Well, this is actually the fundamental problem, isn't it? There's no way actual trade evens out, so tariffs are the only real outcome here. Even if we "win", it's not actually winning.
China is still considered a developing country by the WTO, it's very difficult to get into the Chinese market and they don't actually enforce IP rights which is a problem both for the US and EU.
The EU has very openly stated that they have the exact same problems with China as the US does. They couldn't any further telegraph their interest in conspiring with the US to tame China's abuses. Indeed it may be the only way to do it, you need truly immense pressure to get China to change behavior, more than the US can bring to the table by itself.
He is in the right on this one despite his style but sometimes that's what you need.
China has been having IP laws and protection since around 1980, and China government never said once that stealing IP is okay. It is IP law execution and enforcement in China that is sub-par. Policing is sometimes hard.
Also, I believe the US really wants to treat IP as an "asset" rather than a "product".
And rather than going to the court for justice, the US place tariffs for a war..
>Last month, Attorney General Eric Holder announced that the United States was charging members of the Chinese military with economic espionage. Stealing trade secrets from American companies, he said, enabled China to “illegally sabotage” foreign competitors and propel its own companies to “success in the international marketplace.” The United States should know. That’s pretty much how we got our start as a manufacturing power, too.
>The United States emerged as the world’s industrial leader by illicitly appropriating mechanical and scientific innovations from Europe,” the historian Doron Ben-Atar observes in his book “Trade Secrets.” Throughout the late eighteenth and early nineteenth centuries, American industrial spies roamed the British Isles, seeking not just new machines but skilled workers who could run and maintain those machines. One of these artisans was Samuel Slater, often called “the father of the American industrial revolution.” He emigrated here in 1789, posing as a farmhand and bringing with him an intimate knowledge of the Arkwright spinning frames that had transformed textile production in England, and he set up the first water-powered textile mill in the U.S. Two decades later, the American businessman Francis Cabot Lowell talked his way into a number of British mills, and memorized the plans to the Cartwright power loom. When he returned home, he built his own version of the loom, and became the most successful industrialist of his time.
>The American government often encouraged such piracy. Alexander Hamilton, in his 1791 “Report on Manufactures,” called on the country to reward those who brought us “improvements and secrets of extraordinary value” from elsewhere. State governments financed the importation of smuggled machines. And although federal patents were supposed to be granted only to people who came up with original inventions, Ben-Atar shows that, in practice, Americans were receiving patents for technology pirated from abroad.
Not clear if this is a feature or a bug.
In that time US debt has gone from $6.7t to $21t. Their share has gone from 15% or so, to 5.7%. They're no longer a funding source for new US debt, and are no longer a critical funding source of existing debt (although hey, it's nice to have them squatting on that trillion dollars and not liquidating it).
If country A bans foreign capital inflows and purchases $10 of foreign assets, then that forces a trade surplus of $10. Yes, that $10 transaction will be voluntary because it's currency will adjust so that the transaction is made. But from the macro point of view, the foreign capital flows drive the "voluntary" transactions.
So it's a bit disingenuous to say "well, people like these cheap goods" -- I mean, of course they do, but the story here is the foreign capital inflows which create an excessively expensive currency leading to a preference for certain types of goods. The whole ground is moving underneath you as a result of international policies and you don't see it, you just see people "choosing" to act.
You do not need to hold foreign reserves, you do not need to pay exchange commissions, you are not blocked to do business with third parties by having capital flows stopped ...
This is why the U.S. is the reserve currency, and it is also why we have a trade deficit, because as the rest of the world's capital pours into the U.S., that forces our currency to be overvalued enough to have an equal sized trade deficit on the way out.
Whereas you seem to think that that the U.S. "manipulating" it's currency by making U.S. currency more attractive to hold for foreigners -- is somehow a counter or offsets what China is doing, which is making its currency less attractive to hold.
But it's not, these two work together to cause the same distortion and large trade deficits.
For starters, you are using worthless (overvalued) papers to acquire real goods. The American consumer is getting a bargain.
You are also able to buy foreign assets at firesale prices (yes, for all your grandstanding, the US is not the only economy allowing direct foreign investment)
Having the world reserve currency (something the US has allowed / promoted to happen, out of interest) gives the US unfair operative advantages, already mentioned above.
