Notes from the trade war (2)

For months, I cheered whatever distracted Trump from pressing onward with his trade war with China. Syria! North Korea! Iran! Hooray! But then Trump ordered Hispanic babies taken from their mothers and put into cages. Now I will cheer even a trade war with China if it distracts Trump from caging more babies. On the spectrum of ignominy on which Trump operates, demonizing foreigners abroad beats ethnic cleansing at home, while oft-bankrupt real estate speculator has become an aspirational ideal, like Eden before the fall. 
The immigration issue speaks for itself. For the last decade, since the start of the Great Recession, more people go from America to Mexico than vice versa. Trump claims that Mexicans who do come to America “infest” our communities (like Hitler blamed Jewish “vermin” in Germany) with their proclivity to be “murderers” and “rapists” and all-around “animals.” Different studies use different estimates of the illegal population in America. That yields different estimates of the crime and incarceration rates of all Mexican immigrants, legal or otherwise. Nonetheless, studies agree that Mexican immigrants, legal and otherwise, are criminals at about the same rate as the general population; some studies actually find them more law-abiding. Nor are there any known cases – literally not one – of Islamic terrorists infiltrating America via the Mexican border. Moreover, Trump counties have a lower proportion of immigrants than Clinton counties. Not only are Mexican immigrants an invented threat, Trump voters are less exposed to their own boogeymen. Trump’s immigration claims merit examination only because he uses them to justify separating families and caging babies. Otherwise, the factual and intellectual substance of his racist xenophobia does not deserve the dignity of response. 
Americans do not worry about Chinese colonization by purchase because it does not occur (yet?). As you point out, the United States can – and does – use politics to prevent Chinese purchase of strategic assets. China has money and will but lacks means to purchase major, symbolic American companies and properties the way that Japan did in the 1980s. To an even greater extent than Japan does, China makes it hard for foreign companies to sell to China. In retaliation, America makes it hard for Chinese companies to invest in America. But by curtailing Chinese investment access to America, America gives China an unexpected advantage in a worst-ish case scenario trade war.    
China has a $370 billion trade surplus with America. Trump slapped tariffs on $50 billion of Chinese imports. China immediately responded with $50 billion on American imports. But China exports $500 billion in goods to America while America exports only $130 in goods to China. If Trump acts on his threat to slap tariffs on an additional $200 billion of Chinese goods, China will lack sufficient goods to retaliate in kind. If trade breaks down completely, China suffers a greater production glut. Discounting even its greater potential for social instability, the financial numbers alone suggest that China has more to lose.   
China’s unexpected leverage comes from its massive investment deficit with the US. American politicians encouraged American companies to seize market share abroad but erected entry barriers to prevent Chinese companies from reciprocating in America. American companies, including politically influential giants like Apple and Walmart, hold $627 billion in Chinese assets and generate $482 billion in annual Chinese sales. Chinese companies hold only $167 billion in American assets and generate only $26 billion in annual American sales. If material trade between America and China breaks down, China runs little risk from subjecting American companies in China to red tape, tax audits (the favorite weapon of former Soviet bloc autocrats against domestic dissidents – and Obama against the Tea Party) or even expulsion. If all ties break down, meaning Chinese businesses cannot ship goods to America ($370 billion American trade deficit) and American businesses cannot sell goods and services in China ($456 Chinese sales deficit), American businesses would actually lose $86 billion more each year than their Chinese counterparts (370 – 456). And that does not even consider the Chinese government’s one-time $460 billion (627 – 167) advantage in seizable assets (which, given America’s relative rule of law, would be harder for the American government to reciprocate. Although the American government tried to overthrow Hugo Chavez in Venezuela, it never seized Venezuelan Citgo’s American assets. Property rights are sacrosanct in capitalism, unlike sovereign and human rights).    
In a trade war with no quarter, the absolute numbers favor China. But because China is the smaller, poorer economy, it bears greater proportional risk. Nonetheless, trying to coerce China into remaining low on the global supply chain will likely prove futile at best and harmful at worst. If Trump somehow wins a trade war with China, that will merely intensify the larger national conflict to cold war intensity. China is an ascendent superpower with a long list of historical grievances against America. The more damage Trump does to China, the more furious, nationalistic and unyielding China will become.  
Even a declining, second-rate superpower like Russia is too strong to coerce. After Russia annexed Crimea in 2014, America and the European Union imposed coordinated economic sanctions and (for largely unrelated reasons) commodity prices collapsed. The ruble’s value halved and Russians faced double digit inflation. Yet Putin’s approval ratings stayed above 80 percent, where they remain to this day. Sanctions reduced Russia’s material ability to continue territorial aggressions against Armenia, Chechnya, Georgia, Ukraine, etc., which makes the sanctions a qualified success. But they made Russia more hostile and less amenable to compromise. Russia had less will to behave well but also less means to invade its neighbors, which still might have been an improvement overall.  
