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U.S. Decoupling From China Forces Others To Decouple From U.S.
The U.S. is decoupling itself from China. The effects of that process hurt all global economies. To avoid damage other countries have no choice but to decouple themselves from the U.S.
Today's Washington Post front page leads with a highly misleading headline:
The headline above the article is also wrong:
Trump retaliates in trade war by escalating tariffs on Chinese imports and demanding companies cut ties with China
It was China, not Trump, which retaliated. Trump reacted to that with a tweet-storm and by intensifying the trade war he started. The piece under the misleading headline even says that:
President Trump demanded U.S. companies stop doing business with China and announced he would raise the rate of tariffs on Beijing Friday, capping one of the most extraordinary days in the long-running U.S.-China trade war.
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The day began with Beijing’s announcement that it would impose new tariffs on $75 billion in goods, including reinstated levies on auto products, starting this fall. It came to a close Friday afternoon with Trump tweeting that he would raise the rate of existing and planned tariffs on China by 5 percentage points.
Beijing’s tariff retaliation was delivered with strategic timing, hours before an important address by Powell, and as Trump prepared to depart for the G-7 meeting in Biarritz.
After Trump's move the stock markets had a sad. Trade wars are, at least in the short term, bad for commerce. The U.S. and the global economy are still teetering along, but will soon be in recession.
The Trump administration is fine with that. (As is Dilbert creator Scott Adams (vid).)
U.S. grand strategy is to prevent other powers from becoming equals to itself or to even surpass it. China, with a population four times larger than the U.S., is the country ready to do just that. It has already built itself into an economic powerhouse and it is also steadily increasing its military might.
China is thus a U.S. 'enemy' even though Trump avoided, until yesterday, to use that term.
Over the last 20+ years the U.S. has imported more and more goods from China and elsewhere and has diminished its own manufacturing capabilities. It is difficult to wage war against another country when one depends on that country's production capacities. The U.S. must first decouple itself from China before it can launch the real war. Trump's trade war with China is intended to achieve that. As Peter Lee wrote when the trade negotiations with China failed:
The decoupling strategy of the US China hawks is proceeding as planned. And economic pain is a feature, not a bug.
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Failure of trade negotiations was pretty much baked in, thanks to [Trump's trade negotiator] Lightizer's maximalist demands.
And that was fine with the China hawks.
Because their ultimate goal was to decouple the US & PRC economies, weaken the PRC, and make it more vulnerable to domestic destabilization and global rollback.
If decoupling shaved a few points off global GDP, hurt American businesses, or pushed the world into recession, well that's the price o' freedom.
Or at least the cost of IndoPACOM being able to win the d*ck measuring contest in East Asia, which is what this is really all about.
Trump does not want a new trade deal with China. He wants to decouple the U.S. economy from the future enemy. Trade wars tend to hurt all involved economies. While the decoupling process is ongoing the U.S. will likely suffer a recession.
Trump is afraid that a downturn in the U.S. could lower his re-election chances. That is why he wants to use the Federal Reserve Bank to douse the economy with more money without regard for the long term consequences. That is the reason why the first part of his tweet storm yesterday was directed at Fed chief Jay Powell:
In his order for U.S. companies to withdraw from China, some close to the administration saw the president embracing the calls for an economic decoupling made by the hawks inside his administration.
The evidence of the shift may have been most apparent in a 14-word tweet in which Trump appeared to call Xi an “enemy.”
“My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” he said in a Tweet posted after Powell gave a speech in Jackson Hole that contained implicit criticism of Trump’s trade policies and their impact on the U.S. and global economies.
Jay Powell does not want to lower the Fed interest rate. He does not want to increase bond buying, i.e. quantitative easing. Interest rates are already too low and to further decrease them has its own danger. The last time the Fed ran a too-low interest rate policy it caused the 2008 crash and a global depression.
Expect Trump to fire Powell should he not be willing to follow his command. The U.S. will push up its markets no matter what.
From Powell's perspective there is an additional danger in lowering U.S. interest rates. When the U.S. runs insane economic and monetary policies U.S. allies will also want decouple themselves – not from China but from the U.S. The 2008 experience demonstrated that the U.S. dollar as the global reserve and main trade currency is dangerous for all who use it. Currently any hiccup in the U.S. economy leads to large scale recessions elsewhere.
That is why even long term U.S. ally Britain warns of such danger and is looking for a way out:
Bank of England Governor Mark Carney took aim at the U.S. dollar's "destabilising" role in the world economy on Friday and said central banks might need to join together to create their own replacement reserve currency.
The dollar's dominance of the global financial system increased the risks of a liquidity trap of ultra-low interest rates and weak growth, Carney told central bankers from around the world gathered in Jackson Hole, Wyoming, in the United States.