The appetite for the dollar allows the US to be largely independent from the financial markets. It also allows the US to get favourable credit ratings, and financing terms which are unthinkable for other economies. This has been happening for decades, and is continuing until we reach a certain breaking point Incidentally, it is possible that this trade conflict is motivated by that breaking point getting closer.
To summarize: the US has enjoyed unfair, enourmous trade advantages for decades. It has been indulgent with its finances because the market has allowed it to be overspend. And now it wants the world to increase its already existing advantages, by claiming for "fair trade".
It is not going to happen.
No, so this is where you are getting signs confused. An overvalued dollar is the same as having a trade deficit. Arguing to reduce that trade deficit is the same as arguing for a weaker dollar. The argument goes "the dollar is too strong and it should be weaker", not "you are saying the dollar is too strong and then you want it weaker also?? How dare you ask for both!" When you make these types of arguments, it worries me because it makes it sound like you aren't groking that I am advocating for a cure to a disease.
> Your whole argument comes down to "the dollar is overvalued".
Well, I think my argument is explaining _why_ we have a stronger dollar -- because we have open capital markets while our trading partners do not. This creates an asset demand for dollars that increases total demand for dollars beyond that which would be consistent with balanced trade.
> You are not going to mention the good things, so I will.
I guess I'm old school in thinking that any systemic distortion is a net harm. For example, you may not realize this, but the strong dollar doesn't actually allow us to consume more, because it reduces our income and forces government benefit spending to bridge the gap. If you look at patterns of household consumption, they have not gone up -- the big gain in consumption was higher healthcare costs, but that's a price inflation thing. Basically those areas that lose out to globalization end up receiving social security disability dollar for dollar.
Next, the trade deficit is primarily offshoring, so instead of buying a wrench made in the U.S., we are buying an american branded wrench made in China. How many chinese brands can you name? You are buying the same american products, except they are no longer made here.
But, it's the same wrench, and in real terms it costs the same. We are not getting an extra wrench, there is no "extra consumption" -- there is just loss of domestic production followed up with increased foreign purchases as large numbers of formerly productive people drop out of the labor force and rely on government assistance. We just stopped producing something domestically and bought it overseas. It's not extra consumption.
How can we afford to buy it? Well, it's those extra government benefit expenditures to make up for all the income lost, together with lower interest rates from foreign demand for our assets and then we get asset bubbles as a side effect. China, more than anyone else, was responsible for the great recession.
That extra government debt also crowds out public spending on public goods -- take a look at our hollowed out cities. So, on net, we are not enjoying any more consumption, rather the ability of our nation to produce is slowly being dismantled and shipped overseas. That's an unmitigated bad.
It is also destabilizing, politically, as we have large swaths of the country that are being written off and this breeds radicalism. Also, it's sad to turn our backs on our fellow americans who worked in factories that have been shutdown and are now living on food stamps and meager benefit payments in broken down cities.
So, we have to tease apart the question of "do I want to buy this good" with the question of "why do people on one border consistently buy more goods than those on another". The former is up to individual preferences, but the latter -- the trade deficit -- is really just a matter of policy.
Second, it is impossible for a foreign nation to "fund" the U.S., which is a currency issuer. Rather, because we have open capital markets, we allow foreigners to purchase U.S. assets -- something that most other nations don't allow, including China. What this means is that there is a demand for dollars other than the trade demand, but an asset demand. This allows trade deficits to occur.
If you want to stop trade deficits, then don't impose tariffs, but do what China does and ban capital inflows. With no foreign capital inflows, there are no trade deficits -- the golden rule of international trade is that the changes to the capital account plus the changes to the current account must equal 0. No change to one implies no changes to the other, as a mathematical identity.
The way to understand this mathematical relationship is that when the rest of the world sells a good to the U.S., it gets a dollar, and now it has a choice of using that dollar to buy an asset or using it to buy a good. If it is very hard to buy assets, then you buy a good. In this way, the exchange rate adjusts so that the rest of the world doesn't have a trade deficit or surplus.
The reason why you want balanced trade is that when the foreigner gets a dollar by selling a good, but doesn't spend the dollar on buying an american good, then american economy has 1 dollar less income and it needs to sell off $1 of an asset. Selling assets does not produce income but selling goods does produce income. This is why nations like China basically ban selling assets to foreigners and so it's impossible for them to have trade deficits. There are very few nations that have the open capital markets of the U.S. -- really no nation, and our unique policies on capital are why we have such a uniquely large trade deficit.
If we want fairer international trade, the dollar must be ditched.