As a Canadian, I have my doubts about American intensions. The U.S. under Trump slapped a tariff on Canadian aluminum and steel in the name of "National Security". No one in the U.S. Government challenged this. The U.S. under Trump and Biden prevented companies from selling Covid vaccines to Canada. No one in the U.S. Government challenged this.
So looking at this subject from Canada's point of view, "decoupling" means we can't depend on the U.S. to be a supplier of any strategically important items. It also means Canadian companies are foolish to expand and depend on the U.S. as a customer of any strategically important items.
It appears that because of "decoupling", Canada can't depend on access to the U.S. market. Thus, it seems we must "deglobalize" the production of any strategically important items, so we don't find ourselves left high and dry by the U.S. in the future.
Texas Instruments announced it will build an $11 billion semiconductor plant in Lehi, Utah.
And Salt Lake City residents are exposed to toxic heavy metals that precipitate out of the shrinking Great Salt Lake and are carried by the wind. Sure, why not stick another semiconductor straw in the rapidly declining water resources in the Southwest, wasting more than 100 million gallons of fresh water (this is assuming Texas Instruments will claim, like Intel, that it recycles 95% of the water used by the average Fab).
The government should have attached conditions to the billions it’s giving these corporations, requiring the new chip fabs be built in the Great Lakes Area/Rust Belt. There are a hell of a lot of unemployed blue-collar workers there than in sparsely populated Utah.
Or course, that 100 million gallons of water is annually and Utah uses 4.46 billion gallons of water [edit: daily]. So that plant would increase Utah's water usage by .006%. Basically one drop in a bucket.
Before we fix a "problem" it is important to understand from whence the problem originated, why we took or why we want to take certain actions, and what the end game is -- this is the only way to ensure the "solution" gets us to the prize.
1. American companies wanted to access cheap labor and weren't initially squeamish as to whether it was child labor, prisoners, environmentally dangerous, abusive, or unfairly priced.
We allowed this to happen and, thus, jobs left Greenville, SC to never return.
Cheap labor created corporate profits -- talking to you Apple and your ilk -- and left the American workers to fend for themselves. The US companies exported their American jobs to China.
2. These American companies still sold back into America -- the biggest prize in the game -- and wanted the protection of American law, stock exchanges, currency, and executive compensation.
They just didn't want to employ American labor. They wanted all the benefits of being a US company except they wanted cheap labor.
3. Until Trump, the Chinese/American manufacturers making their products in China enjoyed unfettered access to the American market. We charged zero entry fee.
Like Germany/Russian NordStream I/II, Trump nailed this one.
It was like going to DisneyLand without having to pay an entry fee.
So, why do we want to change now?
1. American production in China and Chinese production creates an untenable national security risk as shown clearly during the Pandemic China forbade American companies to send their PPE wares to the US.
There are a number of strategic materials that are sourced from China that cannot easily be sourced from other places in the event of a military confrontation.
2. China has a clear plan of gaining military and economic superiority over the entire world, but particularly displacing American power wherever it can, which is expensive and is funded by their economy.
We are helping China build an economy and military that will make war on America and our allies.
3. The Chinese are longstanding bad actors in commerce and the military. In commerce, they steal intellectual property and compel companies doing business in China to surrender their IP.
Militarily, they openly plan to take Taiwan by brute force and openly wargame these actions, all while the West is supposed to treat this renegade nation as if they were civilized and peace loving. Why?
The US must think strategically and act tactically.
1. There are certain industries that are essential to a nation at war that must be sited in places in which they cannot be disrupted in time of war -- steel is an example. Semiconductors. Ammunition. Airplanes.
These industries have to be returned to the US and we must compete globally in such a manner that the global market makes these industries strong and technically proficient.
2. We have to charge an entry fee to the American market and, perhaps, deny entry based on national security grounds.
A perfect example of this today is the total disregard for Russian Baltic Birch plywood (best cabinet plywood in the world) still pouring into the US uninterrupted whilst we finally came to ban Russian crude.
3. We have to harness the power of the market to motivate American companies to embrace some or all of these ideas. They exported jobs because they wanted cheap labor, so perhaps they need to pay some penalty that trues this up?
If we can embrace this history and these principles, what we need to do becomes clear. What words we use to describe it are not nearly as important as actually taking the actions.
The end game has to be a China that cannot economically or militarily threaten its neighbors, the US, and world peace.
For a good number of reasons, I do not believe the current administration is capable of pulling this off starting with the inane utterance of Chmn of the Jt Chiefs Milley: "China is not our enemy."
Yes, China is our enemy. That is fine because we are two countries who embrace and live under different value systems. It is OK to have enemies because that means we stood for things -- in our case good things.
If we keep our eye on the results the rest of it is much easier.
Trump was definitely a positive force in the GOP in which Bush took a victory lap to the Beijing Olympics in 2008 when the American economy was melting down…but America started adding manufacturing jobs in 2010 after hemorrhaging then from 2002-2009.
While the world has slept, China has built about 400 ICBM launch tubes -- some of them are dummies, not all will have rockets -- and is trying to develop a blue water navy whilst threatening Taiwan on a daily basis both with words and overflights.
They have built a wooden replica of the Taiwan gov't complex and practiced attacking it.
400 ICBMs with 12-MIRV warheads per rocket is a national security threat, a serious one.
There is only one country that will require ICBMs to neutralize. That country is under an increasing threat.
