Those inscrutable occidentals
Put yourself in the position of the Chinese leadership, trying to figure out the goals of Western policymakers, particular the Americans. Recall that last spring we negotiated a trade agreement with China, and then changed our mind. What do those Westerners actually want from us?
For years the West has complained about the massive Chinese current account surpluses, which peaked at about 10% of GDP. This year China’s surplus is expected to be 0.5% of GDP, the most nearly balanced of any major economy. Only Belgium will be closer to “perfection”, if that’s how you look at a current account of zero.
Is the West happy? Not at all. Two new complaints have arisen. First, China continues to run a large surplus in the trade in manufactured goods:
Many analysts doubt that most trading partners will be persuaded by Beijing’s rhetoric or by the declining current account surplus. While commodity exporters and tourist destinations have increased sales to China, displaced manufacturing workers who have fuelled support for Mr Trump and other populist leaders have not seen much benefit.
“Workers in the manufacturing sector around the world do not have much reason to be impressed by China’s rebalancing, since it hasn’t helped them in the aggregate,” said Brad Setser, senior fellow for international economics at the Council on Foreign Relations.
And second, many foreign policy hawks are now saying that the rise in China is itself a bad thing. We need a “new cold war” aimed at slowing China’s rise. So if those are your two policy concerns, what is the single most disastrous action that China could take? Here’s a FT piece discussing the recent trade war truce:
Complicating matters further were different interpretations of the deal emerging on Saturday night from the two capitals.
China raised the prospect that the tariffs could be eliminated entirely after the new round of talks, which the US did not highlight. Beijing did not mention the 90-day deadline for the negotiations, or the possibility that the tariff escalation could return if no agreement was reached. China was also much less detailed on the purchases of American goods it was committing to.
However the optimistic tone struck by the two leaders in Buenos Aires suggested a willingness to strike a deal.
If China liberalized its economy then it would grow even faster. That should be really bad news for the Cold War crowd, those who fear the increasing military strength of China. In addition, a liberalized China would buy even more commodities, services and high tech goods, and export even more of the manufactured goods that are adversely impacting America’s Rustbelt. So is this what the Trump Administration wants? More Chinese liberalization? Or would they prefer that China go back to the Maoist era when they were a threat to neither the US military nor to America’s blue-collar workers? Search me.
As for the protectionists who are looking to Trump as their savior, good luck with that:
There were already some signs of a backlash to the truce from some of Mr Trump’s supporters most hostile to China.
“Is #Trump making a huge mistake? The devil is in the details! But I’d be lying if I didn’t say at first glance this is very disappointing,” wrote Dan DiMicco, a steel executive who led Mr Trump’s trade unit during the presidential transition. “I don’t agree but I defer to the president.”
Defer to the president? DiMicco might want to consider what happened to those who worried about the South Korean Free Trade agreement and “deferred to the president” to renegotiate it. Or those who trusted Trump to re-negotiate NAFTA. Or those who trusted him to strike a deal with EU President Juncker. Or those who trusted him to negotiate with North Korea. Or those who trusted him to lobby Congress to get rid of Obamacare. Or those who trusted him to get Congress to build a border wall.
I’m actually not all that upset that’s there’s no there there. When it comes to protectionism, incoherence and incompetence are something to be welcomed. But I do feel for the Chinese leadership, trying to figure out whether the US wants China to be like the US, or whether the US believes the world’s only big enough for one United States of America.
I sometimes wonder if Trump is a secret fan of Mao, worried that rapacious capitalists residing in the world’s largest economy are exploiting Latin American countries:
At times, Mr Bolsonaro’s gripes echoed those of the Trump administration, far to the north. In October Mike Pompeo, the American secretary of state, accused Chinese state-owned firms of “predatory economic activity” in the region. Mr Pompeo’s predecessor, Rex Tillerson, had urged Latin Americans to reject “new imperial powers” like China, bent on extracting natural resources while issuing unpayable loans.
Is Noam Chomsky now writing Pompeo’s speeches?
PS. In many ways the US is becoming more like China. Consider the Tiananmen event of 1976. Zhou Enlai had recently died, and there was an enormous outpouring of grief in Tiananmen Square. Lots of flower wreaths were laid at a statue in the center of the square, for day after day. This continued for so long that eventually people began to recognize that it was an implicit protest against Mao, and the square was then cleared by the military. It happened again in 1989, after the death of the lead reformer in the Chinese government, Hu Yaobang. In a totalitarian society, people are afraid to speak out in protest, and must work through a medium that cannot be criticized—the Catholic Church in communist Poland, Islam in Middle Eastern dictatorships, or the death of a hero in China.
