It’s amazing how everybody misses the wood for the trees.
Where else is China et al going to sell all the stuff they can produce via their physical overinvestment that was driven by the “export led growth” mantra?
There is no untapped source of demand anywhere in the world. There isn’t the income. All they could do is produce less and cause their economies of scale to go into reverse.
So instead they sell stuff for accounting entries, which are then used on the asset side of their currency area balance sheet to justify issuing more of their own currency and maintain the circulation.
They could, of course, just buy the time currently used for producing excess exports and maintain the circulation in any case. But that would cause lots of people who are hard of accounting to get very upset.
So instead they continue with financial mercantilism, allowing everybody there to pretend that they are productively engaged, not metaphorically digging holes and filling them back in again.
And that would continue, thanks to those nations supplying the accounting entries and receiving all that nice output, but for somebody getting elected on the US side who actually believes the “lack of saving” line and decided to do something about it. To the loss of the US people.
Quite why he think that saying the US isn’t paying enough for Canadian lumber or Chinese cars is good for anybody is beyond me.
There's always the real income, the probably is usually just the price rigidity! Most rich economies have no problem with this (the US and the EU can just adjust interest rates, which are comfortably above zero, to accommodate trade balances). Ironically, China is the biggest culprit here: their interest rates are way, way too high given their inflation and unemployment. This is unfortunate, it'd cause a lot less political disturbance if they lowered it, but as a practical economic matter, not a concern to the US / EU. Drop trade barriers, lower interest rates, and everyone will be richer and have a job.
There can’t be or China et al wouldn’t be selling their stuff for mere promises.
People don’t swap bananas for apples. They sell them for money, and money is retained for its own benefit. Failing to treat money as its own exchange product is the problem.
The world is not run by interest rates. It’s run by monetary flow, retained in its own right for insurance, status and mercantile purposes.
Every day I sell my stuff for promises of being able to get stuff for free tomorrow. It so happens that China has a ferociously large savings rate as a consequence of a terrible social safety net - there's a lot on the literature of this, Brad Setser is a good person to read regarding this.
> There can’t be or China et al wouldn’t be selling their stuff for mere promises.
But they are, since those aren't capitalist democracies China can do things that doesn't benefit its people short term but continues to move investments and industries there long term.
> There is no untapped source of demand anywhere in the world.
What about global growth and development? There are ~billion living in poverty + general low income for even more.
If India and other high population poor countries achieve what China did over the last ~50 years, while China continue to export while transitioning towards a consumption/service economy, there is another engine for global growth. I'm sceptical this will happen, but the potential source of demand is sitting there.
There’s plenty of demand for manufactured goods. They can just sell to other markets. US foreign policy is causing demand spikes everywhere.
For instance, I read 300M people are projected to starve to death this year. I’m sure China will happily send some of them any excess food, especially since it’s not going to sell it into US any more.
I think you mean there are not enough US dollars in those markets. There are at least two easy solutions: (1) Intentionally tank the dollar to increase the relative purchasing power of other countries (which they have probably been doing - someone is, but the “who” is a bit opaque). (2) Stop dealing in US currency entirely and switch the world economy to a new reserve currency. I suspect that the Euro and/or Yuan will win that war, though some argument could be made for crypto.
I agree Trump may as well be running around naked at this point. It wouldn’t affect most people’s opinion of his competence or professionalism (domestically or overseas).
Anyway: To answer the question that is the article title: Because the US is (was) rich, and has (had) a high but sustainable standard of living.
> There’s plenty of demand for manufactured goods.
This is not true. The US is by far the largest consumer of final household goods at 18 trillion, the EU at 10 trillion, China at 6.7 trillion, Japan at 2 trillion, UK at 2 trillion, India at 2 trillion, the rest of insignificant. You would more of less need to combine every other significant market to match the loss in exports to the US market.
And that won't happen, because of these markets are export driven economies, hence their economies are not structurally designed to suddenly take on mass deficits without mass unemployment coming at hand. Nobody wants to take on the world's surpluses as a deficit country save for the USA, which people in this thread seem quite ardent in convincing Americans to do so, even if they won't support similar policies in their own countries.
Don’t confuse desire with demand. Economic demand is desire coupled with the ability to pay.
Nothing to do with dollars. The system is limited by world income.
China is not going to send anything to people who can’t pay. Otherwise they’d continue shipping to the US for absolutely nothing in return rather than the vague promise they are currently taking
And if they can pay then supply will already have expanded to service them.
"There is no untapped source of demand anywhere in the world."
I understand what you mean, as in the current structure of governments/economies, there isn't a magic wellspring of demand.
Centralization of wealth starves demand, whether it is in authoritarian governments or an oligarchy/kleptocracy. The US certainly has been doing that for the last 50 years. I think there is a lot of demand and growth that is suppressed by the, uh, overindulgence of the "elite".
The elite care about the gap between them and the plebs. The rich love slaves, and that is their ultimate goal.
Where else is China et al going to sell all the stuff they can produce via their physical overinvestment that was driven by the “export led growth” mantra?
There is no untapped source of demand anywhere in the world. There isn’t the income. All they could do is produce less and cause their economies of scale to go into reverse.
So instead they sell stuff for accounting entries, which are then used on the asset side of their currency area balance sheet to justify issuing more of their own currency and maintain the circulation.
They could, of course, just buy the time currently used for producing excess exports and maintain the circulation in any case. But that would cause lots of people who are hard of accounting to get very upset.
So instead they continue with financial mercantilism, allowing everybody there to pretend that they are productively engaged, not metaphorically digging holes and filling them back in again.
And that would continue, thanks to those nations supplying the accounting entries and receiving all that nice output, but for somebody getting elected on the US side who actually believes the “lack of saving” line and decided to do something about it. To the loss of the US people.
Quite why he think that saying the US isn’t paying enough for Canadian lumber or Chinese cars is good for anybody is beyond me.
Another win for the Emperors New Clothes.