The Chinese are moving on all fronts: Confucius Centers at US universities, Chinese police departments in major US cities, the balloon saga, their bellicose utterances in regard to Taiwan and Japan, their turning loose North Korea to act up again, and their Belt & Road Initiative in Africa and South America.
Why don't we believe them when they say they want to displace the US as a superpower?
Why didn't we believe Hitler's Mein Kampf?
Why didn't we believe Putin's utterances about Ukraine from 2016? Especially since we saw what he'd done in Georgia, Chechnya, Syria, and Crimea?
We are at a Munich Moment and the only way there will be "peace for our times" is to be ready and be a formidable foe at the head of an alliance that controls Chinese initiatives.
"Come in peace, but have a plan to kill every motherfucker in the room." Bit over dramatic, but it catches the sentiment.
I do not understand why economic values take precedence over human values. The U.S. affords the rule of law, enlightenment values such as freedom of speech, democracy, et al. Yet we should have a cost neutral approach to that of the human means of productions, such that the quantifiers if economic production, e.g. which country can produce the most steel, is the overarching metric for valuing economic systems?
Has the whole world gone mad? Have we simply prioritized economic production over liberty, freedom and Western enlightenment values?
Might as well argue for communistic values since they produce more tons of steel per capita.
What a sorry state of affairs if U.S. economists solely metric the goods and services produced without measuring that value of the respective economic systems that produce said values.
Economists are, and should be, primarily focused on...economics.
It is up to the public and our representatives to tell them to sit down and shut up when they try to force economics to be prioritized above everything else.
If you want to include “human values” in discussing free trade and globalization you probably need to include the actual Chinese people. The rise of hundreds of millions of Chinese out of abject poverty over the past half century is nothing short of miraculous, a great blessing for humankind. Since 1970 the per capita GDP in China has increased by 73x. The life expectancy has increased by hundreds of millions of person years.
This does, however, suggest that it is time to move past China and move our globalization to other countries (where GDP hasn't increased by 73x), instead.
I actually remember when the Bush administration was putting the final touches on negotiating China into the WTO and several Hollywood stars opposed it based on human rights…their careers quickly came to an end. The reality is we hemorrhaged manufacturing jobs during the Bush administration because that administration was extremely incompetent AND we were having an energy crisis.
I think it's because Neoliberals believed that higher GDP would increase human rights. And for some things, like LGBT/women's rights, the neoliberals were right. But this doesn't consistently translate to democratic rights.
This guy refers to it as Sam Bankman-Friedian level rationalizations:
So this is just a Sam Bankman-Friedian level of rationalization!! SBF rationalized everything he did by claiming to be a untilitarian whose true goal was effective altruism—so making money was just the means to achieve his true goal of helping as many people as he could! So when ethics gets in the way of helping billions of people then one should discard ethics, right?? So we can see how rationalizations come very easy when one is making money hand over fist!
I entered a career in software in the mid-1980s after a decade of construction work. Before construction work, I was close to a PhD in classical Chinese history.
The rise of China as a capitalist force did not surprise me in the least.
The coupling between capitalism and democracy is very loose. A minimum of autonomy is all it takes to foster entrepreneurship; markets can be closely regulated and still promote competition. Greed as a motivator crosses all political lines. Democracy's strength is in self-correction and resistance to corruption. Eventually, the idiots and the bums get thrown out.
The first decades of the 21st century were a sort of golden age in tool stores. Tools manufactured in China were a step up in quality and innovation, and prices were moderate. Equipping a toolbox in 2015 was relatively cheaper and better quality than the equivalent in 1975. I was envious. That benefited the American middle and blue-collar class, although it may not have been evident to economists.
Noah is right: we're seeing globalization re-jiggered, not ended. I intuit that this will be bad for the authoritarians devoted to losing battles (see Ukraine), cronyism, and self-dealing.
This is a very important discussion because I witness many fellow Americans that do not understand the basic definitions of globalization and decoupling.
Globalization is natural free trade. Recent technological and logistical advancements have energized global free trade from its historical roots of camel caravans and wooden ships. Just as spices and tea imported from Asia and the Americas enriched the lives of our ancestors (both East and West), increased flow of goods and knowledge greatly enrich our lives today worldwide.
Decoupling is just jingoist nationalism under another name. In an interconnected world economy, it makes no logical sense to decouple and isolate from the rest of the world and assume an outcome of greater prosperity and security. Trade is agnostic. It knows no borders. It is a free flowing river of goods, energy, and information that can either benefit all or an elite few. Decoupling is a racist act designed to benefit an "exceptional" few rather than benefiting all.
A recent example of the danger of decoupling is the USSR embracing Soviet communism at the end of WWII and cutting itself off from the rest of the world behind an Iron Curtain of nuclear armed military might. Without the nourishment of free flowing trade, investment, and social dynamism, the nation collapsed exposing a deeply deteriorated economic core unable to compete in the modern world. The resurgence of rabid Russian nationalism is leading them back into the corner they recently escaped from. By decoupling from the West, Russia is bleeding talent and economic investment needed to thrive in today's globalized world. While Russia is busy killing Ukrainians, it is also shooting itself in the foot.
