But what if the FDI is extractive, not long term productive? So in the UK overseas investors buy UK utilities and then extract rent in perpetuity. There is no necessary increase in productive capacity. Water is the most egregious example.
Let's imagine if there is a fiscal surplus in the US, then where would the foreigners put those dollars? They might invest it in other countries or buy lots of shares in the US markets -- might create bubbles.
Maybe, foreigners stop devaluing their currency, making their exports more expensive. But since US demand has now dropped due fiscal discipline, I wonder if these exporters would want their exports to become expensive.
There is no scenario out of this, I guess, wherein American consumers won't have to consume a little less. Unless, countries simply pay US a tribute to be able to access their markets and using their currency and keep their own population employed.
The primary driver at the heart of it I guess is Americans now want to just consume at really low prices.
In your other comment, even you are making the same argument -- that dollar has appreciated and imports have become relatively cheaper, so what's the point of this reply of yours?
The United States was experiencing the downside of its success. The dollar's status as the world's reserve currency caused its value to rise significantly, making imports cheaper. As a result, the U.S. struggled to commercialise its innovations quickly enough before China could, due in part to its complex democratic and regulatory systems that slowed the process. Consequently, the U.S. lost its competitive edge in both high- and low-tech manufacturing to China.
On the other hand, China maintained its capabilities in both high and low-tech manufacturing, allowing its commercial engines to operate efficiently. A significant misunderstanding dispelled is the belief that a thriving service industry can exist without a strong manufacturing base.
In the U.S., the standard of living was artificially sustained by a massive annual trade deficit of approximately $900 billion. Reviving the manufacturing sector will likely necessitate a significant reduction in wages and benefits.
The aim should have been a controlled lowering of debt. A $900 billion trade deficit is not sustainable for the US or the world.
Excellent, lucid, explanation. I think the ideal scenario lies in a balanced approach — encouraging others to lower their trade barriers while simultaneously supporting domestic industries in becoming more competitive and resilient. Not protectionism, but encouraging domestic industry along with filtered openness to imports. Interesting to see how nations react in the coming days.
Focus on industrial policy: with the government actively working with even small industries and unions to set long-term goals like in Germany (the Mittelstand model is just one example) and the Nordic countries.; emphasis on vocational training (university degrees are prioritized over skilled trades now); Social safety nets for workers. And finally, use mechanisms other than tarrifs to make it difficult for competitors to sell low quality in your markets (Germany and Japan do this effectively)
The value of a currency is determined largely by the productivity of its industries and monetary control. However, in the case of the United States, the high value of its currency primarily stems from its status as a reserve currency rather than from productivity. Conversely, China’s undervalued currency’s value is manipulated by the government.
The United States is heavily focused on maintaining its reserve currency status. As a result, it is unlikely to succeed in competing as a better location for manufacturing—whether for low-tech or high-tech goods.
The US getting its vocational education right will do little to boost manufacturing until the USD is part of a basket of currencies and not the prime reserve currency and exchange rates are comparable to Remnimbi.
But what if the FDI is extractive, not long term productive? So in the UK overseas investors buy UK utilities and then extract rent in perpetuity. There is no necessary increase in productive capacity. Water is the most egregious example.
I didn’t say all trade and fdi is long term net positive. I’m only implying it’s bad to make stuff up and cry about getting ripped off.
Let's imagine if there is a fiscal surplus in the US, then where would the foreigners put those dollars? They might invest it in other countries or buy lots of shares in the US markets -- might create bubbles.
Maybe, foreigners stop devaluing their currency, making their exports more expensive. But since US demand has now dropped due fiscal discipline, I wonder if these exporters would want their exports to become expensive.
There is no scenario out of this, I guess, wherein American consumers won't have to consume a little less. Unless, countries simply pay US a tribute to be able to access their markets and using their currency and keep their own population employed.
The primary driver at the heart of it I guess is Americans now want to just consume at really low prices.
Corporations go to China for the skill, quality and scale of production. Tim Cook explains it very succinctly here👇
https://x.com/adamemedia/status/1910598431254491449?s=46&t=UHWMBeL3iQMNSofO3u06mg
In your other comment, even you are making the same argument -- that dollar has appreciated and imports have become relatively cheaper, so what's the point of this reply of yours?
The curse of reserve currency-
The United States was experiencing the downside of its success. The dollar's status as the world's reserve currency caused its value to rise significantly, making imports cheaper. As a result, the U.S. struggled to commercialise its innovations quickly enough before China could, due in part to its complex democratic and regulatory systems that slowed the process. Consequently, the U.S. lost its competitive edge in both high- and low-tech manufacturing to China.
On the other hand, China maintained its capabilities in both high and low-tech manufacturing, allowing its commercial engines to operate efficiently. A significant misunderstanding dispelled is the belief that a thriving service industry can exist without a strong manufacturing base.
In the U.S., the standard of living was artificially sustained by a massive annual trade deficit of approximately $900 billion. Reviving the manufacturing sector will likely necessitate a significant reduction in wages and benefits.
The aim should have been a controlled lowering of debt. A $900 billion trade deficit is not sustainable for the US or the world.
Excellent, lucid, explanation. I think the ideal scenario lies in a balanced approach — encouraging others to lower their trade barriers while simultaneously supporting domestic industries in becoming more competitive and resilient. Not protectionism, but encouraging domestic industry along with filtered openness to imports. Interesting to see how nations react in the coming days.
What do you think is the best way to encourage domestic industry?
Focus on industrial policy: with the government actively working with even small industries and unions to set long-term goals like in Germany (the Mittelstand model is just one example) and the Nordic countries.; emphasis on vocational training (university degrees are prioritized over skilled trades now); Social safety nets for workers. And finally, use mechanisms other than tarrifs to make it difficult for competitors to sell low quality in your markets (Germany and Japan do this effectively)
Thanks for the answer! I'll look more into the Mittelstand Model.
The value of a currency is determined largely by the productivity of its industries and monetary control. However, in the case of the United States, the high value of its currency primarily stems from its status as a reserve currency rather than from productivity. Conversely, China’s undervalued currency’s value is manipulated by the government.
The United States is heavily focused on maintaining its reserve currency status. As a result, it is unlikely to succeed in competing as a better location for manufacturing—whether for low-tech or high-tech goods.
The US getting its vocational education right will do little to boost manufacturing until the USD is part of a basket of currencies and not the prime reserve currency and exchange rates are comparable to Remnimbi.