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.
Sure, reserve currency props up the dollar but that fails as the primary explanation for the loss of manufacturing capacity. Manufacturing as share of gdp has declined in almost every western country, with steeper declines in the UK and Germany.
Manufacturing shrunk as a share of GDP due to the mindless application of business school theory on how the division of labour and specialisation increases productivity. Sadly, this approach doesn’t work in every situation.
It works within a country or internationally with countries with similar labour costs, technical capacity, and monetary policies.
Let's take the US tool and die industry, the core of the manufacturing industry. In the early 80s, when the US toolmakers were considered advanced, the car industry outsourced the manufacture of less complex tools and dies to China due to cost advantage. China improved its manufacturing technology at a tremendous pace. Presently, China is globally the most sophisticated tool, jig, and mould manufacturing country. Forget the US; it's ahead of Germany, Japan and Korea. Initially, it was labour arbitrage. Now, it's a combination of advanced technology, labour and currency value. Currently, the US tooling industry doesn’t have the trained, sophisticated workforce & technology to replicate what China can produce. But even if the US miraculously rebuilds its archaic tool-and-die industry in a decade, the cost will be ridiculously high compared to China.
China is now a behemoth; civil aviation is the only industry it has left to conquer.
China conquered manufacturing through low labour costs and currency value combined with relentless technological and process improvement and a ginormous scale of production.
And by deploying advanced manufacturing technology and scale for both low-cost and high-value manufactured goods.
Letting manufacturers do business with China freely reduced the manufacturing industry’s share of every Western nation's GDP. As Secretary Navarro quoted, if global free trade continues, Western countries could be assemblers of just some manufactured goods. Tariffs at 100% or zero per cent globally(including China) are now irrelevant.
So, should free trade die to balance international trade? I think a persistent trade deficit beyond 2-3% spells trouble for every nation.
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.
Sure, reserve currency props up the dollar but that fails as the primary explanation for the loss of manufacturing capacity. Manufacturing as share of gdp has declined in almost every western country, with steeper declines in the UK and Germany.
Manufacturing shrunk as a share of GDP due to the mindless application of business school theory on how the division of labour and specialisation increases productivity. Sadly, this approach doesn’t work in every situation.
It works within a country or internationally with countries with similar labour costs, technical capacity, and monetary policies.
Let's take the US tool and die industry, the core of the manufacturing industry. In the early 80s, when the US toolmakers were considered advanced, the car industry outsourced the manufacture of less complex tools and dies to China due to cost advantage. China improved its manufacturing technology at a tremendous pace. Presently, China is globally the most sophisticated tool, jig, and mould manufacturing country. Forget the US; it's ahead of Germany, Japan and Korea. Initially, it was labour arbitrage. Now, it's a combination of advanced technology, labour and currency value. Currently, the US tooling industry doesn’t have the trained, sophisticated workforce & technology to replicate what China can produce. But even if the US miraculously rebuilds its archaic tool-and-die industry in a decade, the cost will be ridiculously high compared to China.
China is now a behemoth; civil aviation is the only industry it has left to conquer.
China conquered manufacturing through low labour costs and currency value combined with relentless technological and process improvement and a ginormous scale of production.
And by deploying advanced manufacturing technology and scale for both low-cost and high-value manufactured goods.
Letting manufacturers do business with China freely reduced the manufacturing industry’s share of every Western nation's GDP. As Secretary Navarro quoted, if global free trade continues, Western countries could be assemblers of just some manufactured goods. Tariffs at 100% or zero per cent globally(including China) are now irrelevant.
So, should free trade die to balance international trade? I think a persistent trade deficit beyond 2-3% spells trouble for every nation.