Free movement of capital and the Washington consensus caused nations to rely on exports. If exporters nations stimulate, then expect inflation to explode higher.
The US consumes more than it produces only because China has weak domestic demand and are forced to dump part of what it does not consume onto deficit countries. The US has to absorb the excesss savings from China by taking on debt. But the excess savings imported do not boost US investment as there is insufficient domestic demand. As a consequence, the US must constrain domestic savings by either higher unemployment or debt.
My argument is that Asia tried to consumed more, but then suffered the Asian Financial Crisis when american capital fled home. In response Asia has focused on having large foreign reserves - and hence exports to the US. Under the threat of tariffs they may well stimulate to buy more from america
I can't speak for Asia ex-china as I haven't sudied those economies but China largely avoided the Asian financial crisis since its financial system was relatively closed. I would characterise the build-up of forex reserves in China as a symptom of an economy with exceptionally low consumption as a share of GDP where labour over-produces relative to its consumption. The US, Canada, Australia and UK have open economies which absorb the excess production. The point of tarriff should be to change the role of surplus countries in absorbing excess foreign savings.
This is my sense as well. What the US wants in the end is for China to spur domestic demand. That will spike rates but over the long term it’ll rebalance trade. My question though is can Xi stand this? How does he keep Made In China 2025 2.0 going if he is subsidizing consumption?
As well, consider the demographic problem Xi has, with population shrinking, growing aggregate domestic demand will be that much more difficult. it is going to be a very messy period going forward. and remember, it is not just the US that wants to bring production home, we are seeing the same desires (if not sensible policies) in Europe as well.
talk of the "aging problem" misses the point that they still have a few hundred millions of low productivity rural inhabitants, which can move into cities
Great insight and I can't believe after how long I have been doing macro research, especially gold, that I have not seen the CIX Bloomberg chart of US Treasuries vs Gold prices long term before. Well done!
US = if Democrat, naive Marxist + Russo-wars (for energy exports to EU)
US = if Trump, 100yo Tariff game + Iran-regime change
China (secular) = Protocolization with Capitalist characteristics
China (tactical) = stimulated into 2015 rollout, smaller bruises THAN EU from '16-20 Tariff "wargamin"...
Big reason US inflation came down last few years is cause China was "busily" shutting down, correcting housing excesses...
- You think, they're gonna stimmy INTO tariffs round 2 or to counter?
- You think, China will even notice a bruise compared to the effect of tariffs on EU (allegedly US Ally)? (see "outrunning a bear, or your friend...")
- You think China's not actively courting EU (esp. Italy, Hungary, Greece)? esp. during "hard times"...
- You think TSLA's future Revenues are NOT in China?? DCF that.
this was ALWAYS a RENEGOTIATION, BECAUSE of what China rightfully rolled out in 2015. That future is inevitable. And people, please stop REGURGITATING your MSM talking points about "demographics"... take a look at how that's going everywhere and if it's even that relevant.
Do not look at the world through a US-capitalist lens of the last century or the "network effects" (which get UNDONE even faster... see "The Cold Start Problem" by the Uber network effect genius).
Look at China as "Protocolization with capitalist characteristics"... 2% inflation "hamster wheel" is hardly a law of economic physics. It was merely a CB political theory that was attempted. The San Fran bridge and origins of CORPORATIONS lie in getting a "monopoly-like toll" rights for a LIMITED AMOUNT of time.... Technology will always be DEFLATIONARY at its core. May Steve Jobs and his DRM and little screen burn in hell. Nothin more than a Malboro man of our generation.
Good luck trimming the budget Musk, while avoiding Conflicts-of-Interest awarding yourself government contracts to weather the TRADE WAR w/ China...
The US consumes more than it produces only because China has weak domestic demand and are forced to dump part of what it does not consume onto deficit countries. The US has to absorb the excesss savings from China by taking on debt. But the excess savings imported do not boost US investment as there is insufficient domestic demand. As a consequence, the US must constrain domestic savings by either higher unemployment or debt.
My argument is that Asia tried to consumed more, but then suffered the Asian Financial Crisis when american capital fled home. In response Asia has focused on having large foreign reserves - and hence exports to the US. Under the threat of tariffs they may well stimulate to buy more from america
I can't speak for Asia ex-china as I haven't sudied those economies but China largely avoided the Asian financial crisis since its financial system was relatively closed. I would characterise the build-up of forex reserves in China as a symptom of an economy with exceptionally low consumption as a share of GDP where labour over-produces relative to its consumption. The US, Canada, Australia and UK have open economies which absorb the excess production. The point of tarriff should be to change the role of surplus countries in absorbing excess foreign savings.
This is my sense as well. What the US wants in the end is for China to spur domestic demand. That will spike rates but over the long term it’ll rebalance trade. My question though is can Xi stand this? How does he keep Made In China 2025 2.0 going if he is subsidizing consumption?
what choice does he have?
As well, consider the demographic problem Xi has, with population shrinking, growing aggregate domestic demand will be that much more difficult. it is going to be a very messy period going forward. and remember, it is not just the US that wants to bring production home, we are seeing the same desires (if not sensible policies) in Europe as well.
talk of the "aging problem" misses the point that they still have a few hundred millions of low productivity rural inhabitants, which can move into cities
Full Hukou reform would be very positive for chinese growth
increasing domestic consuption could also mean more money for the army etc, not (only) consumer toys
War is very inflationary!!
Great insight and I can't believe after how long I have been doing macro research, especially gold, that I have not seen the CIX Bloomberg chart of US Treasuries vs Gold prices long term before. Well done!
US = if Democrat, naive Marxist + Russo-wars (for energy exports to EU)
US = if Trump, 100yo Tariff game + Iran-regime change
China (secular) = Protocolization with Capitalist characteristics
China (tactical) = stimulated into 2015 rollout, smaller bruises THAN EU from '16-20 Tariff "wargamin"...
Big reason US inflation came down last few years is cause China was "busily" shutting down, correcting housing excesses...
- You think, they're gonna stimmy INTO tariffs round 2 or to counter?
- You think, China will even notice a bruise compared to the effect of tariffs on EU (allegedly US Ally)? (see "outrunning a bear, or your friend...")
- You think China's not actively courting EU (esp. Italy, Hungary, Greece)? esp. during "hard times"...
- You think TSLA's future Revenues are NOT in China?? DCF that.
this was ALWAYS a RENEGOTIATION, BECAUSE of what China rightfully rolled out in 2015. That future is inevitable. And people, please stop REGURGITATING your MSM talking points about "demographics"... take a look at how that's going everywhere and if it's even that relevant.
Do not look at the world through a US-capitalist lens of the last century or the "network effects" (which get UNDONE even faster... see "The Cold Start Problem" by the Uber network effect genius).
Look at China as "Protocolization with capitalist characteristics"... 2% inflation "hamster wheel" is hardly a law of economic physics. It was merely a CB political theory that was attempted. The San Fran bridge and origins of CORPORATIONS lie in getting a "monopoly-like toll" rights for a LIMITED AMOUNT of time.... Technology will always be DEFLATIONARY at its core. May Steve Jobs and his DRM and little screen burn in hell. Nothin more than a Malboro man of our generation.
Good luck trimming the budget Musk, while avoiding Conflicts-of-Interest awarding yourself government contracts to weather the TRADE WAR w/ China...