Globalization works by loosening barriers to trade and expanding prosperity more widely. By attempting to hinder the growth and economy of others leads us back into brute, racist nationalism and destructive economic and military clashes of 'us' against 'them' in a world where there no longer are such designations. The U.S. cannot hurt or deter China without harming itself. "Do unto others as you would have then do unto you..." is the golden rule both figuratively and actually. We are truly all in this together and we have no option but to figure out how to get along and play nice.
Judging by the long arc of history, I don’t see the trend toward globalization reversing. Realigning supply chains is inflationary, Mohammed el-Erian, et alia have pointed out. Given that it’s inflationary, it’s all the more reason to get a better bang for the buck, shifting manufacturing sources to allies. There are many capable PAC-Rim countries already manufacturing high-end electronics, from South Korean to Malaysia. In fact, Mexico is quite capable. Many medical devices/technologies are manufactured in Mexico. ENPH five years ago shifted manufacturing of its micro-inverters from China to Mexico. Given its biggest markets are California and Brazil, the logistical cost savings are significant. Given the souther border problem is, to a great extent, and economic problem, why not shift some manufacturing to Mexico, maybe even Central America in the long term? No one thing is dispositive for solving globalization, but globalization isn’t going away. There are too many benefits for multiple developed countries and the Third World in the long run.
My colleague also published an insight paper on this topic of "decoupling". You could "decouple" one layer deep (e.g. direct imports) but still have massive indirect trade ties if your allies get core energy or material inputs from the nation you in theory are trying to decouple from.
I don't think anything is really changing. We have always wanted to pursue global capitalism. I think we have just come to the realization that, as hard as we try, places like China, Russia, and most of the Middle East don't want to be a part of it. Now we are just realizing we need to undo all of the economic ties we made in the nineties and the aughts because we are realizing that we created national security issues for ourselves. We were naive and greedy. Now we have to go through a painful breakup and court places like India and Viet Nam to be our new partners. I hope we don't make the same mistakes this time.
Isn’t “decoupling” from China just diversifying sourcing with a bunch of geo-politics and bullshit ancient arrogance of the Chinese and Conservative fear of actually relying on democracy to see us through thrown into the mix?
I recommend “The Dawn of Everything,” by David Graeber and David Wendgrow and “Dirt: The Erosion of Civilizations,” by David Montgomery. These authors undertook an extensive reading of millennia of empirical data in the archaeological record. Too many authors of books such as “Guns, Germs, and Steel” and “Sapiens” make assumptions that aren’t evidenced-based. The desertification of land in multiple states (salts precipitating hot of irrigated water) and exhausting soil horizons is nothing new. Darwin spent the last 20’years of his life studying earthworms and creation of souls — for good reason. It took millennia to create underground aquifers and only a few decades to deplete them. It takes hundreds of years to create an inch or two of soil.
This is assuming the underground acquifers are being replenished. They’re not. If one studies the dendrochronology record, which goes back centuries past when the U.S. Weather Service first recorded rainfall data (1865), the entire southwest is much drier than it is today. The last few 100 years was an anomaly, an unusually wet period. The Glen Canyon Dam was doomed to fail from the start. Ironically, the science of dendrochronology was begun at the University of Arizona (under the football stadium, which still has a world-class dendrochronology lab and program. But why listen to the scientists and check centuries of empirical data? Shortly after the Civil War, when Powell, the first director of the USGS, explored the entire length of the Colorado River, examining the geological record, he unequivocally stated: “The southwest should not be developed.” It’s an open secret that can be read in his exploration journal and USGS reports. The Glen Canyon Dam will fail to produce hydropower within 10-15 years. Engineers will be forced to shut down the turbines to prevent them from the grinding of silt/sand. And oxygenation will begin to degrade the metal.
Noah, I was checking out the graph of American steal production and I saw this event:
The U.S. steel industry blames Russia, Japan and Brazil for its troubles.
Steel imports for the first seven months of the year have grown 130 percent from Japan, 93 from Korea, and 19 percent from Russia, compared to year-ago levels, according to collected data.
Most of those shipments are sold far below market value at prices that violate established U.S. trade laws, and in some cases at prices below the cost of production in their native countries, the coalition of steel makers argue, making it impossible for them to compete.
Noah writes “We need to...offer Japan and Korea full access to the U.S. market, including all the same tax credits that we give to domestic producers. Otherwise it will look like the U.S. is the kind of country that hangs its key allies out to dry. And that is an image we absolutely can’t afford.
Why is this something we cannot afford?
And this “Even in the cases when allies are intervening to keep their currencies cheap, they’re often doing it in order to stay competitive with China…We should want our allies and friends to stay competitive with China. That strategic concern should override worries about the small current account imbalances that we have with small allies like South Korea and developing-country friends like India.
This is the same thing we did with China, which Noah now admits was a mistake. Why is it more important for our allies to remain competitive with China that it is for the US?
He concludes “That’s no way to fight a Cold War. The economic benefit of…protectionist policies would be miniscule…while the strategic losses of looking like a country that punks its own allies would be enormous.”
He notes “In the first Cold War, we wisely realized that when allies like South Korea and Japan and France got rich, it made the U.S. and the world more secure.” And argues we should so the same again.
But the situations are not the same. The policy of the first Cold War was created by men whose worldview had been shaped entirely in a pre-nuclear world where Great Power competition could always be settled in a great power coalition war (and routinely was, every fifty years as Quincy Wright documented in 1942). Great Power competition was built into their cultural DNA.
