American Economics Thread

[gelgoog]

The US is buying more from Mexico. At the same time Mexico is buying more from China. See how this works?
Mexico is part of NAFTA and they have lower salaries than in China. So the final assembly is moving there. But at the point things started to change and assembly switched to Mexico. China did not only dominate assembly. China also dominates the parts supply and intermediate products.

China's economy is also scaling up into other kinds of higher end products. So there will be no lack of drivers for economic prosperity.

 

[siegecrossbow]

The US is buying more from Mexico. At the same time Mexico is buying more from China. See how this works?
Mexico is part of NAFTA and they have lower salaries than in China. So the final assembly is moving there. But at the point things started to change and assembly switched to Mexico. China did not only dominate assembly. China also dominates the parts supply and intermediate products.

China's economy is also scaling up into other kinds of higher end products. So there will be no lack of drivers for economic prosperity.

 

[gelgoog]

This is similar to what happened to South Korea and Japan really. The assembly jobs moved to some other place with cheaper labor. In this case it moved from China to Vietnam and Mexico. But it might still move from Mexico to some other place. I remember in the late 1980s a lot of people claiming Mexico was going to be a major source of labor for assembly. But it kind of deflated after a while. They lacked the experienced labor, and the country is a bit of a mess really. A lot of instability. I think Vietnam with its kind of government has a lot more potential.

China has already gotten its foot in the door with a major footprint into component making. They have been hollowing out South Korea and Japan's industry for a long time in this area. China also already has a lot of its own consumer brands like Haier, TCL, HiSense, DJI, Xiaomi, Oppo, Huawei, etc. And while some of these companies are still vulnerable to sanctions, a lot of them have been switching to Chinese components.

Try comparing an old DJI drone to a new one for example. They used to use a Movidius chip for vision processing, and now they use a Chinese chip instead. You have companies like BOE making display panels. CATL making batteries. China is demolishing the South Korean display driver chip market. And they are building huge capacity for making these chips in China proper, not South Korea or Taiwan, making them much more sanction proof. All of these chips you use in autonomous drones are also basically what you need to make the electronics in smart EVs basically.

A lot of countries got stuck into the middle income trap because they never managed to upgrade their economy into a high enough industrial level. They got the manufacturing jobs, then the multinationals just moved somewhere else. See what happened to Hong Kong's electronics industry for example. They didn't create their own local champions, they only did contract work which then evaporated. China has gone way past that.

Japan in the 1990s tried to also move into high end manufacturing. Into making airplanes, and making weapons they could export. But because they are stuck to the US's MIC their products were always hobbled with licensing which made these exports impossible. Just by releasing the ARJ21 and C919 China has been much more successful at this than Japan.

 

[kuro]

The US is buying more from Mexico. At the same time Mexico is buying more from China. See how this works?
Mexico is part of NAFTA and they have lower salaries than in China. So the final assembly is moving there. But at the point things started to change and assembly switched to Mexico. China did not only dominate assembly. China also dominates the parts supply and intermediate products.

China's economy is also scaling up into other kinds of higher end products. So there will be no lack of drivers for economic prosperity.

As usual, US commentators/analysts are late noticing the trend and even then giving a shallow view of it. If they look deeper, they will realize this isn't much of a win for the US:

https://twitter.com/i/web/status/1688888668159918080

 

[chgough34]

View attachment 125014

Yeah, US imports are recorded on a “substantial transformation” basis - the country wherein any parts are “transformed” to have their functions altered is the country where the tariffs are applied: so for example, turning a PCB and FPD from China into a phone in Vietnam means the Vietnam tariff holds since the PCB and FPD were substantially transformed in Vietnam. Chopping Canadian apples in Peru would mean the Canada tariff holds since chopping fruit isn’t substantial transformation. There’s some work on capturing these value chain dynamics with the trade in value added (TiVA) statistics but that’s still experimental now.

that said, the “it’s just transshipped” argument is stupid. Transhippment is costly and small exporters do not have in-house counsel to do this. Increases in trade costs necessarily will result in less trade absent the increase in costs

 

[chgough34]

9% of total U.S. bank assets are commercial real estate loans (

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, also Fed H.1); 20% of CRE loans are office loans (

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). Other CRE loans - apartment, retail, industrial, warehouse, healthcare, hotel/motel is performing fine. Assuming 50% write offs on *all* office loans, 0.09*0.2*0.5, that would impair 0.6% of total U.S. bank assets - it would eat into the equity layer but wouldn’t go anywhere to threatening solvency; esp. since U.S. banks are very well capitalized and tend to hold 11-13% of capital against risk-assets

 

[HighGround]

As usual, US commentators/analysts are late noticing the trend and even then giving a shallow view of it. If they look deeper, they will realize this isn't much of a win for the US:

https://twitter.com/i/web/status/1688888668159918080

It is a "win". What you are failing to understand is that "Made in China" is simply a political issue for United States. It is actually in the interest of United States to increase trade with China whereby we exchange paper (US Dollars) for tangible, and useful products at an ultra-competitive price. Unfortunately, due to geopolitical competition, this trade relationship is increasingly threatened by the political establishment that has to explain to the electorate why its largest trade partner is supposedly its biggest enemy.

Re-routing this trade through proxies like Vietnam and Mexico adds minimal cost, minimal transit time, and allows US politicians to side-skirt the whole "made in China, trade with China" thing while continuing to reap the benefits of buying high-quality, cheap Chinese goods.

If you really, really hate United States, you should actually be very annoyed that US-China trade is simply being re-routed rather than banned. Ultimately, the bigger beneficiary of this trade relationship is United States. Yes, US is an enormous trade partner for China, but it's "only" 10%. If trade magically disappeared tomorrow, both parties will be hurt, but China will eventually recover and other buyers will absorb the excess capacity.

On the other hand, where else will United States find a manufacturing powerhouse like China? There is simply nobody else. Apple would probably just cease to exist.

So yeah, Chinese trade getting re-routed through Vietnam and Mexico is absolutely a "win" for United States. Politicians here get the best of both worlds. They get to lie about how they're "decoupling" while the economy continues to benefit from cheap Chinese goods.

 

[siegecrossbow]

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[Overbom]

If you really, really hate United States, you should actually be very annoyed that US-China trade is simply being re-routed rather than banned. Ultimately, the bigger beneficiary of this trade relationship is United States.

Its a win-win. Although US very technically speaking benefits more, in the real world its China that gains the most because China actually uses that trade for internal development and industrial upgrading.

If the US could properly utilise its trade with China, it would really become an unstoppable behemoth. Thankfully, because the US political class is captured by its oligarchs, all that enormous wealth flows only towards the select few and in the wall street in the form of the stonk market.

It doesn't use that wealth to benefit the people so that the people can then generate and multiply even more wealth which would ultimately lead to a terrifying self-improving circle of more US-China trade -> more internal development -> more US-China trade -> more internal development etc.

Oligarchs are actually the biggest enemy that US is facing, not China or Russia

 

[chgough34]

https://twitter.com/i/web/status/1755673113986003179