Prisoners of the past? Photographer: Kyodo News/Getty Images
The 2008 crisis set the U.S. and China on an inexorable path to confrontation.
On September 21, 2018, Andrew Browne writes on Bloomberg:
In their own individual ways, the leaders of the U.S. and China are products of a moment when free-market capitalism imploded and Chinese-style “state capitalism” shored up the global economy. The 2008 financial crisis helped make both Donald Trump and Xi Jinping. What observers don’t yet seem to appreciate is how difficult that makes it for them to resolve their spiraling trade war.
Financial markets wobble every time Trump imposes new tariffs on China, such as the 10 percent levy on $200 billion in imports he announced earlier this week, and then perk up on hopes of talks, as though this was a classic tit-for-tat trade war. It’s far from that. White House complaints about lopsided trade and Chinese theft of intellectual property are the pretext for a wider struggle. What we’re seeing are the opening stages of a strategic competition spurred by a sense of vulnerability in the U.S. and, in China, of national destiny.
This roots of this confrontation lie in the 2008 collapse. The crisis shaped the nationalist impulses of both Trump and Xi, while energizing their respective bases. The U.S. response — the emergency decision to bail out Wall Street and leave workers to fend for themselves — pretty much ensured that median wages wouldn’t budge for a decade. Post-crisis salary gains have disproportionately accrued to the top 1 percent on Wall Street and in Silicon Valley.
Trump deftly exploited the distress this caused blue-collar and middle-class Americans to pave his way to the White House. “Make America Great Again” was born of defeat.
For his part, Xi manipulated, with equal finesse, the sense of self-assuredness that came over China after it witnessed first the humbling of Western capitalism, then liberal democracy buckling to the forces of populism and nativism. Xi’s signature “China Dream” gave expression to this triumphant nationalism. From the vantage point of Communist Party headquarters, there was no longer any need for caution in dealing with a West suspicious of Chinese intentions; Deng Xiaoping’s prudent advice to “bide our time and hide our capabilities” could be safely discarded. China’s moment had arrived.
Confidence morphed into assertiveness, and then into recklessness. Did Xi and his advisers really imagine that they’d face no pushback to the “Made in China 2025” industrial policy that has, as its explicit goal, the mercantilist objective of taking over swaths of advanced technology through subsidies and other incentives to state champions? Or that smaller neighbors would be so grateful for infrastructure supplied under Xi’s trillion-dollar Belt and Road Initiative they’d indefinitely overlook some of its more predatory terms and conditions? It took Malaysian Prime Minister Mahathir Mohamad, beyond caring about diplomatic niceties at the age of 93, to warn about a “new version of colonialism” on a visit to Beijing.
Some of Xi’s aides are trying to recalibrate — for instance, by soft-pedaling Made in China 2025 in the state-run media. But this is optics. Neither Trump nor Xi can afford to back down substantively.
The link between stagnating incomes and protectionism was clear enough even before the 2008 crisis, a calamity for millions of working-class Americans that turned their frustrations into a full-scale revolt against globalization. Trump channels that anger, and in the absence of measures to rebuild the ladder of prosperity — proposals include massive investment in childhood education and worker reskilling — China has become a useful whipping boy. Under Trump, China has gone from economic threat to “strategic competitor.” Trade is the leading edge of resistance.
For their part, Chinese leaders have lost hope of a quick trade deal from a U.S. president they pegged, wrongly, as a pragmatic businessman. Instead, they now interpret his moves as “containment” — and they’re not far off the mark. Though this is not exactly a replay of the Cold War — for one, the two economies are deeply entwined — trade hostilities infect just about every area of the relationship, from the military and security realms to scientific and technological collaboration.
Xi himself views “state capitalism” as a perfectly credible path, and he won’t dismantle the system on Trump’s orders. As Harvard economist Dani Rodrik argues, China has succeeded all these years precisely because it has ignored Western economic prescriptions. Moreover, the advent of artificial intelligence, machine learning and other transformative technologies powered by data — which China has in super-abundance — has convinced Chinese leaders that their country’s fortunes are about to rise further even if the trade war slows growth in the short term.