But that world ended in 1945. What’s Noah’s excuse for thinking the same way?
Interesting post. I wonder if in geopolitical terms, it might be hard to do a “bit of decoupling”. You might want to do a lot, fast, if you want to hurt China quickly (which may be necessary or inevitable if tensions keep ramping up).
Point taken about the trade models, but I remember similar points being made about economists’ predictions on Brexit, yet they held up pretty well; there’s no obvious reasons why the model’s flaws bias its results towards overestimating losses rather than underestimating them.
Lastly, why predict a world where China is isolated? Why wouldn’t India (and perhaps the rest of Asia) stay neutral and keep trading with China as well as, or even instead of, the West?
I think your last point of India and the rest of Asia will stay neutral is contrary to reality. India and China regularly have border clashes over disputed territory. India has banned large swaths of Chinese companies.
China is currently in active territory disputes with almost all of its neighbors, and routinely harasses. I know it might be hard to believe, but many East Asian countries welcome the US as being a counterbalance to china’s aggression
To be honest, I do not understand why American "economists" fail to understand why the hollowing out of the middle class in the U.S. fail to understand the true human costs of doing so in the favor of "muh free trade" continue to do so. Is it a failure of understanding human capital? The destruction of middle class labor from 1970, when the U.S. was arguably at an apex in the world economy, worth the productivity gains when compared to the free trade "bargains" worth it to the middle classes of Youngstown, OH or Detroit, Mi or to U.S. Steel in Gary, IN?
Why did Wal-Mart and Home Depot pivot from American tool and die manufacturing to China and did it benefit the middle class? It certainly didn't. Look at the decimated heartland manufacturing of Cleveland or other rustland belts for your answer. American politicians, such as Bill Clinton, a democrat, permitted the hollowing out of American post-WWII manufacturing that let working class Americans a middle class life.
This economic crime will be championed by the global elites as "muh free market". Yet it hurt those Americans who fought in WWII and their children.
A smart person adapts to the changes. My great grandfather, the 13th child that lived of 15 on a small farm in Kentucky, moved to Pittsburgh at 15 and got a job on the floor hauling slag buckets around. He did that his entire life. His son ended up running western US transportation for US Steel, moving from Pittsburgh to Salt Lake during WWII and San Francisco after the war. You went where the job and career were most valued. Education has always been important in my family. We went through the great American transformation, from someone not educated past 14, to my father and brother, Stanford residency and Stanford JD, to my PhD in physical chemistry. You get more education and you move to create the most value from that education. Just like my great grandfather demonstrated moving can lead to a great future. Smart people have and will always be paid more, sometimes a lot more.
John, that's very well said, your story reminded me of my grandfather, whom I had great respect for since childhood. We always argued with him (different generations and different views) on the topic of politics and business, but it was not a dispute between two sheep, we always knew how to listen to each other, always came to a new conclusion and moved on. To this day I remember and think of him as the closest person in my life!
Net, people would not trade if it wasn’t beneficial to both parties, so by simple mathematical fact free trade is always self optimizing net across all involved parties. US manufacturing output increased substantially after NAFTA. It was a win-win policy change.
This guy does what many do—uses globalization as a boogeyman for other trends. Coal production increased through 2008!! Wyoming is the evil state that stole Weat Virginia’s coal jobs!! Now an important date to know is 1979—that is the year manufacturing jobs peaked and union membership peaked AND steal production peaked. But guess why steel production peaked?? Recycling! An American company called Nucor developed a new technology that allowed steel to be more cheaply recycled.
What trade liberalisation did Reagan do exactly? He did a trade war with Japan and kept the average tariff where it was under Ford and Carter.
Around the same time Thatcher oversaw the collapse of heavy industry in the UK, which has earned her the hatred of much of Northern England. No almost economic historian blames cuts to tariffs, which were more of less unchanged since 1950. Monetarism is the chief culprit.
Global steel output plateaued from the 1970s into the 1990s. In any case that doesn't tell you much about steel employment which in absolute terms fell from 1953-1979.
The middle class is disappearing because people have moved up to upper middle class, free trade does have its cons but the benefits outweighs the cons.
The middle class is disappearing because the policies implemented during the New Deal that encouraged its growth have been replaced with policies that discourage its existence.
I think there are multiple trends that took place over the 1980s to present that harmed the middle class. Globalization didn’t necessarily harm the middle class but they were harmed.
As a Canadian, I have my doubts about American intensions. The U.S. under Trump slapped a tariff on Canadian aluminum and steel in the name of "National Security". No one in the U.S. Government challenged this. The U.S. under Trump and Biden prevented companies from selling Covid vaccines to Canada. No one in the U.S. Government challenged this.
So looking at this subject from Canada's point of view, "decoupling" means we can't depend on the U.S. to be a supplier of any strategically important items. It also means Canadian companies are foolish to expand and depend on the U.S. as a customer of any strategically important items.
It appears that because of "decoupling", Canada can't depend on access to the U.S. market. Thus, it seems we must "deglobalize" the production of any strategically important items, so we don't find ourselves left high and dry by the U.S. in the future.
Texas Instruments announced it will build an $11 billion semiconductor plant in Lehi, Utah.
And Salt Lake City residents are exposed to toxic heavy metals that precipitate out of the shrinking Great Salt Lake and are carried by the wind. Sure, why not stick another semiconductor straw in the rapidly declining water resources in the Southwest, wasting more than 100 million gallons of fresh water (this is assuming Texas Instruments will claim, like Intel, that it recycles 95% of the water used by the average Fab).
