Showboating and making rash actions you can't take back is idiotic... that is literally the Indian / low IQ redneck way
Chinese Economics Thread
- Thread starter Norfolk
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No. The process of moving low end manufacturing away from china started even before the US kicked it off. China's labour started to become expensive for labour intensive industries years before Trump kicked off the first trade war.
China has anticipated this and realizes that middle income countries stay middle income mainly because of technology. So they made massive investments in tech that very few other developing countries can do.
US has financial power and the highest end tech followed by EU, japan, South Korea. When the US sanctions a country, their lackeys follow suit, so it basically becomes a financial and tech embargo which is powerful.
But China has reached the same if not higher tech level than many of US western vassals. The US can try to sanction china, but they are too late.
A lot of their higher tech products depend on china and cannot be moved to other countries.
On the contrary, their sanctions continues to supercharge China's self sufficiency.
US can try to manufacture in other countries but they cannot replace china made products efficiently so they can only ban.
While Chinese products become more self sufficient and very competitively priced. And continue to take market share away from western companies. I suspect that's also a reason why they are not letter the yuan appreciate against the USD.
The sole reason to appreciate your currency is to boost imports in your country. Which is good if you have to rely on imports for whatever reason, like post Plaza accord Japan and post covid USA. China is in the exact opposite situation where they want to reduce imports to a minimum.
There is really one singular overwhelming logical truth in this whole thread.
China is the largest economy in the world by a wide margin. This has been already reflected in PPP GDP since 2015.
But even PPP GDP might not do
this fact justice because Chinese consumption levels are in multiples of the US and point to a real economy that might already be twice as large if not more than the US -- especially if you leave out nonsensical stuff like inputed rent in US and counting Chinese services correctly:
And not only is China the largest economy by far, it is growing exponentially faster than the US:
China is the largest economy in the world by a wide margin. This has been already reflected in PPP GDP since 2015.
But even PPP GDP might not do
this fact justice because Chinese consumption levels are in multiples of the US and point to a real economy that might already be twice as large if not more than the US -- especially if you leave out nonsensical stuff like inputed rent in US and counting Chinese services correctly:
And not only is China the largest economy by far, it is growing exponentially faster than the US:
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Funny you mention consumer value
Part of the point of brutal competition / "oversupply" deflating prices recently is to increase consumer surplus
Even at flat wages, deflating consumer prices = you can buy more for less
The US throws everything into its GDP, the bottom of the barrel has already been scraped clean:
"By category, illegal drugs add $111 billion to measured nominal GDP in 2017, illegal prostitution adds $10 billion, illegal gambling adds $4 billion, and theft from businesses adds $109 billion. Real GDP and productivity growth also change."
Source: International Monetary Fund
It goes beyond that.
Like I said before, the US dollar is not just used by China. Your argument would make sense in a world where only the US and China exist, but that's not the case.
If the yuan were in the dollar's position, China would gain a number of capabilities. It would, for example, be able to enact powerful sanctions regimes against actors it doesn't like - ones that could isolate and crush their economies, depending on the actor.
Taiwan could be turned into a pariah state over night, with international commerce effectively cut off. All China would need to do is indicate it won't transact with any country that does business with Taiwan. Taiwan would become like North Korea, and its pampered population would flee or riot. This same power does not exist right now, since the threat of Chinese sanctions isn't sufficient to get the rest of the world to stop doing business with Taiwan, as long as the US allows it.
Of course, these capabilities also come with costs - loss of export competitiveness prime among them, since the yuan would have to appreciate against every other currency until it is effectively over valued. The US has found loop holes around this - subsidies, unequal tariffs, and monopolistic take overs of foreign competitors - but it'd have to be targeted. You can't, fundamentally, operate an exports based economy with a reserve currency.
Historically, the US has played its role to its advantage by doing a lot of the right things you'd want to do with an over valued currency. For instance, enacting brain drains on the rest of the world, and weaponizing its consumer and financial markets to force its vassals into submission. It created powerful and vast dependency chains where governments simply could not imagine extracting themselves from the US, lest they crash their economies and are overthrown. The emphasis on "democracy" and "popular will" - supported by sophisticated intelligence and media operations - are all components of this larger strategy, and it worked.
