Royalty doesn't cook their own meals. Their time is more valuable than that.
Likewise, America doesn't make it's own underwear. We have China to do that. Similarly, they have us to make safe airplanes and complex satellite equipment.
Closing trade to the extent that we're making our own underwear INSTEAD of satellite parts can't really be chocked up as a win. It just promotes the notion that China should build their own satellite parts and we should make our own underwear.
If making underwear isn't enough to feed a Chinese family, why would we with that destiny upon American families?
Tl;Dr, America makes complex, high quality machines and equipment. Refined oil products. Things that require quality over quantity. Things that you can't substitute a generic for. Those are our bread and butter exports. Cheap crap that gets thrown away, like Apple computers, are China's bread and butter. We can either accept these facts and balance markets accordingly (and stay on top at the same time) or we can compartmentalize the world and all be stuck spinning our wheels and duplicating lots of effort, cold-war style, but with stupid-crap like personal computers instead of nuclear weapons and spaceships.
Manufacturing is a ladder. You use the previous generation manufacturing to create the new. Once you lack certain manufacturing processes by moving it over seas you are in a sense kicking your own ladder out from underneath you. The trade wars now are a response to realizing large pieces of the ladder are gone.
I remember a few years ago reading how Dell had lost the ability to make their own computers gradually over time. On the face of it, every bit of manufacturing and design they moved out of the US made sense, but all of it added up over time meant that they had effectively lost control of the computers they were selling.
It was an interesting story that but my google-fu isn't strong enough to find it.
At some point, your manufacturing partners in China are going to realize they control the means of production and can capture the added value by developing their own front office to market and sell the goods they already manufacture.
At what point do places like Dell become just licensing operations?
I thought Dell has always been reliant on ODMs. Were they at any point manufacturing components themselves?
Dell was still building PCs from off-the-shelf parts in the 90s so much of what they have was developed in the last 20 years. I've got to imagine they still have people in house who know how to setup manufacturing.
Even most of the assembly is overseas now. Eventually Asian companies are going to just market their own brands instead of letting Dell be a supply chain manager and marketer.
You might say the same thing is happening in software. As everything is outsourced to specialty services, eventually you aren't building or running anything but the glue. If a service goes down, and there is no replacement, you can find yourself in a position where you don't know how to rebuild your own product.
I recall that article and also can’t find it. The punchline for me was the chairman of their Taiwanese partner, who said something like “Americans are happy with their ratios. (ie reduced inventory) I am happy with cash.”
Actually US businesses were doing fine for the most part, except for those trying, and failing, to compete with the ladder replacements that moved overseas. There is a militarily strategic reason for keeping domestic production of your full supply chain, but most businesses don't care because (and this is a shocker) corporations aren't Americans, nor are they Chinese or any other nationality. They are greedy and self-interested and don't give a hoot about their country of residence.
Caring about the market, and not societies, is the kind of capitalism, that the US has been heavily promoting for quite a while. But seems like young people are starting to catch on to this social-democracy thing..
You might be interested to know that your notion of a successful macro-economic policy has been thoroughly tried throughout history, and has been deemed a colossal failure, see e.g.: https://en.wikipedia.org/wiki/Mercantilism
Right. China using slave labor, in dangerous, polluted, deadly manufacturing hell holes, to make ladders 10x cheaper than the USA with human rights, polution controls, unions, etc. etc.
One problem is that of distribution. Many Chinese families are seeing their livelihood improved by the "underwear" jobs. However, a small group of US families are profiting from the sales of "satellites".
2nd problem is we're buying $336 billion more underwear than selling satellites. At some point we have to have a balanced flow or we'll go broke.