The government should have attached conditions to the billions it’s giving these corporations, requiring the new chip fabs be built in the Great Lakes Area/Rust Belt. There are a hell of a lot of unemployed blue-collar workers there than in sparsely populated Utah.
Or course, that 100 million gallons of water is annually and Utah uses 4.46 billion gallons of water [edit: daily]. So that plant would increase Utah's water usage by .006%. Basically one drop in a bucket.
Smart comment. Well played.
JLM
www.themusingsofthebigredcar.com
At the very least there should be conditions on companies using local incentives. (Mispriced water is one such).
Before we fix a "problem" it is important to understand from whence the problem originated, why we took or why we want to take certain actions, and what the end game is -- this is the only way to ensure the "solution" gets us to the prize.
1. American companies wanted to access cheap labor and weren't initially squeamish as to whether it was child labor, prisoners, environmentally dangerous, abusive, or unfairly priced.
We allowed this to happen and, thus, jobs left Greenville, SC to never return.
Cheap labor created corporate profits -- talking to you Apple and your ilk -- and left the American workers to fend for themselves. The US companies exported their American jobs to China.
2. These American companies still sold back into America -- the biggest prize in the game -- and wanted the protection of American law, stock exchanges, currency, and executive compensation.
They just didn't want to employ American labor. They wanted all the benefits of being a US company except they wanted cheap labor.
3. Until Trump, the Chinese/American manufacturers making their products in China enjoyed unfettered access to the American market. We charged zero entry fee.
Like Germany/Russian NordStream I/II, Trump nailed this one.
It was like going to DisneyLand without having to pay an entry fee.
So, why do we want to change now?
1. American production in China and Chinese production creates an untenable national security risk as shown clearly during the Pandemic China forbade American companies to send their PPE wares to the US.
There are a number of strategic materials that are sourced from China that cannot easily be sourced from other places in the event of a military confrontation.
2. China has a clear plan of gaining military and economic superiority over the entire world, but particularly displacing American power wherever it can, which is expensive and is funded by their economy.
We are helping China build an economy and military that will make war on America and our allies.
3. The Chinese are longstanding bad actors in commerce and the military. In commerce, they steal intellectual property and compel companies doing business in China to surrender their IP.
Militarily, they openly plan to take Taiwan by brute force and openly wargame these actions, all while the West is supposed to treat this renegade nation as if they were civilized and peace loving. Why?
The US must think strategically and act tactically.
1. There are certain industries that are essential to a nation at war that must be sited in places in which they cannot be disrupted in time of war -- steel is an example. Semiconductors. Ammunition. Airplanes.
These industries have to be returned to the US and we must compete globally in such a manner that the global market makes these industries strong and technically proficient.
2. We have to charge an entry fee to the American market and, perhaps, deny entry based on national security grounds.
A perfect example of this today is the total disregard for Russian Baltic Birch plywood (best cabinet plywood in the world) still pouring into the US uninterrupted whilst we finally came to ban Russian crude.
3. We have to harness the power of the market to motivate American companies to embrace some or all of these ideas. They exported jobs because they wanted cheap labor, so perhaps they need to pay some penalty that trues this up?
If we can embrace this history and these principles, what we need to do becomes clear. What words we use to describe it are not nearly as important as actually taking the actions.
The end game has to be a China that cannot economically or militarily threaten its neighbors, the US, and world peace.
For a good number of reasons, I do not believe the current administration is capable of pulling this off starting with the inane utterance of Chmn of the Jt Chiefs Milley: "China is not our enemy."
Yes, China is our enemy. That is fine because we are two countries who embrace and live under different value systems. It is OK to have enemies because that means we stood for things -- in our case good things.
If we keep our eye on the results the rest of it is much easier.
JLM
www.themusingsofthebigredcar.com
Trump was definitely a positive force in the GOP in which Bush took a victory lap to the Beijing Olympics in 2008 when the American economy was melting down…but America started adding manufacturing jobs in 2010 after hemorrhaging then from 2002-2009.
While the world has slept, China has built about 400 ICBM launch tubes -- some of them are dummies, not all will have rockets -- and is trying to develop a blue water navy whilst threatening Taiwan on a daily basis both with words and overflights.
They have built a wooden replica of the Taiwan gov't complex and practiced attacking it.
400 ICBMs with 12-MIRV warheads per rocket is a national security threat, a serious one.
There is only one country that will require ICBMs to neutralize. That country is under an increasing threat.
The Chinese are moving on all fronts: Confucius Centers at US universities, Chinese police departments in major US cities, the balloon saga, their bellicose utterances in regard to Taiwan and Japan, their turning loose North Korea to act up again, and their Belt & Road Initiative in Africa and South America.
Why don't we believe them when they say they want to displace the US as a superpower?
Why didn't we believe Hitler's Mein Kampf?
Why didn't we believe Putin's utterances about Ukraine from 2016? Especially since we saw what he'd done in Georgia, Chechnya, Syria, and Crimea?
We are at a Munich Moment and the only way there will be "peace for our times" is to be ready and be a formidable foe at the head of an alliance that controls Chinese initiatives.
"Come in peace, but have a plan to kill every motherfucker in the room." Bit over dramatic, but it catches the sentiment.
