Can globalization be reversed? Part 1: Trade (wonkish)

by John Quiggin on June 9, 2019

The term “globalization” came into widespread use in the 1990s, about the same time as Fukuyama’s End of History. As that timing suggests, globalization was presented as an unstoppable force, which would break down borders of all kinds allowing goods, ideas, people and especially capital to move freely around the world. The main focus was on financial markets, and the assumption was that only market liberal institutions would survive.

The first explicit reaction against globalization to gain popular attention in the developed world[1] was the Battle of Seattle in 1999, but the process, and the neoliberal ideology on which it rested, didn’t face any serious challenge until the Global Financial Crisis of 2008. The Crisis destroyed Neoliberalism as a political project with positive appeal, but its institutions have remained in place through inertia.

Now, however, globalization is finally facing serious threats, most immediately from the nationalist[2] right, seeking to restrict movement of people and goods across national borders. There hasn’t yet been any serious challenge to financial globalization, but faith in the wisdom and beneficence of financial markets has disappeared.

An obvious question here is: can globalization be reversed? My short answer is: within current political limits globalization can be reversed least partially in the case of trade, but can only be slowed in the case of movements of people. I’m still thinking about financial flows.

Starting with trade, the reaction to Trump’s various trade wars has shown that the 21st century system of world trade based on complex supply chains involving many different countries is quite fragile. An across-the-board tariff rate of 10 per cent, the level that prevailed in 1960, would render supply chains with multiple border crossings uneconomic. The more likely pattern, again as illustrated by Trump, would involve a lot of unpredictable variation.

If Trump’s tariffs are maintained, and met with retaliation, the obvious response will be to return to the simplified supply chains of the 20th century. Manufactured goods would be produced in a single jurisdiction (maybe using imported raw materials, which are rarely subject to tariffs) either for domestic consumption or for export as finished products.

Moderate tariffs won’t, however, be enough to produce substantial import replacement of the kind needed to make (for example) American manufacturing great again. The force of comparative advantage is too strong for that. A return to something like Smoot-Hawley tariff scales (up to 60 per cent) would be needed. This seems to be outside the limits of what could happen political, given the increase in consumer prices that would result. However, any judgement about political limits has to be taken with a grain of salt these days.

What should we think about the costs and benefits of such a transition? Breaking down complex supply chains involves some obvious losses in efficiency. It’s hard to estimate how large they are on a continuing basis, but there would certainly be some big economic losses in the transition.

The current system enables US companies to hire subcontractors with exploitative labor practices, they can, as Naomi Klein pointed out in No Logo, be put under pressure to fix things. If most production was undertaken by firms in poor countries, there would be less of an opportunity for such pressure.

Complex supply chains also facilitate tax evasion through transfer pricing. However, this problem is due at least as much to the operations of the financial system as to the organization of physical production.

A lot depends on the specifics of tariff structures. Trump’s moves so far have been largely random, and the responses have been targeted at causing political pain for Trump rather than as part of a coherent strategy. In these circumstances, the reversal of globalization in trade is likely to cause more harm than good.

fn2. Nationalism in this context means something like “dominant identity nationalism” where dominant identity is a placeholder for those considered to be “real” members of the nation concerned,for example, white Christians in the US case. I plan to write more on this, but may not get around to it for a while.

fn1. Commenter Lupita points out that the Zapatista rebellion in Mexico (1994) was prompted by the signing of NAFTA

{ 36 comments }

1

SamChevre 06.09.19 at 3:16 pm

typo notes

Paragraph 1 ends with “institu”
Paragraph 3 ends “, but”
Last paregraph ends “is likely”

All seem like maybe html mis-rendering a longer ending.

2

Chris Bertram 06.09.19 at 3:43 pm

I haven’t yet read it (it is on the to-read pile), but Margaret E. Peters argues in her Trading Barriers: Immigration and the Remaking of Globalization that globalization in trade undermines political support from business for more open immigration (because firms can hire workers in factories etc where they live rather than having to import them).

