
China’s Economy to Reap Benefits That Once Flowed to U.S - kimsk112
https://www.bloomberg.com/opinion/articles/2018-12-18/china-as-no-1-economy-to-reap-benefits-that-once-flowed-to-u-s
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blhack
I know it's wrongthink so say that globalism has seemed like a bad thing, so:
I'm a programmer, not an economist. Could somebody explain to me why trying to
effect the US's stance as an economic leader using tariffs is a bad idea?

Naively, globalism seems to benefit the ultra wealthy but this seems to be at
the cost of the middle class.

Also: globalism seems to benefit the Chinese middle glass at the cost of the
American.

~~~
dhruvp
Theoretically, the argument against tariffs stems from the idea that a market
increases the net surplus for everyone involved in the trade. This is because
each individual in the economy would be able to focus on their 'comparative
advantage' and trade to obtain a larger basket of goods than if they tried to
create everything themselves.

The way the US is expected to enjoy this trade surplus (in a world where it is
a net importer) is through lower prices for goods. The benefit the US gains
from this reduction in prices etc. is meant to on the whole offset the loss in
jobs, exports etc that might come from globalism. Whether this happens or not
is clearly a moot point.

I believe the issue might be that while the US has enjoyed the surpluses of
globalism, it has not redistributed that surplus well. In a tariff world, the
need for redistribution is less - factory workers get the money directly in
the form of a paycheck etc through their protected jobs. In a non-tariff
world, these jobs no longer exist but the government would ideally now offset
that loss through investments in education, infrastructure, new job
opportunities etc.

Hope this answers why globalism is supposed to work and where it may not be
working.

~~~
rohit2412
I feel this is true only at an individual level, but is not true for a
collective level.

Take two choices, you can either buy a 15$ tshirt in your local country, or a
10$ tshirt from another country. At an individual level it makes sense to buy
the cheaper one.

But from a country's perspective, those 15$ spent in the economy are earned by
someone in the economy to be spent again. On the other hand, the 10$ sent
overseas have no effect of money circulation. Saving those 5$ over a t-shirt
might cost 20$ in GDP. The calculations need to be done regarding velocity of
money, taxation rate, and savings. But I do think that not all money is equal.
10$ spent overseas and 5$ spent domestically is less favorable than 15$ spent
domestically.

I think protectionism and tariffs cannot be cast as inherently failures, and
are necessary to build an economy.

~~~
hackeraccount
Why is that? I mean you can tell a story where the local $15 shirt benefits
the local country more but it's just as a easy to tell a story where the local
country benefits more from buying the t-shirt abroad.

If you buy the foreign t-shirt there's $5 more floating around in the economy
for you to spend. Plus you have a t-shirt. Plus the local country is likely to
stop making t-shirts (which it manifestly is not competitive at) and put that
money into something that it is competitive at i.e. away from something that
is not productive and into something that _is_ productive which is to say
efficient which is better for everyone - even better for the environment as
resources are not wasted by inefficiently making goods.

~~~
rohit2412
I don't think I ever implied that free trade is always harmful. Just that at
times tariffs and protectionism may be beneficial.

The onus is on the other side which claims that free trade is always
beneficial, and any tariffs or protectionism is harmful.

Their analysis seems to work with the assumption that every participant in the
economy practices free trade. That the effect of 10$ spent in USA is equal to
10$ in china, so that they don't have to take money circulation in their
model.

I find that assumption very false. 10$ that go to your local country is
largely spent as tax to the country, rent, food, and healthcare services in
the local economy. If you send 10$ to China, they won't be spending it on
American restaurants, housing, or healthcare. Clearly USA should have some
preference to say 10.1$ being spent in USA vs 10$ in china.

It is fairly easy to see what I mean, and why "free trade is always good" is
only true for the whole system, not individuals or groups of individuals
(countries).

~~~
hackeraccount
What happens to $10 sent to China? It's dollars after all. Do they use it to
buy Chinese goods? They need Yuan for that so they'd have to exchange it for
Yuan from someone with dollars. At some point that money would come back to
the U.S. in exchange for good because ultimately that's what dollars are for -
purchasing U.S. stuff.

To some extent the dollar is a reserve currency; people are willing to use it
in place of their own currency so in some sense it will never come back to the
U.S. To the degree this happens it's the equivalent of people taking paper
from the U.S. and giving goods in return - which is to say, it's hard to
understand how the U.S. loses on that deal.

~~~
rohit2412
I'm not talking about the currency, but it's monetary value. As such, you can
imagine australia and China trading in us dollars. Is free trade always
beneficial for Australians?

If you still want to consider only usd and USA and China trade. Then usd is
not just for purchasing us stuff. It is also a reserve currency that china
holds.

It wasn't a question of currency at all, any wealth/money sent in a different
economy is a loss to the original economy. A sizable gain in efficiency can
offset that, but not every gain in free trade is of the required size, which
is why tariffs should be desirable.

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40acres
I have a hunch that the cluster and agglomeration effects that has fueled
China's growth will slow as their economy becomes more advanced, and I can
envision a fracturing of the global economy where the U.S and China stand as
the two main axises based on what type of industry you're in.

What advanced economy will want to purchase Chinese aerospace or semiconductor
products knowing all that we know regarding backdoors and their reputation for
spying? Now of course, the US traffics in the same sorts of tactics but once
China and the US are on level playing fields there will be other factors that
determine whether or not you invest in China or the US: an alignment of
political systems seems to me as an important factor.