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Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes in the banking system.
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China's yuan represented the most likely candidate to become a reserve currency to match the dollar, but it still had a long way to go before it was ready.
The best solution would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.
Carney speaks of a "new Synthetic Hegemonic Currency (SHC)" which, in a purely electronic form, could be created by a contract between the central banks of most or all countries. It would replace the dollar as the main trade currency and lower the risk for other economies to get infected by U.S. sicknesses (and manipulations).
Carney did not elaborate further but it is an interesting concept. The devil will be, as always, in the details. Will one be able to pay one's taxes in that currency? How will the value of each sovereign currency in relation to SHC be determined?
That the U.S. dollar is used as a global reserve currency under the Bretton Woods system is, in the words of the former French Minister of Finance Valéry Giscard d'Estaing, an "exorbitant privilege". If it wants to keep that privilege it will have to go back to sane economic and monetary policies. Otherwise the global economy will have no choice but to decouple from it.
trump isn’t necessarily wrong on asking for decoupling (another word for sanctions), but it’s the planning and the timing and the target. if anything USA should decouple from Europe and japan/korea.
how can you even attempt to negotiate with world’s number one economy, when you have nothing of leverage to compromise with, fair or otherwise unfair. using media is one way i suppose. putting bases and stirring up trouble in the neighborhoods to try to stir up conflicts is not really the actions of a “strong” position.
as someone said earlier, get rid of the monopolies and two realize that Nothing china is doing… is unfair.. it is simply competition. just like saudi with its oil, canada with its oil sales to usa, mexico with it immigrant labor union to USA, if you can’t compete, starting the trade war and decoupling with the wrong guys just to appease ur respect level, is the last thing you really want to do. so what?
1. get rid of facebook, amazon, apple, brown and root, mic related bidding circles
get rid of middle/upper management, get rid of subsidiaries of trash that were bought out and just held onto for no good reasons, auction off productive subsidiaries to competition, tax and seize non-taxable profits which are flowing out of US, break their stock holding benefits/trusts tax breaks which the banks hold secretly but written explicitly in quarterly meetings, make them invest in social securities pensions/healthcare if they don’t want to be broken up
2. get rid of all military bases in hot zones (asian pivots, middle east, afghan, latin america, eastern europe) – the same could be said of the management as mentioned in number one
3. get rid of alliances with deficit running partners, i.e. japan/europe
4. invest in education and high speed rail by using the military for peacetime purposes, build the high speed rail to cross the dariens gap, open latin america to something better than Nafta
5. get the USD OPENLY on oil standard since it manufactures quite a bit now in order to stabilize prices and the logistics of the economy will prosper, get rid of saudi alliance as well
6. get rid of the service infrastructure industries it keeps on investing (hollywood, music, sports stadiums)*those are not leverages the world cares nor anything of value in negotiations
7. invest in China/India space programs and forget the nostalgia
8. invest heavily in mexico and latin america (non-bases)
9. invest heavily in OBOR and invest in Asian bank by china, if there is profit and interests being paid, and there are.
10. place MINIMUM tariffs on all countries for the majority of the goods to promote real trade COMPETITION
11. tax the upper 80% over 60% including all foreigners, minimize the tax on businesses
12. close borders but open business borders
decoupling from china and exactly where will investments come from? every country needs outside investments. so japan and europe are going to invest in USA infrastructure? i hope so. but to decouple and to invest with printed money even if it was infinite, is quite narrow like QE, since the domestic audience wouldn’t know what to do with the money since only big monopolies and service industries are allowed.
the 12 points above is how USA can compete and negotiate with china, without even directly competing. throwing deplete uranium around while saying environmental awareness auto responses, currency manipulation when its own currency is tied to Saudi oil sales contracts, while accusing others of being unfair would serve better if one doesn’t even open their mouths.
i guess when trade war fails, attempting to hold others to the barrel of the gun when militarily when even afghanistan is too much competition ….. that’s not leverage, that’s just suicide.
Posted by: jason | Aug 25 2019 7:34 utc | 105
Posted by: Contributor | Aug 25 2019 9:11 utc | 117
first, of course, you didn’t say long term, but we must look at all angles, if we must look into the future to see if the sanctions will work. and of course, i am stating the position now, and i may be wrong later, that even if the sanctions continue or stop tomorrow, they will fail more so for US than china mid-long term and most likely short term as well.
yes i agree, it really isn’t all a margin call, it is a bankruptcy call, a surrender of the company because once one’s profit margin after tax was 20-30% and the sanctions go over 30% you are in the negative. not every company can move wherever business is better for them if every product you make or ship out is a loss. people rather go bankrupt unless they have cash reserves and more importantly, a plan b, which consist of covering their sales to USA with sales to say anywhere else, the world is a big place, yet they chose the wrong place, a lot of companies should fail when they are propped up, it is a good thing.
