If a stock is cheap, people start buying it, then it’s not cheap anymore. So if Chinese labor is competitive, eventually all production will shift to China. Why would it not? But the price of that labor has go to up unless there is no shortage of labor. How is it that China can produce so much for the world? Because they don’t buy enough of what they make and their currency is chronically undervalued due to excess savings being sent overseas. It’s essentially a giant factory for the world, and they’re buying up our debt. At least that’s my understanding of that Michael Pettis research paper. I find it rather convincing.
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This is because China imposes capital controls on its population. Its very difficult for them to send money out of China. They also have stupendously high savings rates.
Pettis probably got his capital controls idea from living in China. (It is a bonkers idea if you think applying it in the US is a good idea)
Not sure what you’re arguing about here. I don’t think you will find many people that disagree with having to decouple from China as they clearly manipulate their currency and competitiveness via state subsidies.
Letting China produce non-critical widgets at scale for cheaper is largely ok (benefits everybody abroad who buy them)
What is not ok is letting them corner the market on critical widgets, as they can then turn around and use that against you via dumping (another issue with China that they weaponise to try to kill off the nascent western competition).
If you truly wanted to fight China you would need a coordinated front. Trump is picking a fight with everybody at the same time, which actually benefits China in the long-run.
Re: Empty appts
Its not about under-consumption at all. It was their bonkers property ponzi scheme that was honestly right out of MAD magazine. Developers went broke, and then this cascaded to local authorities who also went broke, primarily because they got the vast majority of their revenues from land sales. They collect very little actual tax from residents.
If you think the US is corrupt…they have nothing on China.
If you have a large current account surplus and your currency is stable then it must mean that you have a large capital account deficit. So money is definitely flowing out of China into USA.
Now your graph shows that it’s going down but that’s because of the tariffs.
Also Pettis says, with emphasis, that bilateral tariffs are useless. He says that USA needs to block foreign capital flowing into their country, and putting tariffs only on China won’t solve the problem. I’m assuming Chinese product can go to another country and then enter USA. They tried doing that with Mexico. You can ship Chinese product to Mexico, then rebrand it or something, and then sell it Americans as Mexican import.
The reason why he says that foreign capital needs to be blocked is because the USA already has too much capital and not enough investment opportunities. In this situation, unemployment has to go up or debt goes up, and it’s debt that has gone up significantly.
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Pettis & Co keep ignoring one thing: the US Bond market
I have yet to read any cogent argument from their theories that is even remotely credible.
Really off-the-wall adjustments like making US debt holders accept 100Y perpetuals (this is bonkers)
There are many entities and individuals sitting on an IOU from the US-Govt.
If the US goes down the Pettis path, they will start offloading that debt. Of that I have little doubt because the credit risk will increase.
And if that happens, the US could lose its reserve currency status. I could even see a shift to German bonds as a reserve currency at this point.
Details matter. And from my vantage point its obvious that these people don’t have much of a proper plan for the debt market.
The Chinese artificially devalue their currency. And again, Americans own most of the debt.
And we have lift off for inflation…from the FT
4.9% over 1Y and 3.9% over long-term.
Ouch.
That’s expectation, which does reflect mood and perhaps future purchases, but not realized inflation. I do have to wonder, what was the value when we were experiencing 7%+ YoY inflation in 2021-2 era. Less than 5%? Really?
Yep. International buyers like China were already selling. Trump is antagonizing allies, and switching positions so frequently you can’t rely on anything he says.
Trump plans to accelerate expansion of the debt to never before seen levels, and assumes the world will now just gobble up US bonds willingly. Meanwhile, alleged fiscal conservatives in the US are all on board. It’s nuts.
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Cool, can you do an overlay with actual inflation?
This is a good reminder that for anyone who thinks all partisans in the US are created equal, the public sentiment on practically any topic is more extreme for Republicans.
