01:09there is a very class conscious01:13unusually class conscious very powerful01:16business community always fighting a01:19bitter class war never relentless and01:22unusually powerful that’s one of the01:25reasons for the difference between the01:27United States and Europe and you just01:29can’t study the United States without01:31paying attention to that they have01:33overwhelming power over the political01:35system they basically Shrek frame what01:38happens in the media without just even01:44introducing that factor you’re just not01:46discussing the country so doesn’t matter01:49what the abstract theories say and thereare other things like that there otherthings about the United States whichreally have to be considered seriouslyit’s a very frightened country andalways has been back to colonial daysand some good scholarship on this butthere’s a reason why people didn’t laughwhen Reaganstrapped on his cowboy boots and saidwe’re under threat from Nicaragua fromGrenada you know so I’m saying whoeverit’s a frightened country and always hasbeen and you’ve got to pay attention tothat you know there’s a cultural effectand there are other basic things thathave to be considered if you want totalk seriously about the country and androll’s it it just wasn’t his interest
President Trump’s remarks on Afghanistan at his Cabinet meeting Wednesday were a notable event. They will be criticized heavily, and deservedly so. The full text is available on the White House website.
Mr. Trump ridiculed other nations’ commitment of troops to fight alongside America’s in Afghanistan. He said, “They tell me a hundred times, ‘Oh, we sent you soldiers. We sent you soldiers.’”
This mockery is a slander against every ally that has supported the U.S. effort in Afghanistan with troops who fought and often died. The United Kingdom has had more than 450 killed fighting in Afghanistan.
As reprehensible was Mr. Trump’s utterly false narrative of the Soviet Union’s involvement there in the 1980s. He said: “The reason Russia was in Afghanistan was because terrorists were going into Russia. They were right to be there.”
Right to be there? We cannot recall a more absurd misstatement of history by an American President. The Soviet Union invaded Afghanistan with three divisions in December 1979 to prop up a fellow communist government.
The invasion was condemned throughout the non-communist world. The Soviets justified the invasion as an extension of the Brezhnev Doctrine, asserting their right to prevent countries from leaving the communist sphere. They stayed until 1989.
The Soviet invasion of Afghanistan was a defining event in the Cold War, making clear to all serious people the reality of the communist Kremlin’s threat. Mr. Trump’s cracked history can’t alter that reality.
In handicapping the US-China conflict, Keynesian demand management is a better guide than comparative advantage. In principle, China can avoid any damage at all from US tariffs simply by responding with a full-scale Keynesian stimulus.
The United States cannot win its tariff war with China, regardless of what President Donald Trump says or does in the coming months. Trump believes that he has the upper hand in this conflict because the US economy is so strong, and also because politicians of both parties support the strategic objective of thwarting China’s rise and preserving US global dominance.
But, ironically, this apparent strength is Trump’s fatal weakness. By applying the martial arts principle of turning an opponent’s strength against him, China should easily win the tariff contest, or at least fight Trump to a draw.
.. Comparative advantage certainly influences long-term economic welfare, but demand conditions will determine whether China or America feels more pressure to sue for trade peace in the next few months. And a focus on demand management clearly reveals that the US will suffer from Trump’s tariffs, while China can avoid any adverse effects.
From a Keynesian perspective, the outcome of a trade war depends mainly on whether the combatants are experiencing recession or excess demand. In a recession, tariffs can boost economic activity and employment, albeit at the cost of long-term efficiency. But when an economy is operating at or near its maximum capacity, tariffs will merely raise prices and add to the upward pressure on US interest rates. This clearly applies to the US economy today.
.. US businesses could not, in aggregate, find extra low-wage workers to replace Chinese imports, and even the few US businesses motivated by tariffs to undercut Chinese imports would need to raise wages and build new factories, adding to the upward pressure on inflation and interest rates.
.. With little spare capacity available, the new investment and hiring required to replace Chinese goods would be at the cost of other business decisions that were more profitable before the tariff war with China. So, unless US businesses are sure the tariffs will continue for many years, they will neither invest nor hire new workers to compete with China... Assuming that well-informed Chinese businesses know this, they will not cut their export prices to absorb the cost of US tariffs. That will leave US importers to pay the tariffs and pass on the cost to US consumers (further fueling inflation).. Thus, the tariffs will not be “punitive” for China, as Trump seems to believe. Instead, the main effect will be to hurt US consumers and businesses, just like an increase in sales tax.
.. Where will the competitively priced imports that undercut China come from?
In most cases, the answer will be other emerging economies. Some low-end goods such as shoes and toys will be sourced from Vietnam or India. Final assembly of some electronic and industrial machinery may relocate to South Korea or Mexico.
.. But this should have no effect on Chinese growth, employment, or corporate profits if demand management is used to offset the loss of exports. The Chinese government has already started to boost domestic consumption and investment by easing monetary policy and cutting taxes.
.. In principle, China can avoid any damage at all from US tariffs simply by responding with a full-scale Keynesian stimulus. But would the Chinese government be willing do this?1
This is where bipartisan US support for a “containment policy” toward China paradoxically works against Trump. China’s rulers have so far been reluctant to use overt demand stimulus as a weapon in the trade war because of strong commitments made by President Xi Jinping to limit the growth of China’s debt and to reform the banking sector.
.. But such financial policy arguments against Keynesian policy are surely irrelevant now that the US has presented the battle over Trump’s tariffs as the opening skirmish in a geopolitical Cold War. It is simply inconceivable that Xi would attach higher priority to credit management than to winning the tariff war and thereby demonstrating the futility of a US containment strategy against China.
.. This raises the question of how Trump will react when his tariffs start to hurt US businesses and voters, while China and the rest of the world shrug them off. The probable answer is that Trump will follow the precedent of his conflicts with North Korea, the European Union, and Mexico. He will “make a deal” that fails to achieve his stated objectives but allows him to boast of a “win” and justify the verbal belligerence that inspires his supporters.
Trump’s surprisingly successful rhetorical technique of “shout loudly and carry a white flag” helps to explain the consistent inconsistency of his foreign policy. The US-China trade war is likely to provide the next example.
In contrast to the Soviet Union, China’s leaders recognize that strong economic performance is essential to political legitimacy. Like the Soviet Union, however, they are paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race with the US.When the Soviet Union imploded in 1991, the Communist Party of China (CPC) became obsessed with understanding why. The government think tanks entrusted with this task heaped plenty of blame on Mikhail Gorbachev, the reformist leader who was simply not ruthless enough to hold the Soviet Union together. But Chinese leaders also highlighted other important factors, not all of which China’s leaders seem to be heeding today... But overseeing a faltering economy was hardly the only mistake Soviet leaders made. They were also drawn into a costly and unwinnable arms race with the United States, and fell victim to imperial overreach, throwing money and resources at regimes with little strategic value and long track records of chronic economic mismanagement. As China enters a new “cold war” with the US, the CPC seems to be at risk of repeating the same catastrophic blunders... China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion... the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither... China’s growth is likely to continue to decelerate, owing to rapid population aging, high debt levels, maturity mismatches, and the escalating trade war that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs... while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment... the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets... Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become... The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”.. Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries... An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return... from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion... Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.