two decades ago, China was making the best copies of Aks with the best steel both stamped and forged, but of course in other industries where cutting the corners are allowed (businesses-market strategies), surely their partners from abroad are in on the take as well no? the quality you speak of, IPR, and incompetence is with any market and to be expected unless one plays themselves as fools. so every restaurant/company that opens in USA or europe will succeed 5-10yrs later? failure is almost a given in any country, we could say quality, IPR risks, and incompetence is everywhere. unless you don’t even open any companies and restaurants in that case, quality would inevitably suffer under monopolies without competition.
if these companies are moving back to europe and india, which is all right if the models working previously are not working now, but wouldn’t you say to move to china in the first place was incompetence and inefficiency, if not utter uselessness? i wouldn’t… because it’s business, people make good decisions at the time which turn out to be bad decisions, such things i would never call as incompetence or put them down as labor cost increases unforeseen. they are just planned mistakes, experiences, which no one expected unless they expected china to be forever what they imagined.
so, these technology companies are high cost/high expense/research endeavors. they are high cost investments and high employment salaries. of course the quality better match the costs or else they should go bankrupt as well.
i don’t wish to go into creative innovators vs conventional stability because it is not about sanctions. can you give me some examples of innovation and creative geniuses from the last two decades? but i will tie it back to sanctions in one moment, i will give one to support your notion and of course there are anecdotes to everything but things like hughes toolings for horizontal oil drilling and pressurized deep water drilling sludge mixture ratios and aviation engines but China is in space. i will say this though, china wanted to be in the international space station program, they were “sanctioned” “decoupled”, and now look what happened ……… they didn’t have to innovate everything, they might as well just buy the rocket from NASA and rocket themselves. and just how many 7/12/14/16nm companies do you know or are following that are sitting on the edge of technology production, mass production?
Posted by: jason | Aug 25 2019 12:49 utc | 131
@ vk | Aug 25 2019 14:48 utc | 137
I disagree with you that China is capitalist. Yes, there is capital in China, but capital is not the dominant mode of social reproduction there.
China not capitalist? Just because the state directs how private (and public) capital is invested, doesn’t make it a socialist economy, anymore than the UK nationalising the railways, coal and so on, after WWII, didn’t make the UK a socialist state. In fact, the state saved capitalism from itself. At the same time, nationalisations, the NHS, took the wind out of the sails of the real demands for a real socialist economy by the organised working class and left parties. It’s here you see the role of the Cold War and anti-communism playing a parallel role in the preservation of capitalism.
I suppose you could argue that what China has done is save China from itself and the West.
The major force that’s propelled China to (almost) the numero uno capitalist state is precisely how it’s been integrated into the world economy. Yes, the state directs how private, and public investment takes place but it does it in the context of a capitalist economy, just as Keynes wanted to do.
And what the hell does “Keynesian State” means? As I’ve discussed previously here, Keynes didn’t invent the concept of government spending, nor the concept of lowering interest. Since in China the government is the main owner of the means of production, the concept of “government spending” doesn’t even make sense.
Exactly what Keynes meant it to mean: the state directing how capitalism worked, with the state determining investment in major infrastructure, creating demand and so forth. It’s not rocket science and even though in neo-liberal states, there’s no room for Keynes today (at least publicly), in China Keynesian economics is probably the best analogy we have for describing the trajectory of China’s development. Believe me, if China really was a socialist state, do think the leading imperialist states would be doing business with it? I don’t think so.
However, I can only guess at China’s long term vision but I surmise that it saw the application of capitalist production methods (just as the Soviet Union did in its early days) as the best method of developing the economy (where socialist development failed miserably because the largely capitalist world didn’t want to see it succeed). Locked out of global markets, denied the technology it needed to develop (just as the USSR was), eventually it either transformed its economy or died the death of the imperialist onslaught.
In the meantime, the crisis of the Earth’s ecology has added a new dimension to development, hence China’s goal of creating an ‘Ecological Civilisation’. After all, look at the damage so-called socialist industrial development did to China’s environment. Until recently they were hellbent on duplicating the destruction of the natural environment that has happened in capitalist states.
I think your conflating two things; China has become a major competitor to the US and a block to US/Western capital’s penetration of China’s economy. Anti-communism is a convenient tool, just as it’s been directed at Russia, once the objective of pauperising Russia was halted by Putin. And there are a number of parallels between the China and Russia that bear looking at: the role of the state in directing investment, especially the defence industries.
The major enemy in all this, is imperialism, as distinct from capitalism, though of course, getting rid of capitalism itself is still the longterm goal of us socialists.
Posted by: Barovsky | Aug 25 2019 16:32 utc | 146
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