survey found that only 42 percent of millennials support capitalism.)

Here are five of the most persistent myths about corporations.

[Remember these are myths so the author sets out to prove these statements are not true. Follow the link to see the author’s reasoning about why these statements, although widely believed are not necessarily accurate.]

  1. Greed, a natural human instinct makes markets work.
  2. Corporations must be run to maximize value for shareholders.
  3. Workers’ pay is an objective measure of economic contributions.
  4. Equality of opportunity is all people need to climb the economic ladder.
  5. Making the economy fairer will make it smaller and less prosperous.

https://www.washingtonpost.com/outlook/five-myths/five-myths-about-capitalism/2018/09/27/3f0b72f6-c06f-11e8-90c9-23f963eea204_story.html

Bank of England Vault

What I am trying to say is that Conservatives seem to like globalism for economics, but not when it might cost them in some way. They are inclined to use fossil fuels for as long as they are available and have lived in an oil, gas, and coal based economy for so long that they cannot conceive of an economic scenario that offers similar profits without these fuels. So when scientists and citizens talk about environmentalism, and climate change and global warming, and CO2levels all they picture is their dollars flying out the windows. It is more profitable to imagine this as a liberal plot to “redistribute wealth” than it is to take a long view and figure out what will happen when the ice caps melt and flood coastlines forever, not just during storms.

Having invested millions of dollars in building business all around the globe it seems that Conservatives are pulling back from this kind of investing in areas that are still underdeveloped, have climates that make running a business expensive, do not have enough workers or enough consumers. Once again when liberals speak of lifting up nations that are still too poor, the wealthy among us hear more dollars flying out the windows. While the world might be more stable with stronger economies in many Arab nations, African nations, and South American nations, rich folks seem to want to hang on to their own wealth rather than spread it around right now. But China is not so worried about losing individual wealth and they are filling the development gap in these nations.

Great wealth has turned our corporate heads and wealthy business people into global citizens already. They live in America only part time. They keep their money anywhere but in America. They wish to pay as few taxes as possible to help a nation of people that they have made poor by hoarding profits. No amount of excess wealth is enough. Stockpiling money for a rainy day is the prime goal. It’s mine, it’s all mine is the message. No one who did not use the public schools to get a decent education is touching a cent of my profits. No one who won’t or can’t work gets a dollar from me. If you reward them for not working they will go on not working. No one who needs to work three jobs to support dependents they had out of wedlock will engage my sympathies. They declare themselves the greatest patriots as they take their factories off to another nation where paychecks are so low as to be almost criminal. Trump thinks he can buy these people back, but they are already citizens of nowhere in particular and claiming to be an American citizen does not carry the same cachet it once did.

I cannot imagine an America isolated from everyone, turned in upon itself, not gregariously, confidently, annoyingly, and heartily interacting with nations around the globe. If we withdraw and pout about how unfairly other nations have treated us I don’t think anyone will come to comfort poor old America and try to offer expensive gifts to lure us out of our funk. The world will just go along without us and we will not only have a small government; we will have a small America. And rather than be a global force competing and scrapping with our allies and enemies we may eventually be adopted by an all-powerful Chinese Empire and become part of the United States of China. Just for a minute, imagine what we might be able to accomplish if nations worked cooperatively. I guess that can never happen unless we have reasons to toss out some excesses of national identity and national pride.

Photo Credits: From Google Images Searches:  Google sites, alfahir.hu

This is a view from the cheap seats.

 

 

 

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