3

Hidari 06.09.19 at 3:47 pm

‘Nokia and Ericsson, two of Europe’s biggest technology titans, are weighing drastic changes to their corporate structures, including setting up separate units in the Eastern and Western Hemispheres, in a bid to protect themselves against the escalating global trade war.
Both companies, which make equipment used to run 5G networks, have started drawing up emergency plans to move some of their most sensitive operations out of China and split up their supply chains to counter increasing national security concerns, sources have told The Sunday Telegraph.
It is one of the clearest indications yet that the decades-long process of globalisation….’ (is slowing down….this is from memory as the rest of the article is behind a paywall and I can’t find the paper copy at the moment, but you get the idea).

https://www.telegraph.co.uk/business/2019/06/08/exclusive-nokia-andericsson-plan-emergency-break-up-trade-war/

4

Hidari 06.09.19 at 4:08 pm

I don’t mean to clog up this comments thread with random stories clipped from the papers, so I’ll stop after this one.

‘Facebook said Friday it has stopped letting its apps come pre-installed on smartphones sold by Huawei in order to comply with U.S. restrictions, a move that deals a fresh blow to the Chinese tech giant.
The social network said it has suspended providing software for Huawei to put on its devices while it reviews recently introduced U.S. sanctions.
Owners of existing Huawei smartphones that already have Facebook apps can continue to use them and download updates.
But it’s not clear if buyers of new Huawei devices will be able to install Facebook’s apps on their own.
Facebook’s move is the latest fallout in the escalating U.S.-China tech feud.’

https://www.msn.com/en-gb/money/news/facebook-stops-huawei-from-pre-installing-apps-on-phones/ar-AACxuZO?ocid=spartanntp

The idea that the United States, (whose foreign policy since about 1948 has literally been predicated on the idea that the United States, and only the United States, will continue to have global pre-eminence/hegemony) is going to ‘share the wealth’, let alone share the power, with China (or anybody) is risible. As is the idea that the American are going to sit back and let long term global trends towards a more ‘multipolar world’ simply happen, without fighting them bitterly every step of the way.

It may, or may not be true that the deterministic tone of the title of the last John Pilger film ‘The Coming War on China’ is justified.

But it is unquestionably and unarguably true that American conflict (which may or may not be of a military nature) with a rising China is literally inevitable (at least for as long as China continues to ‘rise’), and we are seeing the first warning shots being fired now. Since globalisation essentially means the incorporation of China (and to a lesser extent, the former ‘Eastern Bloc’) into an American dominated ‘global trading framework’, the ‘knock on effects’ of this for globalisation per se can be easily inferred. The above articles are straws in the wind.

5

Lupita 06.09.19 at 6:02 pm

The first explicit reaction against globalization to gain popular attention was the Battle of Seattle in 1999

Why not the Zapatista uprising in 1994? It was explicitly against Nafta and neoliberalism. The 1997 Asian financial crisis also triggered a very strong reaction against the US centered globalized financial system, its hedge funds, and the IMF.

the neoliberal ideology on which it rested, didn’t face any serious challenge until the Global Financial Crisis of 2008

In 2003, the unified challenge of the poorer countries was so serious that it the collapsed the WTO talks to the point that it has never recovered. 2008 was simply catastrophic.

More than globalization being challenged, I think it is US hegemony. Trump is definitely uniting its challengers with his media circus in Venezuela, disruptive tariff threats against Mexico, and the blacklisting of Huawei.

6

Orange Watch 06.09.19 at 6:47 pm

Your first paragraph ends abruptly.

7

Stephen 06.09.19 at 7:22 pm

CB@2: are you sure you don’t mean ” globalization in trade undermines political support from business for more open immigration (because firms can hire workers in factories etc where they DON’T live rather than having to import them”?

