China Trade War
After the death of Emperor Mao, whose horrific reign killed at least 100,000,000 of his own citizens, the leaders of China gradually decided to join the community of nations — at least from an economic perspective. Their economy is directed by the state, but some market forces were allowed into the system. Even partial capitalism has been a huge wealth creator. As a part of that process, an historic de facto deal was struck with America. China got to move millions of peasants living in abject rural poverty into the modern economy (thereby greatly increasing the productivity of their labor), and American consumers got a lot of quality merchandise at very good prices.
It is possible to convincingly argue that the combination of Chinese peasants, Walmart and Costco have done more for the American standard of living than any efforts by our government. Those who worry about income inequality usually mistake income for prosperity. Income isn’t the issue; the key is what income will buy. Scandinavian workers are among the highest paid in the world, but their standard of living is fairly modest, by advanced economy standards. Their wages are heavily taxed. The goods they buy are heavily taxed. The heavy hand of regulation stifles competition that would lower prices. An American worker earning average wages ($27/hr.) living in flyover country and shopping at Walmart has a higher level of consumption.
The problem with the grand bargain is that China cheats. It restricts imports. It steals intellectual property. It extorts intellectual capital from foreign businesses operating in China. Our leadership class (the Great and Good) have been aware of this problem for decades. Some of them have even complained about it — to no avail. President Barbarian has actually made a stink and started a trade war.
Despite his ham handed tactics and China’s obvious superiority in the realm of negotiations, I think Trump is onto something. This is a war we can win, at least in the long run.
There are lots of subsistence farmers in South Asia and Africa who would be happy to step up to a regular wage in a factory. There are lots of governments who would welcome economic growth. Some manufacturing is already migrating to Vietnam and Thailand. My bet is that lots of manufacturing will return to our shores. A combination of right-to-work laws, cheap natural gas and local government incentives has already drawn some blood in the trade war. Wisconsin got Foxcom. Programmable robots are coming. They are the perfect line workers. No vacation or sick leave needed. Why ship goods thousands of miles when you can custom make product a few miles from your consumer?
China has gotten by with being a one-way mercantile power for some time, and drawn a lot of unwarranted admiration in the process. Now, their bluff has been called. In the long run, I think playing by the WTO rules is a much better alternative. If the Trump tantrum pushes them in that direction, the world will be a better place, and fewer jobs will migrate elsewhere.