Except, and this point gets bungled in the media all the time, the trade deficit doesn't matter. There are some economic reasons (the entire world's currency is based on the dollar) and there are some political reasons (all countries benefit from the free movement of goods so anyone trying to force a balancing would be ostracized), there is also the fact that the US military is strong enough to defend against seizure but, here are the two really big reasons you should walk away with:
1. We are no longer on a precious metal standard so there is no limit to the supply of money.
2. States don't do business with states, individuals do business with individuals - you, personally, likely have a severe trade deficit with Apple (or your computer vendor of choice) you have purchase their services for money but they have never directly purchased yours. This does not matter you are at a deficit and surplus with a variety of players and the world keeps on turning.
The U.S. balance of goods and services trade is one component of a complex economy. Of course it matters, but the simple balance does not imply that it's a bad thing, or that it will harm the U.S. economy in the short term or long run.
> Yes, but I do not have a trade deficit on the whole as well.
Presumably you mean that you add net value to your wealth each year, despite having a "trade deficit" on most economic relationships. Well, so does the U.S. The net change in the national income is called GDP growth and it is mostly positive in spite of the negative balance of trade.
Why? Because the U.S. economy is primarily internally driven; trade is only about 15% of GDP. So more important than the balance of trade is how that trade impacts the domestic economy.
Would we experience even more economic growth if we had a positive balance of trade? Maybe. If we kept imports the same and grew exports, that would be great, but that will either happen or not based on private industry. The government does not have a magic lever to create new exportable goods and services.
But the government does have a variety of levers to reduce imports, some of which it is pulling right now. To predict the economic effects, it's not enough to just look at the balance. You would need to untangle the domestic effects of reducing imports that may be inputs to domestic economic growth. It's certainly possible to use trade restrictions to create a positive balance of trade, and create negative GDP growth at the same time.
> Because the U.S. economy is primarily internally driven; trade is only about 15% of GDP. So more important than the balance of trade is how that trade impacts the domestic economy.
That's almost scarier, really. It's a big shell game with money just moving in circles.
Not at all (inherently). Most economies have traditionally been internally driven with a lot of wealth production from agriculture, raw material gathering and the finishing of those materials - it's only in the industrial era that we saw the export of goods for finishing in other countries emerge as a thing that could occur. But, if some rare earth minerals are imported into Fakistan and then turned into an iPhone - then the labour exchange to add that value would be within the "internally driven" header mentioned above... as that's value that's been created domestically and can either be used to exchange for new goods abroad (where it becomes a trade deficit) or else just consumed domestically.
> Yes, but I do not have a trade deficit on the whole as well.
Yeah you (as in, most people) do, people just call it a mortgage, a car payment etc.
I.e. they enjoy the present-day use of assets whose total price today is something they'll be paying for down the line, because they think having them today will contribute to their future growth.
The exact same logic is at play when countries decide to indebt themselves. Public debt just amounts to borrowing from the future.
There's plenty of articles explaining why deficit is not a problem, but despite of all the economic theory I find this view very weird. In the bottom line, if you're consuming more than you're manufacturing, mostly likely you're in trouble.
>If you consume more than you produce, you're creating a debt. Sooner or later this debt should be paid.
Few things: firstly, trade imbalance is not debt. That is a gross oversimplification of the macroeconomy.
Secondly: debt repayment doesn't even guaranteed with personal debt (bankruptcy, for example, discharges personal debt). The state has mechanisms for discharging debt available to it that personal debtors do not have.
Not all consuming is importing, and not all production is exported. This distinction is actually crucial. The balance of trade is only one part of a bigger picture, the other is domestic production and consumption. You can't understand one without also factoring in the other.
If a country has a very productive, vibrant and innovative domestic economy, it can increase the value of it's domestic net assets. It generates valuable new technology perhaps, it finds ways to maintain it's standard of living using fewer resources, or simply increases it's standard of living at current prices. It becomes a wealthier nation, without trading externally at all. Maybe it even attracts foreign investment.
In 2018 the US trade deficit was $890m (10% higher than 2017, thanks Trump), but it's GDP growth was $1trn.