8

John Quiggin 06.09.19 at 7:27 pm

@5 I wasn’t aware of the link between the Zapatistas and NAFTA. I’ll edit to add this

As regards 1997, Mahathir went against the consensus and succeeded. But in general neoliberal orthodoxy prevailed. The standard line was that the crisis was due to incomplete liberalization and “crony capitalism”, as distinct from the fully globalized financial markets of New Yorak nd London, which were immune to such disasters

9

nastywoman 06.09.19 at 8:18 pm

If the definition of ”globalization” is:
”the process by which businesses or other organizations develop international influence or start operating on an international scale” – it never ever can be reversed.

If the definition of globalization is the Nr.1 definition of the urban dictionary:
”In a nutshell, the integration and exchange of ideas and goods globally. Hence the name, globalization. It benefits the middle class and especially the rich and powerful, but has hurt the poor and powerless”.

the part about ”hurting the poor and the powerless” can be reversed.
-(but NOT with tariffs)

10

nastywoman 06.09.19 at 8:47 pm

– and it might be a good idea? – not only to differentiate between
”the case of trade”
and ”movements of people”
but also between the different ”image” of ”globalisation” in so called ”Consumer -” versus ”Producer – Countries”.
You’ll find much fewer friends of ”globalization” in ”Consumer Countries” than in ”Producing Countries” – as the ”Producing Countries” profit not only with (well) paying jobs from selling their products to the ”Consumer Countries” – while the ”Consumer Countries” only ”profit” -(so to say) – from lower prices if ”Producing Countries” produce for lower prices.

But as there is more and more demand for ”very pricy” and ”High Quality Goods” the ”Consumer Countries” ”profit” less and less – which made somebody like ”Baron von Clownstick” kind of mad – but then – somehow – he didn’t put tariffs on the ”High Quality Goods” – but more on ”the cheap stuff”.

So perhaps? – what should be done firstly –
(before answering the question if globalization can be reversed) – is – to clear up the confusion about ”globalisation”?

11

Omega Centauri 06.09.19 at 10:20 pm

Is it even desirable to roll back globalization? Many of the newer industries exploit large economy of scale effects, and reducing trade/financial/human flows would have the effect of fractionalizing the markets of these industries. Many of these are critical for the future. Take for example the new energy technologies we so desperately need to cap climate change. Solar seems to get cheaper by roughly twenty percent per market size doubling. Wind is a bit less. Storage also is going to be crucial and also enjoys substantial economy of scale effects. I think we are in danger of losing the planet in an effort to affect the balance of power between labor/ and capital. Similar economy of scale effects are common throughout the tech sector. The modern world is much more a product of globalization than people realize.

12

Likbez 06.09.19 at 11:38 pm

Trump elections in 2016 was in essence a rejection of neoliberal globalization by the American electorate which showed the USA neoliberal establishment the middle finger. That’s probably why Russiagate hysteria was launched to create a smoke screen and patch the cracks.

The same is probably true about Brexit. That’s also explains Great Britain prominent role in pushing anti-Russia hysteria.

I think the collapse of neoliberal ideology in 2008 (along with the collapse of financial markets) mortally wounded “classic” neoliberal globalization. That’s why we see the conversion of classic neoliberalism into Trump’s “national neoliberalism” which rejects “classic” neoliberal globalization based on multinational treaties like WTO.

As the result of crisis of neoliberal ideology we see re-emergence of far-right on the political scene. We might also see the emergence of hostile to each other trading blocks (China Russia Turkey Iran; possibly plus Brazil and India ) vs G7. History repeats…

I suspect that the USA neoliberal elite (financial oligarchy and MIC) views the current trade war with China as the key chance to revitalize Cold War schemes and strategically organize US economic, foreign and security policies around them. It looks like this strategic arrangement is very similar to the suppression of the USSR economic development during the Cold War.

The tragedy is that Trump administration is launching the conflict with China, while simultaneously antagonizing Russia, attacking EU and undermining elements of the postwar world order which propelled the USA to its current hegemonic position.

13

nastywoman 06.10.19 at 5:02 am

”Trump elections in 2016 was in essence a rejection of neoliberal globalization by the American electorate which showed the USA neoliberal establishment the middle finger. That’s probably why Russiagate hysteria was launched to create a smoke screen and patch the cracks”.