JLM
www.themusingsofthebigredcar.com
I do not understand why economic values take precedence over human values. The U.S. affords the rule of law, enlightenment values such as freedom of speech, democracy, et al. Yet we should have a cost neutral approach to that of the human means of productions, such that the quantifiers if economic production, e.g. which country can produce the most steel, is the overarching metric for valuing economic systems?
Has the whole world gone mad? Have we simply prioritized economic production over liberty, freedom and Western enlightenment values?
Might as well argue for communistic values since they produce more tons of steel per capita.
What a sorry state of affairs if U.S. economists solely metric the goods and services produced without measuring that value of the respective economic systems that produce said values.
Economists are, and should be, primarily focused on...economics.
It is up to the public and our representatives to tell them to sit down and shut up when they try to force economics to be prioritized above everything else.
Agreed.
The solution to that isn't, however, to tell economists to insert squishy stuff like 'values and liberty' into their analyses.
It's to demand more from our representatives.
If you want to include “human values” in discussing free trade and globalization you probably need to include the actual Chinese people. The rise of hundreds of millions of Chinese out of abject poverty over the past half century is nothing short of miraculous, a great blessing for humankind. Since 1970 the per capita GDP in China has increased by 73x. The life expectancy has increased by hundreds of millions of person years.
This does, however, suggest that it is time to move past China and move our globalization to other countries (where GDP hasn't increased by 73x), instead.
This comment makes no sense lol
An what about my comment "makes no sense lol" Please elucidate.
I actually remember when the Bush administration was putting the final touches on negotiating China into the WTO and several Hollywood stars opposed it based on human rights…their careers quickly came to an end. The reality is we hemorrhaged manufacturing jobs during the Bush administration because that administration was extremely incompetent AND we were having an energy crisis.
I think it's because Neoliberals believed that higher GDP would increase human rights. And for some things, like LGBT/women's rights, the neoliberals were right. But this doesn't consistently translate to democratic rights.
This guy refers to it as Sam Bankman-Friedian level rationalizations:
So this is just a Sam Bankman-Friedian level of rationalization!! SBF rationalized everything he did by claiming to be a untilitarian whose true goal was effective altruism—so making money was just the means to achieve his true goal of helping as many people as he could! So when ethics gets in the way of helping billions of people then one should discard ethics, right?? So we can see how rationalizations come very easy when one is making money hand over fist!
https://genefrenkle.substack.com/p/matt-talibbani-wages-jihad-on-the
I entered a career in software in the mid-1980s after a decade of construction work. Before construction work, I was close to a PhD in classical Chinese history.
The rise of China as a capitalist force did not surprise me in the least.
The coupling between capitalism and democracy is very loose. A minimum of autonomy is all it takes to foster entrepreneurship; markets can be closely regulated and still promote competition. Greed as a motivator crosses all political lines. Democracy's strength is in self-correction and resistance to corruption. Eventually, the idiots and the bums get thrown out.
The first decades of the 21st century were a sort of golden age in tool stores. Tools manufactured in China were a step up in quality and innovation, and prices were moderate. Equipping a toolbox in 2015 was relatively cheaper and better quality than the equivalent in 1975. I was envious. That benefited the American middle and blue-collar class, although it may not have been evident to economists.
Noah is right: we're seeing globalization re-jiggered, not ended. I intuit that this will be bad for the authoritarians devoted to losing battles (see Ukraine), cronyism, and self-dealing.
This is a very important discussion because I witness many fellow Americans that do not understand the basic definitions of globalization and decoupling.
Globalization is natural free trade. Recent technological and logistical advancements have energized global free trade from its historical roots of camel caravans and wooden ships. Just as spices and tea imported from Asia and the Americas enriched the lives of our ancestors (both East and West), increased flow of goods and knowledge greatly enrich our lives today worldwide.
Decoupling is just jingoist nationalism under another name. In an interconnected world economy, it makes no logical sense to decouple and isolate from the rest of the world and assume an outcome of greater prosperity and security. Trade is agnostic. It knows no borders. It is a free flowing river of goods, energy, and information that can either benefit all or an elite few. Decoupling is a racist act designed to benefit an "exceptional" few rather than benefiting all.
A recent example of the danger of decoupling is the USSR embracing Soviet communism at the end of WWII and cutting itself off from the rest of the world behind an Iron Curtain of nuclear armed military might. Without the nourishment of free flowing trade, investment, and social dynamism, the nation collapsed exposing a deeply deteriorated economic core unable to compete in the modern world. The resurgence of rabid Russian nationalism is leading them back into the corner they recently escaped from. By decoupling from the West, Russia is bleeding talent and economic investment needed to thrive in today's globalized world. While Russia is busy killing Ukrainians, it is also shooting itself in the foot.
Globalization works by loosening barriers to trade and expanding prosperity more widely. By attempting to hinder the growth and economy of others leads us back into brute, racist nationalism and destructive economic and military clashes of 'us' against 'them' in a world where there no longer are such designations. The U.S. cannot hurt or deter China without harming itself. "Do unto others as you would have then do unto you..." is the golden rule both figuratively and actually. We are truly all in this together and we have no option but to figure out how to get along and play nice.