But the US made - or was forced to make - a key mistake: it got soft. Not in the military sense, not in the sense of being ruthless, but as the inevitable consequence of abundance and prosperity. As they say, great times create weak men; and weak men indulge in decadence. When the entire culture of a country shifts towards decadence, it is difficult to keep any strategy - no matter how sound - running effectively. After all, at the end of the day, policies are executed by people, and if the people executing these policies are corrupt and incompetent, then nothing can be done.
That is the situation the US finds itself today - Americans have become too complacent, ignorant, and generally incompetent to run the system their fathers created. They have become sheep, and winter is coming. It is precisely this aspect of American culture that people like Trump and Elon are trying to change. Too late, probably, but it won't stop them from trying.
All of which is to say, pretending that the US strategy is terrible and that China is right to focus on devaluing its currency - and thus the value of its people's labor - is missing the forest for the trees. China's strategy may prove to be the better strategy, long term, but the verdict is still out. End of the day, the US economy is objectively larger based on global market value, and this allows it to do a number of things, like attract global talent and investment in a way that China never can, threaten/sanction countries into submission, gather vast quantities of vassals, buy / hollow out other countries' most valuable sectors, and out bid China in the global resources trade. But it also does come with draw backs, like not being able to run a manufacturing-based economy and creating import dependencies.
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Okay, but right now China is not keeping RMB low, instead it keeping it high. There is a market pressure for rmb to weaken, so I don't understand this talk about China subsidising USA. The only thing which could China do to reverse so called 'subsidision of American consumption' is to rise the minimum wage above the market clearing wage, which is not the case today. For this China needs at least 100% increase for minimum wages across the board this year.
The US trade deficits with China are increasingly higher after gazillion sanctions. Hoping they suddenly make some sudden miracle result now is just coping. That's because, on every tariff they put, Chinese products' price/value ratio improves even more than that %. In the end, the Chinese producer loses some excess profit, and the US consumer actually has more of his disposable income cut thanks to inflation.
You mention brain drain a lot, but what did the US even do with all that advantage they had honestly (I'm not denying that it is a pretty overpowered one)? Technically, not much at all, it acquired a significant world lead in theoretical scientific research (that later becomes APPLIED and PRACTICED in CHINA), but beyond that, they actually accomplished nothing too crazy. This is because their economy is a giant sitting duck. You can't do anything there due to bureaucracy + plutocracy. But, thankfully China takes care of that business now.
Where are their world-class applied and practical innovations, in all levels of society that China has? Instead, they put 100 points on the software industry, and 10 points on manufacturing hard things, whereas the latter is more important (you can't convince me otherwise, but even if it wasn't the case, then they should have still retained some balance for logical reasons, human harmony or something).
Also, you mistook this; How can you know that Chinese economic/financial sanctions will be any weaker than the US when China is famous for never advocating or practicing sanctions in the first place? But let me make it clear, it is certainly easier to replace some virtual algo on some screen, that is the US finance system, than actual heavy-duty machinery coming down from China. Use logic man...
The weaker the yuan is relative to the rest of the world, the more China is devaluing its labor, and the more it is subsidizing the rest of the world, even if not intentionally. But the reality is, China's strategy was intentional - the yuan wasn't and still isn't a free floating currency. The Chinese government may be seeking to boost the yuan today, but historically it wanted it low, and that policy had consequences on the long-term value of the yuan in money markets.
The historical US advantage in technology was absolutely huge. Sure, it didn't anticipate China being able to catch up as quickly as it did - and in many industries, China still hasn't - but the rest of the world most certainly did not catch up. I mean, we need to maintain perspective here. Outside of China, which country is even close to the US in technology? If your answer is South Korea or Japan, I'd advice you to look at how much of their companies rely on US technology before making that comment, as they are absolute dependencies.
Like I said before, you can't effectively maintain a manufacturing-based economy with an over valued currency because mature manufacturing is fundamentally a race to the bottom. Profit margins are razor thin, and operating with an over valued currency in this space is like fighting with both hands tied behind your back. That's why the US chose to focus on profit-rich industries like software where it could dominate its rivals through first move advantage, and out sourced profit-poor manufacturing to its vassals.
The main miscalculation here was underestimating China - both politically and economically. The US thought it had another vassal in the making - one that it could control the same way it controlled Japan, South Korea, the EU, etc., where it could dump all the low-profit manufacturing while it focused on dominating the high-profit sectors in China.
It didn't expect the Chinese government to do a 180 and start competing in both sectors. The US genuinely believed that China was a cheap labor economy fit for making simple products and little else. If it knew what China would become, it would not have moved its manufacturing to China.
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