If America, the European Union and a commodities depression could not break Russia’s nationalistic fever, America alone will not break China’s. The true question is whether Trump’s actions will similarly diminish China’s material ability to continue objectionable behaviors. For Trump, those behaviors relate mainly to unfair business practices and the perceived poaching of American manufacturing jobs. Trump is unlikely to succeed in either regard. If Trump keeps China from developing advanced technology (for example, China plans to lead the world in artificial intelligence by 2030), China will have fewer intellectual properties to protect and even less reason to respect the intellectual property rights of others. North Korea built nuclear weapons despite decades as the Hermit Kingdom. Even a poor, backward, diplomatically isolated nation could still finagle some of the world’s most dangerous military secrets and hack multinational giant Sony’s servers. Stunting China’s domestic advancement will only increase its intellectual theft from foreigners. China will stop stealing only when it has its own valuables to guard. In the meantime, it is almost impossible to prevent any determined nation, much less one with China’s human, financial and technological resources, from stealing even the highest level secrets. 
Trump stands little chance of striking a critical blow against China and even less chance of helping America. It is at least correct to fault China’s business practices, regardless what can be done. But Trump seems to believe that China’s $370 billion trade surplus means that amount of manufacturing jobs shipped from America to China. In theory, China could stop stealing American technology and open its borders to unrestricted foreign investment (in case Xi Jingping missed how disastrously that worked for 1990s Russia). But it falls mostly outside even China’s theoretical ability to restore America’s lost manufacturing jobs. Of America’s lost manufacturing jobs, technology eliminated 85 percent while outsourcing cost only 15 percent. Trump voters associate globalization with their downward mobility because the two trends occurred together. But domestic advances in technology and losses in worker rights are greater culprits by far. The production gains that once flowed to mid-level, unionized workers now flow, not to workers in Chinese sweatshops, but rather to a small cadre of elite engineers, executives and investors at home. Even if America becomes an autarky (as opposed to “only” halting all trade with China), 85 percent of its lost manufacturing jobs are gone forever. 
If Trump escalates his trade war against China, particularly if he escalates concurrent trade wars against Canada, the European Union, Japan, India, Mexico, etc., poor Americans will suffer from more expensive imports. Rich Americans will suffer from American companies generating less foreign revenue and the resultant fall in share prices. Meanwhile, 85 percent of America’s lost manufacturing jobs will remain lost because they no longer exist. If Trump hurts the poor and hurts the rich and remains unpopular with the college-educated middle class, one wonders what constituency will remain to him (besides white nationalists and fans of orange hair, of course). Trump maintains his present course despite near-universal opposition, much downside risk and almost no conceivable upside. Had he run his businesses the way he runs the country, Trump would have gone bankrupt, like, six times. Oh, wait, never mind. 
Today we suffer from a surfeit of efficiency (as Yuval Harari and others point out). That, rather than Mexican babies, Chinese workers or foreigners and/or non-whites in general, is the real problem. In past eras, 100 people working together might fail to produce enough to feed 100 people. Some starved as a material inevitability. Today, 1 farmer on a giant factory farm produces enough to feed 100. But unless the 1 farmer shares his wealth, the other 99 go hungry because their labor is unnecessary and there is no other land to till. A giant factory farm with 100 workers would produce enough to fatten everyone, but it would deprive the 1 rich farmer his ability to flaunt wealth before an audience of jealous peasants. The rich farmer would be fat in either event, but he prefers his present prestige over empathizing with the joy of others. Since admitting such selfishness would be problematic for anyone interested in forestalling revolution, the farmer shifts blame onto foreigners who compete away his profits and leave him nothing to invest at home. 
Power begets more power. Barring periods of disruption, the rich always tended to become richer. But because the rich could not produce enough to stay rich, the lower classes had limited access to production and commerce. Today’s increased efficiency allows the rich to produce everything they need. Without even the limited access and profit-sharing from past eras, society becomes more stratified and unequal. Without questions of material necessity, the entire onus of social prosperity falls upon the ability of the rich to love their neighbors more than conspicuous consumption, which seems at once the simplest and most intractable problem. 
Materially, America produces enough to support a larger middle class than ever before. We can raise the pay grade of the former working class, letting technology-enhanced labor in some sectors raise wages for all labor (Scandinavia in particular does this). In essence, raise the minimum wage. We can expand the proportion of middle class jobs where humanity is irreducible (so far), like teachers, nurses and counselors (Scandinavia also does this). In essence, increase social services. Or we can continue to let a small minority with elite levels of capital and technical proficiency usurp the wages of the displaced middle class (even Scandinavia does this, albeit to lesser degree than the developed nations). In essence, a high-tech oligarchy. Trump blaming American trade deficits is a dangerous misdiagnosis of domestic social ills. But Trump voters expected an incompetent, New York trust fund baby narcissist to fight crony capitalism and inequality. Will the same people who sent a fox to guard the henhouse be able to notice the chickens being eaten? 

Notes from the trade war (2)

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