Americans are free to publicly criticize Trump, unless they are Republican Party officials. In that case, they must offer any criticism in the most subtle way possible, which is hard for us occidentals. Fortunately, some GOP officials have learned from Communist China, and are now offering implicit criticism of Trump via extravagant praise for recently deceased GOP leaders such as McCain and Bush, especially praise focused on exactly those qualities that are lacking in Trump.
PPS. Speaking of China, the American Cultural Revolution has still not crested. As in China circa 1966-76, there is still lots of naming, shaming, and public confessions, especially if you are born into a privileged group. Just today I learned that the holiday song “Baby, It’s Cold Outside” has been banned from a Cleveland radio station. With each new form of idiocy, I naively think it can’t get any worse. I recall thinking the Yale Halloween fiasco was the peak. I’d be interested in the views of commenters—predict the year of “peak idiocy” in the current wave of political correctness. I say two years into the administration immediately following Trump.
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2. December 2018 at 17:05
Yes, US foreign and trade “policy” defies sensible explanation. Usually, the US “policy” reflects the transactional interests of multinationals–see the US embrace of the Khashoggi killers who financed 9/11. P.U. Multinationals today love Beijing.
As for tariffs, they are only a part of the picture, and perhaps a small part.
From Chase Li, senior analyst at IHS Markit “This [flat-panel display production] expansion has been further fueled by Chinese local governments, which have supported panel-makers with various mechanisms such as financing, land grants, reduced taxes, infrastructure and direct subsidies.”
Tariffs, smariffs. Sino factories are endowed with free land, free capital and direct subsidies.
Okay, the usual “free trader” response to a Sino dirigiste mercantilist economy is that exalted US consumers get a great deal.
A small “but”…
But, with capital mobile between nations (not pondered by Ricardo), large US current-account trade deficits result in bloating asset prices in the US.
That is what the Fed and the IMF say (see cites at bottom). Property values soar.
In 2006 and 2007, the US ran current-account trade deficits equal to 5.5% of GDP in each year. In just two years, foreign capital had to buy US assets equal to 11% of GDP.
Then…about 2004-2006 the Fed gets worried about bloating asset prices, and the usual hysterics begin about the Fed (not the trade deficit) is “blowing asset bubbles.”
If wages or commodities just hint at rising…if the CPI edges up near some marker….then the Fed has the heebie-jeebies, and wrenches tight the monetary noose.
Then, you have real problems.
Property values are credit-dependent. And if property values go down, then lenders stop lending, which drives property values down….until you get a financial-sector collapse. You see, the US financial system is a house of cards exposed to property lending. As John Cochrane points out, commercial banks (and other financial institutions) have borrowed short to lend long. Nothiing has changed, either.
Okay, so the US financial system collapses and you get the Great Recession of 2008, aka the Global Financial Crisis.
Re-load 2019? The US financial system has been re-built to original specs, the US is running a large current-account trade deficits, and wages are rising.
The Fed repeatedly says there are “worker shortages.” The usual suspects are screaming for the Fed to “normalize” its balance sheet. The Fed plans rate hikes.
The real story: Over-fervent genuflection to the two most sacred totems in the Hall of Macroeconomics—tight money and free trade—led to 2008, and may lead to 2008 2.0.
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr541.pdf
http://www.imf.org/en/Publications/ESR/Issues/2018/07/19/2018-external-sector-report
2. December 2018 at 17:34
They should also ban “Rudolf The Red-Nosed Reindeer”. First, they ostracize poor Rudolf for his nose. Then, they victimize Rudolf a *second time* when they appropriate his nose to deliver toys in the fog, toys made by exploited non-union Elf labor by the way. The message seems to be that red-nosed minority reindeer are only valuable if they serve the needs of the privileged majority.