Judging by the long arc of history, I don’t see the trend toward globalization reversing. Realigning supply chains is inflationary, Mohammed el-Erian, et alia have pointed out. Given that it’s inflationary, it’s all the more reason to get a better bang for the buck, shifting manufacturing sources to allies. There are many capable PAC-Rim countries already manufacturing high-end electronics, from South Korean to Malaysia. In fact, Mexico is quite capable. Many medical devices/technologies are manufactured in Mexico. ENPH five years ago shifted manufacturing of its micro-inverters from China to Mexico. Given its biggest markets are California and Brazil, the logistical cost savings are significant. Given the souther border problem is, to a great extent, and economic problem, why not shift some manufacturing to Mexico, maybe even Central America in the long term? No one thing is dispositive for solving globalization, but globalization isn’t going away. There are too many benefits for multiple developed countries and the Third World in the long run.
My colleague also published an insight paper on this topic of "decoupling". You could "decouple" one layer deep (e.g. direct imports) but still have massive indirect trade ties if your allies get core energy or material inputs from the nation you in theory are trying to decouple from.
https://www.nature.com/articles/s41560-022-01053-2
I don't think anything is really changing. We have always wanted to pursue global capitalism. I think we have just come to the realization that, as hard as we try, places like China, Russia, and most of the Middle East don't want to be a part of it. Now we are just realizing we need to undo all of the economic ties we made in the nineties and the aughts because we are realizing that we created national security issues for ourselves. We were naive and greedy. Now we have to go through a painful breakup and court places like India and Viet Nam to be our new partners. I hope we don't make the same mistakes this time.
Isn’t “decoupling” from China just diversifying sourcing with a bunch of geo-politics and bullshit ancient arrogance of the Chinese and Conservative fear of actually relying on democracy to see us through thrown into the mix?
I recommend “The Dawn of Everything,” by David Graeber and David Wendgrow and “Dirt: The Erosion of Civilizations,” by David Montgomery. These authors undertook an extensive reading of millennia of empirical data in the archaeological record. Too many authors of books such as “Guns, Germs, and Steel” and “Sapiens” make assumptions that aren’t evidenced-based. The desertification of land in multiple states (salts precipitating hot of irrigated water) and exhausting soil horizons is nothing new. Darwin spent the last 20’years of his life studying earthworms and creation of souls — for good reason. It took millennia to create underground aquifers and only a few decades to deplete them. It takes hundreds of years to create an inch or two of soil.
This is assuming the underground acquifers are being replenished. They’re not. If one studies the dendrochronology record, which goes back centuries past when the U.S. Weather Service first recorded rainfall data (1865), the entire southwest is much drier than it is today. The last few 100 years was an anomaly, an unusually wet period. The Glen Canyon Dam was doomed to fail from the start. Ironically, the science of dendrochronology was begun at the University of Arizona (under the football stadium, which still has a world-class dendrochronology lab and program. But why listen to the scientists and check centuries of empirical data? Shortly after the Civil War, when Powell, the first director of the USGS, explored the entire length of the Colorado River, examining the geological record, he unequivocally stated: “The southwest should not be developed.” It’s an open secret that can be read in his exploration journal and USGS reports. The Glen Canyon Dam will fail to produce hydropower within 10-15 years. Engineers will be forced to shut down the turbines to prevent them from the grinding of silt/sand. And oxygenation will begin to degrade the metal.
Noah, I was checking out the graph of American steal production and I saw this event:
The U.S. steel industry blames Russia, Japan and Brazil for its troubles.
Steel imports for the first seven months of the year have grown 130 percent from Japan, 93 from Korea, and 19 percent from Russia, compared to year-ago levels, according to collected data.
Most of those shipments are sold far below market value at prices that violate established U.S. trade laws, and in some cases at prices below the cost of production in their native countries, the coalition of steel makers argue, making it impossible for them to compete.
https://money.cnn.com/1998/11/04/companies/steel/
Noah writes “We need to...offer Japan and Korea full access to the U.S. market, including all the same tax credits that we give to domestic producers. Otherwise it will look like the U.S. is the kind of country that hangs its key allies out to dry. And that is an image we absolutely can’t afford.
Why is this something we cannot afford?
And this “Even in the cases when allies are intervening to keep their currencies cheap, they’re often doing it in order to stay competitive with China…We should want our allies and friends to stay competitive with China. That strategic concern should override worries about the small current account imbalances that we have with small allies like South Korea and developing-country friends like India.
This is the same thing we did with China, which Noah now admits was a mistake. Why is it more important for our allies to remain competitive with China that it is for the US?
He concludes “That’s no way to fight a Cold War. The economic benefit of…protectionist policies would be miniscule…while the strategic losses of looking like a country that punks its own allies would be enormous.”
He notes “In the first Cold War, we wisely realized that when allies like South Korea and Japan and France got rich, it made the U.S. and the world more secure.” And argues we should so the same again.
But the situations are not the same. The policy of the first Cold War was created by men whose worldview had been shaped entirely in a pre-nuclear world where Great Power competition could always be settled in a great power coalition war (and routinely was, every fifty years as Quincy Wright documented in 1942). Great Power competition was built into their cultural DNA.
But that world ended in 1945. What’s Noah’s excuse for thinking the same way?
BTW, this is an excellent treatment of the issues involved. Bravo and well played.
JLM
www.themusingsofthebigredcar.com
Interesting post. I wonder if in geopolitical terms, it might be hard to do a “bit of decoupling”. You might want to do a lot, fast, if you want to hurt China quickly (which may be necessary or inevitable if tensions keep ramping up).