As an analogy, as a renter I've furnished my apartment with Ikea almost
exclusively: it's cheap, good enough, and I have no problem throwing it all
away when I have to move. But once I settle down into a home, I'll want a
product that is more stable, and has more built in quality to it. China is
great for low to mid level manufacturing, but are you really going to trust
the current regime for investment in mission critical systems?

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njarboe
Until the people in corrupt countries are storing their wealth in Yuan and not
dollars, the US is still in control of the biggest prize. There is a reason
that the richest people in the world (especially the Chinese) spend a lot of
time and effort getting some large fraction of their wealth into western
jurisdictions, and in particular Anglo-Saxon jurisdictions (UK, USA, Canada,
Australia). Those places have the longest history of respecting the rule of
law and property rights(Switzerland excepted). How long can a political system
last when a huge fraction of the wealthiest people living in it are afraid of
it?

~~~
sys_64738
This. The dollar and euro are the rocks of stability in the currency market.
To convert your money to yuan is the same as giving your money to the Chinese
Communists.

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peteretep
> China probably has become the world’s biggest economy and will reap the
> benefits that once flowed to the U.S

Ain’t nobody gonna use the Yuan as a reserve currency when the rule of law
there is so tenuous.

~~~
chmod775
The US has hardly won any trust when they demonstrated how their word and
their policies are just barely good for the length of a presidential term.

At least China is relatively stable and predictable. Which coincidentally are
important qualities of a reserve currency.

~~~
peteretep
Did the American legal system break while I wasn’t looking? Wake me up when
rich Americans start moving to China to protect their wealth and for
protection from local government whims.

~~~
chmod775
What does a nation care about the legal system of the country behind their
reserve currency?

Furthermore, most "tax havens" are hardly known for their strong goverments
and legal systems. Quite the opposite. Not that it matters, since this
discussion is really about the reserve currencies of nations.

------
ryansmccoy
Isn't Michael Bloomberg going to run for president? Just a hypothesis, but I
think that might explain why I see so many negative articles continue to churn
out of Bloomberg.

IMO, looking like a good time to start buying US stocks if you have the cash
via dollar cost averaging.

------
Apes
This wouldn't bother me very much, except for the absolutely horrendous
corruption, racism, and colonialism that China seems to promote. Look at what
they're doing to the Uighurs and imagine a world where they're the world's
biggest superpower and no one is willing to tell them to stop. A world with
China setting global policy will be a complete nightmare dystopia for anyone
who isn't Han Chinese.

------
oldgun
[https://www.youtube.com/watch?v=q49NOyJ8fNA](https://www.youtube.com/watch?v=q49NOyJ8fNA)

------
trophycase
This country has a massive ego problem. Maybe if we can accept this we can
stop posturing and actually do something.

~~~
z2
By this, do you mean turning ego into something productive, or getting rid of
it so that resistance to change can stop and growth can happen? Meanwhile, as
far as attitudes go, I'm more disturbed by the pervasive zero-sum mindset
coupled with ego. This leads to "if we are to win, they must lose," or even
"if we fail, let's drag everyone down with us!"

------
village-idiot
I'm sure internal political divisions will probably hasten this process. It's
mildly comforting to know that we're not the only empire to self-destruct, but
only mildly.

The only potential salvation here is China's debt. There is a possibility that
China is sitting on a massive load of unmaintainable debt in their
municipalities, with authoritarian regimes more capable of cooking the books
on debt & growth than a democracy. They might flame out in the next decade,
which would let the US retain its leadership.

~~~
ProAm
> China is sitting on a massive load of unmaintainable debt in their
> municipalities

Isn't the US sitting the same level? We raise the ceiling of what we feel is
allowable debt every year or so to kick the can down the road?

~~~
village-idiot
Yes and no.

Yes, the US has a ton of debt, and we definitely need to reduce our
accumulation of it soon. No in that the US debt is out in the open, as is our
growth numbers.

The important thing with debt is the growth rate in interest payments. Those
can go up by changing rates, and by changing levels of debt. As long as your
GDP out-grows your interest payments, there is no reason to stop. It's once
your interest payments start outgrowing your economy (and thus your ability to
tax & cover the payments) then you end up in a world of hurt.

With China, there are two distinct possibilities:

1\. They're lying about their GDP growth.

2\. They're lying about their debt.

They're been accused of 1 for a long time. There are some researchers using
light emission to estimate GDP, who claim that China's GDP might be 25% lower
than they claim [0]. Meanwhile they might have up to $5.8 trillion in debt
tied up in their local government. This _doubles_ the "official" debt level of
the Chinese government, a massive level of fraud if true.

Combined, the Chinese debt to GDP ratio might be as high as 150%. This is
alarmingly high, much much higher than the US has ever reached. Keep in mind
that China currently is paying a higher interest rate on its federal debt too
compared to the US.

[0] [https://www.investors.com/politics/editorials/new-study-
shin...](https://www.investors.com/politics/editorials/new-study-shines-light-
literally-on-chinas-and-russias-fake-gdp-data/) [1]
[https://www.reuters.com/article/us-china-economy-
debt/china-...](https://www.reuters.com/article/us-china-economy-debt/china-
local-governments-hidden-debt-could-total-58-trillion-sp-idUSKCN1MQ0JH)