No – Trump election was partly the very confused reaction of some very unhappy US workers – whose jobs got outsourced because their ”bosses” thought they could make more money with employing cheaper labour in ”other countries” – and for sure also showing ”the own establishment the middle finger” – and the idea that ”Russiagate” or ”The Royal Wedding” or ”Taylor Swift” etc.etc ”create a smoke screen and patch the cracks” is just the typical silly Internet Meme.

In the global reality ALL the countries which provide secure – satisfying and well paying jobs to their workers – have ”happy workers” who don’t vote for ”Trumps” – or better said: just a minority of about 10 to 15 percent of them vote for ”Clownsticks” – the entire rest is very busy producing ”stuff” – they are proud about – producing.

14

nastywoman 06.10.19 at 5:38 am

and @12
…The tragedy is NOT mainly – that Trump administration is launching the conflict with China, while simultaneously antagonizing Russia, attacking EU and undermining elements of the postwar world order…

The tragedy is that a simpleton like Trump tries ”Tariffs” – in order to ”make” America one of ”the Producing Countries” again – while it actually is only possible the way a country like Germany always did everything to sponsor, subsidise and promote ”producing” instead of ”consuming”.

And that’s why for example the Chinese do everything right now to (also) get into the production of ”High Quality Stuff” which will decide – who in the future will be the YUUUGEST winners in the mind-boggling growing market for ”High End” and Luxury.

In other words – in trying to ”successfully” bringing back ”successful manufacturing” to the US -(and thusly create lots and lots of satisfying jobs for US workers) the US would have to do what the Germans did – by – for example – buying the whole British Car Industry – and especially the utmost Luxurious Companies – as there is less and less money -(and ”good” jobs) in producing ”cheap crap”.

And THEN to put tariffs on ”cheap crap” is kind of ”Clownstick-like.pathetic”.

15

Dipper 06.10.19 at 5:56 am

@ Likbez … “a rejection of neoliberal globalization … The same is probably true about Brexit” can we stop this please? The UK electorate was asked a specific question and gave a specific answer to that question. There is no logic or evidential support for saying it was ‘really’ an answer to a different question.

“That also explains Great Britain prominent role in pushing anti-Russia hysteria.” And the poisonings. Let’s not forget the poisonings.

16

Hidari 06.10.19 at 6:03 am

‘An obvious question here is: can globalization be reversed? My short answer is: within current political limits globalization can be reversed least partially in the case of trade, but can only be slowed in the case of movements of people. I’m still thinking about financial flows.’

This first may or may not be true, but I’m not sure about the second point. Liberals (getting it wrong as usual) seem to interpret anti-immigration sentiment as being simply an atavistic return to ‘old school’ racism, or even making highly implausible links to 1930s style totalitarianism, a socio-political structure which, despite fevered liberal dreams, still shows no signs of returning.

But it makes more sense to see revised anti-immigrant sentiment as being a pre-emptive strike, so to speak, by elites against problems that will become increasingly worrisome as the 21st century develops. The most important of these problems is the problem of climate change (Bruno Latour argues that all of our current political problems, Brexit, Trump etc. are in fact the first signs of the breakdown of our current socio-political arrangement under the pressure of climate change).

Liberal fantasies notwithstanding, the facts of climate change are easily stated, and they are grim. Carbon dioxide continues to rise, relentlessly, there is no serious political movement to halt this rise, and all the ‘populist’ movements, currently ‘seizing the political day’ are global warming deniers, either de facto or de jure. (https://www.theguardian.com/environment/2019/jan/25/worrying-rise-in-global-co2-forecast-for-2019)

So, nothing will be done about global warming. Therefore, by 2100 or a few decades after, the world will look like this.

https://mymodernmet.com/parag-khanna-global-warming-map/

(Note: in some ways, this is a ‘best case’ scenario).

What this also means is that it is inevitable that there will soon (i.e. by 2070, 2080 or so) be millions (indeed, possibly billions) of climate change refugees from the global South heading towards the global North.