World-shaking upheavals such as these often take decades to play out. It’s too early to say whether the U.S. and other Western countries can reinvigorate free markets and liberal democracy by forging a new social contract between capital and labor. Nor can anyone predict with confidence whether China will become the first major economy to break into the ranks of rich nations without first adopting liberal economics and pluralistic politics.
The best the U.S. and China can probably hope for in the meantime is some form of peaceful-if-awkward coexistence. A Cold War-style relationship would imply at least a limited decoupling of the world’s two biggest economies, with the U.S. and China agreeing to cooperate where possible on commercial matters and to limit the scope of their strategic competition. If they can’t work out a managed separation of this kind, the legacy of 2008 may well be a hard split, with Trump and Xi ripping apart the global economy.
https://www.bloomberg.com/view/articles/2018-09-21/trump-and-xi-can-t-compromise-in-trade-war
Gary Reber Comments:
Our governments over the past several decades have failed us and paved the way for out-sourcing our industrial knowhow to Communist China and other foreign countries who can offer American corporations a significantly cheaper means to produce goods and even services. Our governments never imposed tariffs on the Chinese-foreign goods produced for American corporations to export back to the United States. At the same time, American consumers and American producers, struggling to survive or maintain a good standard of living in an economy less and less dependent on workers to produce goods and services (due to out-sourcing and tectonic shifts in the technologies of production that eliminate the need for workers), happily embraced the lower costs of the goods they needed and wanted, whether for consumption or for materials and parts necessary for the assembly of products. As one, two, three, fifty, one hundred, corporations began to out-source production, the impact was that increasingly more corporations would by necessity follow if they wanted to stay competitive and produce their goods at similar low cost.
Rather than invest in America, American corporation have invested in state-owned Chinese corporations (typically state-private partnerships, subject to seizure by the Communist Party) to produce, what previously was produced in the United States or could be produced here, ending investment in the United States.
Of course, without investment in the formation of new productive capital assets (the non-human factor of production), there would be no opportunities for good jobs or workers and other Americans owning the corporations doing the producing.
All along the Communist Chinese government has had a plan to supersede the United States and the world, which has become known as the “Made In China 2025” industrial policy. This policy’s aim is to produce all the significant goods needed and wanted by the world’s populations.
There is no question that China has succeeded all these years with its brand of State Capitalism, whereby the elite in China––both the elite in the Party and those elite subsidized in the State private sector–– “own” and manage the “Made In China” mandate. Moreover, ever since the advent of artificial intelligence, machine learning and other transformative non-human technologies, China has and is investing heavily to ensure their country’s fortunes will rise further even if the trade war slows growth in the short term.
Imposing penalizing tariffs on the goods that should have never been out-sourced in the first place will be tough medicine for Americans to swallow. But I believe that if our government does not persevere with strong tariffs that cripple the Chinese and other low-cost-of-production countries and make it disadvantageous for Americans to out-source and produce there, that our industrial manufacturing base will be diluted, if not effectively and completely destroyed, to the point that the Chinese, especially, will exert total economic control over our nation.
While President Donal Trump is not who I would like to see lead a policy direction that seeks to make it disadvantageous for Americans to out-source production, no other politician or political party has shown any leadership or appears to be willing to join forces to counter “Made In China” threat to our economy with a far more technological superior “Made In America” industrial policy.
This new industrial and national growth policy must be financed using financial mechanisms that empower EVERY child, woman, and man to acquire personal ownership stakes in the new productive capital assets formed. This can be accomplished using insured, interest-free capital credit, repayable strictly out of the earnings generated by the new productive capital assets formed, and without any requirement of past savings. Such a policy will not rely on the already wealthy capital ownership class (as has been the status quo to date, as past savings were necessary to finance growth) and will simultaneously create new capital asset owners and build wealth-creating, income-producing ownership portfolios simultaneously with the growth of the economy. Thus, as we build a future economy that can support responsible and environmentally enhanced affluence for EVERY citizen, steadily, year-after-year, the ownership economy will produce more affluent “customers with money” to support demand.
Over time, with the development of our technologically advanced “Made In America” economy, we will be able to set and implement fair trade policies with countries with complementary fair trade policies.
As Americans, this should be our goal. Planning begins with a goal. So let us make America’s productive capabilities the best in the world.
