The Trade Deficit Is China’s Problem

These figures are usually described as a huge vulnerability for the United States. They are also often told as a morality tale of American self-indulgence or (alternatively) American naivety. Either because Americans do not work hard enough or because they have been sold out by globalist elites, America is losing and China is winning.

.. In about 1890, the U.K.-U.S. relationship looked a lot like the U.S.-China relationship today. In 1890, Britain held the world’s largest pool of investible wealth, as the United States does today. In 1890, the U.S. economy was growing much faster than the U.K. economy, much as China’s economy grows faster than America’s today.

..  In 1890, investment capital flowed from Britain (the more mature economy) to the United States—and on a huge scale. In those days, Britain invested something like 6–8 percent of its national income overseas, with the U.S. as the single largest destination.

.. Instead of attracting capital, however, China is repelling it.

.. China’s trade surplus is the flipside of its failure to attract foreign direct investment. It’s an axiom of national accounting that the current account (the trade balance plus earnings on overseas investment) must precisely equal the capital account (net foreign investment in a country).

.. And while the word “surplus” sounds like a good thing either way, for a country like China, a capital surplus is actually a very bad thing.
.. China’s foreign investment is working out exactly as economic theory would predict:China’s foreign investment is working out exactly as economic theory would predict: It is yielding much lower returns than it would if it were invested in productive enterprise at home.
.. A 2008 World Bank study found that the average return on multinational corporations’ investments in China was 22 percent. American multinationals earned even more, an average of 33 percent. China earns less than 3 percent on its immense holdings of U.S. Treasury.
.. In 1890, when the U.S. was fast industrializing, it was not the dream of every candy maker in Cleveland or every furniture maker in Buffalo to gain a French passport for his children and a second home in Germany for himself.
.. not only earned its profits in the U.S., but it saw its future and its security here as well.
.. When Chinese business leaders invest tens of millions of dollars in second homes in Vancouver or send their granddaughters to Los Angeles to give birth to U.S. citizens, what are they saying about their expectations about China?

.. She looked at entrepreneurs a rung or two below the ruling oligarchy, people with some money but no political power. Their overwhelming wish was to see their children emigrate to a democratic country: Canada, Australia, the United States. Their overwhelming fear: the democratization of their own country, which they worried would mean their poorer fellow citizens seizing the opportunity to plunder them.

.. When the United States was growing fast, in the 1890s, it imported goods on a massive scale from the United Kingdom: locomotives, engineering equipment, and other high-technology items; high-quality consumer goods like Sheffield cutlery and Staffordshire ceramics; and hot-weather commodities grown within the British empire and reexported from London to the U.S., including rubber, chocolate, and palm oil.

.. They were paid for by U.S. food exports—but even more, by selling the British an opportunity to participate in future U.S. growth, which is what a capital account most fundamentally represents.

.. Because China cannot or will not attract foreign capital, it must run a huge trade surplus. That means fewer food imports (and thus a lower standard of living for its people). That means China must finance its future development out of its own savings (which means its people must consume much less of the proceeds of their own development).

.. very visibly, those who have accumulated savings are redeploying them elsewhere.

.. They accept radically lower returns on their investments in order to gain from Canada or Australia or the United States the security of property that their own government cannot provide.

If this is winning, it’s no wonder that so many Chinese every year seek to emigrate to the countries on the “losing” side.

What is a wonder is that so many in the Trump administration want to emulate on this side of the Pacific the Chinese model of economic development that terrifies so many of those who must live under it.

 

Republican or Conservative, You Have to Choose

Conservatives said we agree with the general effort but think you’ve got human nature wrong. There never was such a thing as an autonomous, free individual who could gather with others to create order. Rather, individuals emerge out of families, communities, faiths, neighborhoods and nations. The order comes first. Individual freedom is an artifact of that order.

.. “The question of which comes first, liberty or order, was to divide liberals from conservatives for the next 200 years.”

.. The practical upshot is that conservatives have always placed tremendous emphasis on the sacred space where individuals are formed. This space is populated by institutions like the family, religion, the local community, the local culture, the arts, the schools, literature and the manners that govern everyday life.

.. Over the centuries conservatives have resisted anything that threatened this sacred space. First it was the abstract ideology of the French Revolution, the idea that society could be reorganized from the top down. Then it was industrialization. Conservatives like John Ruskin and later T. S. Eliot arose to preserve culture from the soulless pragmatism of the machine age.

.. Then it was the state. In their different ways, communists, fascists, social democrats and liberals tried to use the state to perform many functions previously done by the family, local civic organizations and the other players in the sacred space.

.. They both fizzled because over the last 30 years the parties of the right drifted from conservatism. The Republican Party became the party of market fundamentalism.

Market fundamentalism is an inhumane philosophy that makes economic growth society’s prime value and leaves people atomized and unattached. Republican voters eventually rejected market fundamentalism and went for the tribalism of Donald Trump because at least he gave them a sense of social belonging. At least he understood that there’s a social order under threat.

The problem is he doesn’t base his belonging on the bonds of affection conservatives hold dear. He doesn’t respect and obey those institutions, traditions and values that form morally decent individuals.

.. His tribalism is the evil twin of community. It is based on hatred, us/them thinking, conspiracy-mongering and distrust. It creates belonging, but on vicious grounds.

.. In 2018, the primary threat to the sacred order is no longer the state. It is a radical individualism that leads to vicious tribalism.

.. At his essence Trump is an assault on the sacred order that conservatives hold dear — the habits and institutions that cultivate sympathy, honesty, faithfulness and friendship.

.. You can’t do that rethinking if you are imprisoned in a partisan mind-set or if you dismiss half of Americans because they are on the “other team.”

 

 

Everything We Knew About Sweatshops Was Wrong

As the economist Joan Robinson said, “The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.”

.. Unlike agriculture or informal market selling, these factories pay a steady wage, and if workers gained skills valued by the market, they might earn higher wages.

.. The factories seemed professional and clean. Whenever a new factory line opened, we saw long rows of applicants — mostly young, unmarried women.

.. By the end of a year only a third of the people who had landed an industrial job were still employed in the industrial sector at all.

.. the factory jobs carried dangerous risks. Serious injuries and disabilities were nearly double among those who took the factory jobs, rising to 7 percent from about 4 percent. This risk rose with every month they stayed. The people we interviewed told us about exposure to chemical fumes and repetitive stress injuries.

.. Why were people lining up for hazardous jobs? Partly it was because they did not appreciate the risks, or how hard the work was, until they started. Others anticipated the risks but used factory work as a safety net when times were tough. The people who stayed longer had few alternatives.

.. In 1913, the Ford Motor Company recorded turnover rates of over 300 percent. Pay was poor and the work hard, and workers left in droves. Many of the modern management strategies we think are about factory efficiency started as attempts to lower this turnover.

.. For poor countries to develop, we simply do not know of any alternative to industrialization. The sooner that happens, the sooner the world will end extreme poverty.