2. December 2018 at 17:47
Off-topic, but Alexandria Ocasio-Cortez just proved the efficient market hypothesis with possibly divine insight:
October 13, 1989
1. Ocasio-Cortez born
2. DJIA plunges 190.58 points, or 6.91%, to close at 2569.26
2. December 2018 at 18:32
I would hope that the Chinese leadership doesn’t study US politics and policy by reading the news. It would certainly be smarter to read research and debate of social scientists and to look at long term trends, as well as studying US history. Not that this is necessarily what the Chinese government does; they surely hav their own institutional perversities. However, there might be some longer term trends that seem to go beyond one election cycle or another. One is that power regularly alternates between Democrats and Republicans. Another is that the US public continues to like bellicose rhetoric while punishing politicians for actually getting involved in foreign wars (Libya and Syria did HRC and Obama no favors). It also seems that Americans will not tolerate large tax increases (see blue states electing good government, technocratic conservative types like Mitt Romney). It also appears that there is not a whole lot of popular support for free trade, and that opposition to it is one that has a large number of supporters who feel intensely about it, while those who do support it do so without much enthusiasm.
2. December 2018 at 19:00
> Put yourself in the position of the Chinese leadership, trying to figure out the goals of Western policymakers, particular the Americans.
I guess they are smart enough to see that all (American) politics are (also) domestic politics; and that there are as many goals as there are policy maker.
One could read the present disunity as a indictment against democracy, and the Chinese perhaps will; but I am optimistic and see it as a demonstration that democratic traditions and institutions can weather a crop of bad leadership.
(America had bad leadership before, eg Lincoln’s disastrous conduct of his war to pick an old example, but they always bounced back.)
2. December 2018 at 23:16
Next on the chopping block is Ray Parker Jr.’s song, “You Can’t Change That”
You can change your telephone number
And you can change your address too
But you can’t stop me from loving you
No, you can’t change that, no, no
Toast!
2. December 2018 at 23:32
I consider to buy a bag of genuine Superdry 極度乾燥(しなさい) from China.
It’s like a modern art for me.
3. December 2018 at 06:01
The dispute with China started when our trade negotiators demanded veto power over China’s fiscal policy (i.e., China’s version of state capitalism). Think about that: free marketers in the U.S. believe China’s economy is destined for eventual collapse because of its version of state capitalism, while Trump’s trade negotiators want to force China to move away from state capitalism and closer to the version of market capitalism we have in the U.S. Do we want a China destined for economic collapse or a China that is destined to be an even greater economic powerhouse?
3. December 2018 at 06:57
“I do feel for the Chinese leadership, trying to figure out whether the US wants China to be like the US, or whether the US believes the world’s only big enough for one United States of America.”
I think most of the Chinese leadership is more concerned about their own internal problems- continuing to subjugate the vast majority of the people while becoming a wealthy nation. It’s difficult for a government to create an educated, wealthy population and continue to abuse their human rights.
” I’d be interested in the views of commenters—predict the year of “peak idiocy” in the current wave of political correctness.”
I think you should be careful in conflating idiocy here with dangerous. We as a society have done a pretty good job of identifying when the radical right has gone too far, and as a society have done a good job of checking the right. The next century could be the test of when the radical left goes too far. My guess is the year that equality of outcome becomes more important than equality of opportunity is the year “peak idiocy” will be met. Could be 2 years, could be 50.
3. December 2018 at 09:24
@ Tom M
I am somewhat optimistic about the direction that Xi JinPing seems to want to take China. I would grant that he looks autocratic, but I suspect that his long term goal is further liberalization of China both politically and economically.
First, when you really start to think about the Belt and Road Initiative, you can see that it doesn’t make a whole lot of sense without China becoming the most important economic node in a neo-liberal global economy. When you build ports, railroads, airports, and highways in other countries, it is difficult to stop those assets from being used to trade not only with China, but also the rest of the world. And even if China only builds out the infrastructure that is of most use to trading with China, they will still be the first movers (and biggest spenders) in building out the backbone of a network that will increase the economic connectivity of the world to the West (and its allies in East Asia and the Pacific). So the West and its allies can get large benefits out the network by adding a few of the missing pieces, and I suspect that the Chinese are even planning on this happening.
I think this only makes sense as a strategy if China’s leadership is committed to being a world leader in innovation. I also suspect that they know, or will soon find out, that you need competition to consistently get economic innovation. So they are likely planning long term on reforms to make the markets in China more competitive (and if they aren’t, eventually they will have to make a conscious choice between state champions and economic competitiveness).