If internal activities increase the value of the domestic economy by more than the trade deficit, then the trade deficit really doesn't matter. It's already paid for.
Finally, the only way to buy goods abroad is for someone to sell your currency and buy theirs. If you're buying more abroad than people buy from you, the balance is exactly equal to the 'deficit' in trade of your currency. Well, nobody is forcing anyone to buy your currency but if they do that's implicitly an investment in your economy.
It's been increasing dramatically since the early 80's, regardless of who has been president. So I'm sure you meant thanks {Carter, Reagan, Bush, Clinton, Bush, Obama, Trump}.
> If internal activities increase the value of the domestic economy by more than the trade deficit, then the trade deficit really doesn't matter. It's already paid for.
I'm not sure what you're trying to argue for? Are you saying we should ignore things as long as we can afford them (so there's no reason for rich people to insulate their houses or close their windows, so long as they can keep paying their electric bill), or that there's secretly some benefit of running trade deficits as long as you can afford them? To me this sounds like the captain of a boat denying that a huge hole in the boat is a problem so long as the water gets pumped out slightly faster. The thing is if you are a net exporter you are getting richer, and if you are a net importer you are getting poorer (richer and poorer than you would have been otherwise). If you live in some bizarro universe where that isn't true, explain why companies keep trying to sell us stuff? Why do farmers try to sell more corn than they buy for seed every year? Why does China, and every other country, try so hard to stay competitive and increase their exports? The answer is as obvious as it is true, whatever other wealth you generate, if you export goods you get that money too, just like the rich guy who insulates his house gets to keep his rich guy bank account AND the amount he saves on his bill every month.
> Finally, the only way to buy goods abroad is for someone to sell your currency and buy theirs. If you're buying more abroad than people buy from you, the balance is exactly equal to the 'deficit' in trade of your currency.
This makes the opposite point of what you are trying to make. There is a net flow of funds towards China. That means China is holding USD, which means our currency is made more valuable and their currency is made less valuable, since we have less dollars in circulation domestically. This makes our exports more expensive in terms of foreign currency, which means we sell less stuff to every country, and especially to China. Meanwhile having a currency that actually gets more valuable is an economic disaster, it will throw the country into depression if left unchecked (if you don't know why then you shouldn't be commenting on economics: https://www.economicshelp.org/blog/978/economics/definition-...). So we have to print more money to keep the value of our currency stable, so the effect of 'china's investment' is exactly nothing, apart from China building up huge wealth exporting to the US and the US not building up wealth exporting to China.
Deflation is falling prices inside your economy, as valued in your own currency. It's got nothing much to do with external exchange rates in other currencies.
Yes it makes stuff bought from abroad cheaper, but maybe your domestic economy doesn't compete in those goods? In which case who cares, you just get more stuff for less. It also means inputs into your own manufacturing from abroad are cheaper, so you can capture more value add.
Deflation is a problem only when it affects the economy as a whole, because it means wages get depressed and investment dries up, but it's usually an effect of those things as much as a cause. Individual goods getting cheaper happens all the time, and it's great. The entire computer industry is an example of a whole economic sector built on deflation.
So you don't know the difference between the national debt and US-China trade deficit. Please continue to share your extremely valuable insights into economics.
Or you consume more than you produce, and output other forms such as debt or a lower dollar, so foreign companies will day be able to purchase things you’ll produce in the future. So everything balances out it the end, doesn’t it?
It only doesn't matter until all of a sudden it does. The global economy is constantly in flux. It might not be too long before a majority of countries decide it's in their best interest to not use the USD for international settlements and when that happens the bubble pops big time.
To further that point, when country X does not respect country Y's copyrights and begin undercutting country Y's market for those items, it creates a further imbalance.
There’s so little of substance in this post and so much xenophobia and hyperbolic thinking I’m surprised it’s not been downvoted to smitherenes.
China is the second largest economy in the world. They’ve got many smart individuals in business and engineering and everything in between.