Current anti-immigrant sentiment in this context has a number of purposes. it ‘prepares the ground’ for the even more draconian anti-immigrant sentiment that will be ‘necessary’ as the countries of the global North ‘pull up the drawbridge’ in the second half of the 20th century (not to put too fine a point on it, in the latter 21st century there will be soldiers on (e.g.) the American-Mexican border, and ‘illegal immigrants’ will be shot on sight). It prepares the physical infrastructure for what will be ‘necessary’ to prevent the ‘immigrant tide’ (e.g. Trump’s wall). And it prepares the ideological ground so that the right can control the narrative and achieve what the right always want, which is to push politics even further to the right, crack down on civil liberties (cf what is currently happening in Australia), and prepare for whatever future wars are ‘necessary’ to secure American hegemony.

Therefore, whether ‘free movement of people’ can actually be stopped is dubious, but I am sure the attempt will be made.

17

David J. Littleboy 06.10.19 at 8:12 am

nastywoman @13 writes:

“No – Trump election was partly the very confused reaction of some very unhappy US workers – “

I think this is quite wrong. Trump voters’ median income was well above not only the US overall median income, but the median income for non-Hispanic whites in the US. Trump put on a great show that was attended by reasonably well-off, rural, whites. These are the folks who came out of the woodwork and gave him the three northern states.

https://www.washingtonpost.com/news/monkey-cage/wp/2017/06/05/its-time-to-bust-the-myth-most-trump-voters-were-not-working-class/?utm_term=.53da02172ac5

We Dems lost the white working class in the 60s with bussing, and we ain’t getting them back. Nor are we getting any of the rural white Trump voters back. With barely over 50% of people even bothering to vote, the name of the game is enthusing the base (which the New York Times screwed us on with their incessant harping on emails) and getting out the vote. We thought that those Trump shows were a joke, but they weren’t.

18

MisterMr 06.10.19 at 8:22 am

Likbez @12
“Trump elections in 2016 was in essence a rejection of neoliberal globalization by the American electorate which showed the USA neoliberal establishment the middle finger. “

I disagree with this, and this makes me think that the OP also starts from wrong premises.

A big part of Trump’s policies is to force China open for american corporations. This is hardly a middle finger towards globalisation, let alone neoliberal estabilishment (of which Trump is obviously part).

Rather, it is an attempt to make globalisation work for the advantage of the USA, against China and other, for a concept of the USA that doesn’t distinguish between USA capital and USA workers.

The problem is in the assumption that the conflict is between localists and globalists, but in reality each localist wants protection for himself, but free access to others: protectionism is a form of mercantilism (by mercantilism I mean the idea that net exports are going to pull the economy forwards, so that everyone wants to be a net exporter).

Now obviously nif everyone tries to be a net exporter, someone will end up being a net importer anyway, since import-export is a zero sum game, and this someone currently is the USA.
(Why is the USA the final net importer? Because ultimately to be a net exporter you have to keep internal demand low, but as the USA is much bigger than other economies keeping internal demand low is more damaging for the USA than any advantage it can have from net exports).

But this doesn’t mean that these “localists”, including Trump, are against globalisation, it’s similar to what happened with european colonial powers that used protection against rivals bud forced exports on colonies, with the difference that the economic difference of power today is much less.

Another example would be 19th century UK trying to push its products in the USA and keeping USA products from the inner market, but the USA becoming a net exporter anyway in some decades.

This is the big problem of the “localist” (sovereignist?) project, that if everyone really just wanted to localize and put up trade barriers, this would be possible, but since everyone wants to stay “sovereign” at home, but have access to other’s markets (like in the case of Brexit), then this is impossible (unless one capitalist center wins it big and gets to rule over others, as happened to the USA after WW2).

19

Tim Worstall 06.10.19 at 9:26 am

“Moderate tariffs won’t, however, be enough to produce substantial import replacement of the kind needed to make (for example) American manufacturing great again. The force of comparative advantage is too strong for that. A return to something like Smoot-Hawley tariff scales (up to 60 per cent) would be needed.”