Second, Xi’s crackdown on corruption in the government appears to be a sustained effort, not solely a ploy to consolidate his own power. In addition to this, China has been raising the pay of its civil servants (https://www.reuters.com/article/us-china-economy-wages/china-raises-wages-for-government-workers-at-least-31-percent-document-idUSKBN0KT0NS20150120). That suggests to me that Xi is trying to some extent to imitate Lee Kwan Yew of Singapore. If that is Xi’s mental model of where he thinks China should go (and the state surveillance of citizens is consistent with that), it also suggests a more politically liberal China. It wouldn’t have the same freedom of speech, press, or assembly as the US, but it would likely have a bit more of all of those things than China currently does. It wouldn’t surprise me if China moved in a direction where most ideas, including criticism of government policy or performance in implementing policy, are allowed. The idea (and practice) of a “loyal opposition” is pretty useful, and I suspect that China’s leadership will want some version of it at some point in the not too distant future, as they already believe that it is very useful to know what people actually think about the government.
3. December 2018 at 10:18
Todd, Good find.
Burgos, I suspect that Singapore is indeed the model, but they have a long way to go.
BTW, some criticism of policy is currently allowed in China (unless that’s changed recently.) But there are some touchy subjects that are off limits.
3. December 2018 at 12:00
@ ssumner
I find it reassuring that China’s model is a country that is more economically and politically liberal than China is right now, and a good thing to keep in mind when thinking about China. I would agree that they still have a long way to go, and I suspect that it China will find that kind of change to be quite difficult given its internal politics and interest groups. I fear that one party rule and cronyism combined with political repression/propaganda is a pretty resilient political system.
3. December 2018 at 15:15
I understand what you’re talking about when it comes to the “American cultural revolution,” and I might be a bit biased due to the fact that the area I’m in seems to think that Christmas music is exempt from noise laws, but seriously Baby It’s Cold Outside really has some uncomfortably rapey lyrics, and I wholeheartedly understand the station’s choice to quietly pull it from their playlist.
3. December 2018 at 19:14
Yeah, “Baby It’s Cold Outside” might as well be retitled “The Ballad of Bill Cosby”
3. December 2018 at 23:13
P Burgos,
Scott,
It’s not much of a secret that Singapore has been _the_ model for the opening of China since Deng visited Singapore in 1978.
“Deng’s visit to Singapore in 1978 had left an indelible imprint on his mind. That year, some 400 delegations from China visited Singapore.”
More here: “https://mothership.sg/2018/11/deng-xiaoping-singapore-china-george-yeo/”
4. December 2018 at 11:51
@mkba
I think that it is surprising that China continues to look to Singapore as a model, especially when Singapore’s success has come through a certain cautious embrace of liberalism. Singapore’s liberalism isn’t liberalism of the West, but it isn’t too far off in some crucial respects. I think that basic idea is still to capture the dynamism of competitive markets and the free exchange of ideas, combined with the justice of individual rights and due process, with some limits placed on how hard you can push on certain divisive topics. That certainly seems sensible in a multiethnic country. The US used to have informal limits on that type of speech from its elites, and many people think that the US is much worse off for losing that.
5. December 2018 at 09:03
“Just today I learned that the holiday song ‘Baby, It’s Cold Outside’ has been banned from a Cleveland radio station. With each new form of idiocy,…”
Seems like a great marketing move to me.
5. December 2018 at 13:01
Luc and msgkings, You have a filthy mind. Or are you just joking?
6. December 2018 at 08:52
I am going to earnestly third the idea that “Baby its cold outside” sounds rapey. It is basically a guy trying to get a girl to sleep with him and not taking no for an answer, while the girl is giving a lot of face saving reasons for her to head home for the night. Here are some of the lyrics from Dean Martin’s recording of the song:
The neighbors might think (Baby, it’s bad out there)
Say, what’s in this drink? (No cab’s to be had out there)
The song is literally playing out a situation in which a man is trying to get a girl drunk so that he can have sex with her even when she has already made it clear that she doesn’t want to have sex. I don’t know how to make it clearer that the song is clearly disturbing.
6. December 2018 at 16:58
P Burgos,
I get it that it has the vibe you describe. Yet, she does consent at the end, which makes it… rape or seduction? is any successful seduction rape? So, should we ban Shakespeare too? (“The lady doth protest too much, methinks”). Virtually all operas? Casanova’s works must go for sure, don’t even think about leaving any de Sade infesting bookstores. Apollinaire anyone? Nevermind hip hop of almost any stripe.
I think Scott’s point is, where do you get when you ban everything that has some kind of edge?