Where the world gets its stuff

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Most countries of the world used to get more stuff from the United States than they did from China.  But now it’s the other way around.  Now most countries buy more stuff from China.

This map, which has been making the rounds of the Internet, appeared in the Financial Times—behind a paywall, unfortunately for me, because I don’t subscribe to the FT.

Many economists think the turning point was in 2001 when China joined the World Trade Organization, which included the world’s most advanced industrial nations.

China became entitled to “most favored nation” status, which means no trade barrier against a WTO member could be higher than a barrier against any other member.

I say China’s gains had to do with the effectiveness of China’s industrial policy, and the lack of any U.S. industrial policy.

China told foreign nations that if they wish to sell goods in China, they would have to locate manufacturing facilities in China.  Furthermore they would have to share their technological know-how with Chinese partners.  Then the Chinese would take their new knowledge, improve on it, and use it o compete with their former partners.

The U.S. government, under Bill Clinton, George W. Bush and Barack Obama, was content to let this happen.  American consumers benefitted from cheap imports, and stockholders in American companies shared the profits of offshoring.

Meanwhile the United States dissipated its wealth in waging pointless and inconclusive foreign wars, while China used its wealth to make itself stronger.

Unlike his predecessors, Donald Trump has correctly identified terms of trade with China as a problem.  He deserved credit for putting this issue on the table.

But his scattershot tariffs on Chinese goods do not solve the problem.  All they do is to create a market for goods from other low-wage countries.

The Chinese government successfully executed a long-range plan to build up its industrial strength, using subsidies but also building up the infrastructure and know-how of the nation as a whole.

The U.S. government has no plan.  It has been content to stand aside and allow financiers to hollow out U.S. manufacturing.  Tariffs aren’t an answer unless they are part of an overall strategy to rebuild.

The Chinese aren’t to blame for our problems.  Our leaders are to blame for our problems.  We are to blame for our leaders.

LINKS

The New China Syndrome: American business meets its new master by Barry C. Lynn for Harper’s magazine.

How Bill Clinton and American financiers armed China by Matt Stoller for BIG.

China Revolutionizes World Trade While Washington Dozes by Geoffrey Aronson for The American Conservative.

What’s behind Trump’s demands on NATO?

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President Trump last week demanded that NATO allies, who have already pledged to increase their military spending to 2 percent of GDP by 2024, raise their spending to 4 percent.

This is supposedly necessary to defend against Russia.  Whether or not he really thinks Russia is that much of a threat, the fact is that the European members of NATO already outspend Russia by a considerable amount.

According to the Stockholm International Peace Institute, Russia’s spending military spending last year was $66.3 billion, down from $69.2 billion in 2016.

France spent $57.8 billion, the UK spent $47.2 billion and Germany spent $44.3 billion—a combined total of $149.3 billion, more than double what Russia spent.  Estimated US spending was $610 billion.

The International Institute for Strategic Studies made different but similar estimates.

Its estimate was that Russia spent $61.2 billion last year, while the UK spent $50.7 billion, France spent $48.6 billion and Germany spent $41.7 billion—a combined total of $141 billion, also more than double Russia’s.  The IISS estimated that US spent $602.8 billion.

So what was the purpose of Trump’s demand?  I think it was to increase sales by the U.S. armaments industry.

I think his motivation was the same for his criticism Germany for importing 70 percent of its natural gas from Russia and planning a second natural gas pipeline across the Baltic.

His goal is to have Germany import American liquefied natural gas (LNG), despite its higher cost and current lack of suitable infrastructure.  Russia is just an excuse.  He wants American companies to get Germany’s business.s.

The European Union countries are competitors of the United States in world trade.  Hence his hostility to the EU.   Russia is not.  Hence his lack of hostility to Russia.

Donald Trump sees foreign affairs in terms of trade, and trade in terms of making deals. That is shortsighted.  The way for the United States to regain our advantage in world trade is by building up our own industry, not by demanding other countries do things that are not in their own interest.

The march of globalization

This chart, produced by Goldman Sachs and reproduced by FT Alphaville and Barry Ritholtz, shows how world trade has grown in the past half-century.

In 1960, a quarter of world output was for export.  Now it is well over half.

There is a benefit in being able to buy things that are produced in distant lands.  There also is a risk in depending on long and vulnerable supply chains for what you need.  We the people and our governments need to think about what balance to strike.