And for someone writing on a tech board like HN to think that tech won’t pull China and India and the Philippines and other countries onto the same plane as western powerhouses is just myopic. Tech and education over time lifts all boats.
Except e.g. Uyghur boats. Those get summarily sunk. Hong Kong boats will be set on fire instead.
No, tech is not a universal equalizer by itself. Without an entire socioeconomic environment to support innovation, gains will be at best temporary. (On the flipside, we lately seem to be entertaining the idea of converting the US to an autocratic environment too, so we can certainly achieve leveling that way)
Yeah ... the heavy handed nature of a Communism and Xi’s leadership, I think, will lead to a revolution one day. But even if not there’s a growing middle class that will propel consumption ever more. Who would have thought that China would be such a large global economy say 30 years ago?
> Closing trade to the extent that we're making our own underwear INSTEAD of satellite parts can't really be chocked up as a win.
If you remove the instead part of that (which doesn't make sense as an either-or), it's a big win if your goal is to remove manufacturing, jobs and capital from a strategic superpower competitor like China.
If in-sourcing underwear to the US results in only 1,000 net additional jobs - making a billion pairs of underwear per year - and results in the loss of 20,000 low paid manufacturing jobs, supply chain, infrastructure, tax revenue, etc. in China. That is a win, if your goal is to make China slightly weaker. If the US nets out to even and China loses, it's a win for the US - if you view China as a superpower competitor for the next century (which nearly everyone in DC does today).
If the US could use increased automation to pull back every bit of outsourced manufacturing, even in a fictional zero net gain scenario (ie no net job gains, no net tax benefit, no net capital retention benefit, etc), it makes the US more powerful versus the rest of the world, as the rest of the world loses trillions of dollars in outsourced manufacturing value (ie an enormous injection of capital to be used to build out their nations, as in China or presently as is happening in Vietnam). If you're a politician in DC you would view that as a useful increase in US hegemony.
Apparel in-sourcing, as one example, has already begun globally. It's only going to get more aggressive over the coming decades. Developed nations will pull back various pieces of their manufacturing chains, as substantial automation gains make it reasonable to do so. When you combine those gains with the upside of geographic location - being close to your customers, eg for rapid trend adjustment purposes in apparel - the in-sourcing advantage is strong.
Microelectronics, both cheap and expensive, is really the same technology. You move out the high volume base, engineering careers become dead ends and low volume high value products become problematic too.
"Let's move production to China and keep R&D here" is a pipe dream.
Not when it's illegal to export your IP. Those are the contracts where America makes money. All the non-descript brown buildings you pass by on your way to work are the manufacturing/heat-treating/welding/plating shops that make every piece of machinery that flies overhead.
Name me one piece of a commercial airliner that you are allowed to source from China. I'll wait.
So when you consider what we're currently making, Apple Computers in a massive factory with suicide nets over the windows is a race to the bottom. Nobody wants to compete with Chinese manufacturing on their home turf of cheap Wal-Mart goods. We'll be living in dog cages too if we do that. We want to make airplanes and spaceships and meaningful technology.
> Name me one piece of a commercial airliner that you are allowed to source from China. I'll wait
Boeing have opened a plant there which seems to do interiors now, and it moving into other areas in the future.
Rudder parts are made at a separate facility in a different. These are for the 787 and 737. The link claims there are 9,000 Boeing’s flying with Chinese made parts.
This comment is so laughably wrong. China started with cheap plastic toys and now manufacture extraordinarily complex devices like iPhones and have spearheaded development of an entire new class of vehicles (EVs) that they can export to the rest of the world.
The analogy with planes is that planes pay the bills. Spaceships pay the bills. Coffee cups and Wal-Mart items won't pay the bills.
Building iPhones doesn't pay China's bills (they're citizenry is impoverished) so why would we want to compete with them for jobs to build iPhones? Let them keep doing it! We keep building spaceships and airplanes.