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I have been arguing for decades that we should phase out car vehicle manufacturing in Canada rather than spend billions of dollars in subsidies to it. This article has all my reasons. We should follow Australia’s lead. Canadians buy a half million more autos than they manufacture. If manufacturing moves to US, Canada is free to buy cheap imports from anywhere.
**Among his many threats this week, U.S. President Donald Trump vowed to “permanently shut down” Canada’s automobile industry with tariffs on Canadian cars coming into the U.S.
Ottawa should threaten Mr. Trump with retaliatory tariffs on American automobiles and parts entering Canada. Canadian consumers have numerous high-quality alternatives from Asia, making it easy to avoid American-made vehicles. This prospect might give Mr. Trump pause.
But we need to think longer-term and bigger-picture. And for that we should look to our Australian friends.
Canada’s geographic situation might soon resemble Australia’s, if our largest trading partner can no longer be counted on. We’d be similarly isolated, thousands of kilometres away from the other major world economies, such as China and Europe. But Australia, despite its geographic remoteness that makes international trade difficult, has managed to thrive economically, boasting a GDP per capita that is at least as high as Canada’s.
Here’s how Australia accomplished that: Embracing free trade, Australia accepted that they were not competitive in automobile production. By 2017, their domestic industry for new vehicles had been phased out and they now import automobiles with either no tariffs or low ones. This allowed Australia to focus on their more competitive industries such as mining, finance, construction and health care.
Canada can learn from Australia’s experience. If the U.S. implements tariffs that make our auto sector no longer economically viable, Canada should let the auto sector wind down.
Even before this week’s threats, President Trump had twice threatened 25-per-centtariffs on the Canadian auto sector only to pull back each time for 30-day pauses. It is difficult to see both nations maintaining an integrated automobile supply chain even if he once again pauses tariffs on the auto sector.
Moreover, the auto sector is hardly the powerhouse it once was. The sector made only 1.38 million cars last year, fewer than the 1.86 million Canadians bought. The electric-vehicle battery plants Ottawa has championed are slated to receive $43.6-billion in incentives from the federal and provincial governments. And in the current climate, some of these plants might be cancelled or delayed.
If the Canadian auto sector is phased out, the disruption to the Canadian economy would be significant but manageable, given that the automobile industry represents around 0.89 per cent of the Canadian economy,
As with any industry, phasing out the auto sector will have a short-term effect on othersectors that rely on it. But in the medium term, these consequences would dissipate as the economy pivots toward new and growing industries, which would absorb many of the laid-off workers.
We should therefore keep that in mind when we consider any future government assistance for the auto sector. Before Canada commits even larger amounts of money, we must ask whether it is in the national interest – or if it keeps alive a less competitive industry at the expense of more competitive ones.
Industrial restructuring is an inherent feature of modern economies. While job losses will be painful for affected workers and their families, Canada’s Employment Insurance system provides support. Displaced workers could likely transition to industries such as construction, which we need because of the housing crisis, and where well-paid jobs exist and are difficult to fill.
Given the uncertainty of the Canada-U.S. relationship, the Canadian government should also consider major investments in the energy sector, where we have great comparative advantage, and domestic military production, which we need because of Mr. Trump’s rewriting of the world order. These expanding sectors would provide employment opportunities for displaced workers.
Canadians need to accept that the U.S. tariffs may make sectors such as automobile production no longer competitive and, as the Australians did, allow production to shift to other important and expanding industries.**
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It only works if Krasnov is a rational adult
It should, however, give a few rich industrialists pause, and they happen to have Krasnov’s ear…
Teslas built anywhere will not be bought by Canadians regardless of their pricing. Elon can kiss the Canadian market goodbye. Even Tesla resales are difficult here.
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Canada could promise not to run an auto trade surplus with the US. That would not give anything away by Canada but Trump could declare a win as he would just make up supporting statistics.
looks like Montana is about to get more expensive?
I assume this is only goods rather than services? Tourism falls under the latter, I believe, so that would increase Arizona and Florida percentages.