Point taken about the trade models, but I remember similar points being made about economists’ predictions on Brexit, yet they held up pretty well; there’s no obvious reasons why the model’s flaws bias its results towards overestimating losses rather than underestimating them.
Lastly, why predict a world where China is isolated? Why wouldn’t India (and perhaps the rest of Asia) stay neutral and keep trading with China as well as, or even instead of, the West?
I think your last point of India and the rest of Asia will stay neutral is contrary to reality. India and China regularly have border clashes over disputed territory. India has banned large swaths of Chinese companies.
China is currently in active territory disputes with almost all of its neighbors, and routinely harasses. I know it might be hard to believe, but many East Asian countries welcome the US as being a counterbalance to china’s aggression
I can imagine that. Still, few countries welcome conflict with large powerful neighbours.
To be honest, I do not understand why American "economists" fail to understand why the hollowing out of the middle class in the U.S. fail to understand the true human costs of doing so in the favor of "muh free trade" continue to do so. Is it a failure of understanding human capital? The destruction of middle class labor from 1970, when the U.S. was arguably at an apex in the world economy, worth the productivity gains when compared to the free trade "bargains" worth it to the middle classes of Youngstown, OH or Detroit, Mi or to U.S. Steel in Gary, IN?
Why did Wal-Mart and Home Depot pivot from American tool and die manufacturing to China and did it benefit the middle class? It certainly didn't. Look at the decimated heartland manufacturing of Cleveland or other rustland belts for your answer. American politicians, such as Bill Clinton, a democrat, permitted the hollowing out of American post-WWII manufacturing that let working class Americans a middle class life.
This economic crime will be championed by the global elites as "muh free market". Yet it hurt those Americans who fought in WWII and their children.
A smart person adapts to the changes. My great grandfather, the 13th child that lived of 15 on a small farm in Kentucky, moved to Pittsburgh at 15 and got a job on the floor hauling slag buckets around. He did that his entire life. His son ended up running western US transportation for US Steel, moving from Pittsburgh to Salt Lake during WWII and San Francisco after the war. You went where the job and career were most valued. Education has always been important in my family. We went through the great American transformation, from someone not educated past 14, to my father and brother, Stanford residency and Stanford JD, to my PhD in physical chemistry. You get more education and you move to create the most value from that education. Just like my great grandfather demonstrated moving can lead to a great future. Smart people have and will always be paid more, sometimes a lot more.
John, that's very well said, your story reminded me of my grandfather, whom I had great respect for since childhood. We always argued with him (different generations and different views) on the topic of politics and business, but it was not a dispute between two sheep, we always knew how to listen to each other, always came to a new conclusion and moved on. To this day I remember and think of him as the closest person in my life!
Net, people would not trade if it wasn’t beneficial to both parties, so by simple mathematical fact free trade is always self optimizing net across all involved parties. US manufacturing output increased substantially after NAFTA. It was a win-win policy change.
Yes, but it only takes a few traders to spoil things for everyone except themselves.
After WW2 the US slashed tariffs to historic lows, and encouraged the rest of the west to do the same.
If free trade really was the issue, EU member states would all have the same income and wealth distribution.
This guy does what many do—uses globalization as a boogeyman for other trends. Coal production increased through 2008!! Wyoming is the evil state that stole Weat Virginia’s coal jobs!! Now an important date to know is 1979—that is the year manufacturing jobs peaked and union membership peaked AND steal production peaked. But guess why steel production peaked?? Recycling! An American company called Nucor developed a new technology that allowed steel to be more cheaply recycled.
Lol, the songs about steel town unemployment were written when Reagan was president…learn history!!
What trade liberalisation did Reagan do exactly? He did a trade war with Japan and kept the average tariff where it was under Ford and Carter.
Around the same time Thatcher oversaw the collapse of heavy industry in the UK, which has earned her the hatred of much of Northern England. No almost economic historian blames cuts to tariffs, which were more of less unchanged since 1950. Monetarism is the chief culprit.
Here is the graph of American steel production—we had a recession in the early 1980s and then production never recovered to the highs of the 1970s.
https://tradingeconomics.com/united-states/steel-production
Global steel output plateaued from the 1970s into the 1990s. In any case that doesn't tell you much about steel employment which in absolute terms fell from 1953-1979.
https://peakjobsanalysis.wordpress.com/2015/01/11/peak-jobs-us-steel-employment-1943-2013/
https://www.researchgate.net/figure/World-crude-steel-production-1900-2016-Source-World-Steel-Association-2017_fig7_317345083
The middle class is disappearing because people have moved up to upper middle class, free trade does have its cons but the benefits outweighs the cons.
Sources:
https://fee.org/articles/3-popular-economic-myths-in-need-of-debunking/
https://www.aei.org/carpe-diem/animated-chart-of-the-day-americas-middle-class-is-disappearing-but-its-because-theyre-moving-up-not-down-2/
https://www.pewresearch.org/fact-tank/2022/04/20/how-the-american-middle-class-has-changed-in-the-past-five-decades/
The middle class is disappearing because the policies implemented during the New Deal that encouraged its growth have been replaced with policies that discourage its existence.
I think there are multiple trends that took place over the 1980s to present that harmed the middle class. Globalization didn’t necessarily harm the middle class but they were harmed.