The analogy is.... We're currently building high-tech, high value items where the engineering matters. The manufacturing matters. China buys airplanes from the USA because no commercial airport (including the ones in China) would allow a Chinese-made plane to land there.
Our country isn't held afloat by manufacturing jobs at Apple, or Samsung, or Fisher Price, or Vtech, or Daewoo. It's held together by General Dynamics. General Electric. Boeing. Rolls-Royce. Airbus. Big spenders who contractually must source the highest possible quality out of a domestic supply chain irrespective of price. These are $30-50/hr jobs that put food on America's table.
Making iPhones is a $10/hr job with marginal quality. Throw a handful of iPhones and see what sticks. We're competing with China for jobs they're willing to do for $2/hr jobs. For what?
It ultimately doesn't matter much. What matters is that you have the ability to manufacture a product. You can own as much IP as you like, but if you don't have the capability of using that in a production process then it really is the Emperor's New Clothes.
Having the capability is important. Outsourcing has removed the crown jewels from many companies, leaving them little more than marketing shells. The real value is in the technical know-how and skills of the people who actually made those companies run. Without that, there is no company and no product.
Owning the rights to ideas isn't a sustainable future unless you also have the influence or the power to force people to respect your imaginary property.
If ultimately the only thing you end up owning over others is ideas it becomes increasingly attractive simply to opt out of such rights.
I suggest readers to draw their own conclusions from this article. To me, it does not make a convincing case that the scale of IP theft in 18th century USA is anywhere near as comprehensive as what is happening today in China.
And to me there is a big difference between the Government encouraging recruitment of those with knowledge through immigration vs a Government who IS the 'primary' stakeholder in all Corps + actively using state resources/agencies for theft.
Why would you compare the actions of a developing country 200 years ago working within that timeframe's norms to the actions of a developed country working within today's norms?
200 years ago, the behavoiur of the US was not consistant with the "norms" at the time. The UK had clear laws on this, and the US violated them. US leaders encouraged it.
How is this not the same as what China is doing now?
But it’s not the norm in China. If you are to decide what is normal, do you do this based on geography or population? Either way, China is a pretty big place.
This is something I wonder about a lot. How long will IP be of value? IP only has value when it is completely secret or when a government enforces the monopoly for the owner. How can we expect governments to agree to enforce these monopolies reciprocally (or at all) as the cost of information copying and distribution continues to plummet? If a big country decided to drop out of the WTO, what would prevent them from just manufacturing anything they want? Would governments erect trade barriers?
I think you're overplaying the 'cheap crap' argument. China is quite a ways better than they were when that stereotype was passable. They can totally match what the US is doing in a large set of technology based industries. And also, because of the way supply chains work (they naturally form clusters around manufacturing hubs and engender very strong network effects) the US might not be in a position to make any high-tech product at all. It would be cheaper to manufacture it overseas rather than ship every single part/material to the US.
Royalty doesn't cook their own meals. Their time is more valuable than that.
Likewise, America doesn't make it's own underwear. We have China to do that. Similarly, they have us to make safe airplanes and complex satellite equipment.
Closing trade to the extent that we're making our own underwear INSTEAD of satellite parts can't really be chocked up as a win. It just promotes the notion that China should build their own satellite parts and we should make our own underwear.
If making underwear isn't enough to feed a Chinese family, why would we with that destiny upon American families?
Tl;Dr, America makes complex, high quality machines and equipment. Refined oil products. Things that require quality over quantity. Things that you can't substitute a generic for. Those are our bread and butter exports. Cheap crap that gets thrown away, like Apple computers, are China's bread and butter. We can either accept these facts and balance markets accordingly (and stay on top at the same time) or we can compartmentalize the world and all be stuck spinning our wheels and duplicating lots of effort, cold-war style, but with stupid-crap like personal computers instead of nuclear weapons and spaceships.