Well, yes and no. The size of a barrier to trade isn’t just that tariff level. It’s transport plus tariffs (and it’s possible to go on and argue “the ability to organise the trade” in things like telecoms costs etc). In O’Rourke and….(umm, Findlay? Power and Plenty I think?) there’s the point made that post Civil War US tariffs rose substantially. They did. But trade costs were still falling as the ocean going steamship so reduced the costs of transport. We see increasing correlation between European and US prices in this period implying at least easier trade/arbitrage.

The point being that it’s not “only” policy or tariffs or WTO or GATT or whatever that has led to greater global trade integration. The continuing fall in the cost of shipping – the container, obvs – has something to do with it as well.

How much, well, there’s an argument. But the idea that it’s only those policy choices is an error.

20

nastywoman 06.10.19 at 10:01 am

@15
”The UK electorate was asked a specific question and gave a specific answer to that question”.

”The Brexit referendum question was flawed in its design by ignoring Kenneth Arrow’s impossibility theorem”.

The unsatisfactory referendum question
Based upon voting theory, the Brexit referendum question can be rejected as technically unsatisfactory. One could even argue that the UK government should have annulled the outcome based on this basis alone. Even more ambitiously, one might imagine that economists and political scientists across Europe take up this issue and hence provide a basis for the EU Commission to negotiate for a proper referendum question. The big question is why the UK procedures didn’t produce a sound referendum choice in the first place”.

And – just visiting London -(together with some ”NON-EU passholders”) the more specific question probably should have been:

Are you willing – in the future – to wait at every (EU) border as long as a NON-EU passholder to get ”processed”?
and there is a very specific answer to THAT question”.

21

Jim Buck 06.10.19 at 10:22 am

it ‘prepares the ground’ for the even more draconian anti-immigrant sentiment that will be ‘necessary’

Precisely what I suspect to be the function of all those bash-the-zombies movies.

22

nastywoman 06.10.19 at 10:30 am

and about:
”So, nothing will be done about global warming. Therefore, by 2100 or a few decades after, the world will look like this”.

No it won’t –
as a lot already is being done -(for sure ”locally”) about ”global warming” – and as it is already possible – to escape most consequences of ”global warming” by picking ”the most global warming resillient areas” – it will be the same in 2100.

And I understand this sounds pretty cynical – as for sure there will be ”the issue” of too many people trying to get to these areas – but from an ”Anthropological Perspective” it never has been different – like -(attention ”joke”) that everybody wanted to live in London!

23

SusanC 06.10.19 at 10:54 am

The computer/electronics industry has a number of features that may make it different from other commodities:

– Enormous cost of entry. (So large that even a major country might not be able to afford to write an operating system, or design a CPU, or build a chip manufacturing facility).

-Network effects. You don’t want any old operating system/CPU design, you want one that is the same as the one everyone else uses, so you can run the same software. (Knock-on effect of cost of entry. It’s not just the cost of writing Windows, it’s the cost of writing every single application that ran on Windows. Some the enormous cost of entry is even more enormous than you moght at first think).

– Software does what it was programmed to do. You – as the customer – do not know what that might be. There is some justifiable skepticism about the viability of “cyberwar”, but we might take the Stuxnet incident as a datapoint of what has been demonstrated as possible: it includes an enemy state blowing up a nuclear weapons manufacturing facility,

Taken together, this is not a good combination. Having written it, I do wonder if it suggests the inevitability of a world government. (Or alternatively, something more akin to the Butlerian Jihad in the Dune novels)

24

J-D 06.10.19 at 11:30 am

Hidari

The default plausibility of the idea that government decisions now are largely driven by expectations of developments decades hence is negligible: a strong case is needed to raise it to a level where the idea merits practical consideration.

25

nastywoman 06.10.19 at 12:15 pm

@
Trump election was partly the very confused reaction of some very unhappy US workers – “I think this is quite wrong”.

But I accompanied a German TV Team which talked to a lot of these very unhappy US workers -(mainly in the so called ”Rust Belt”) – and the fact that there were (a lot of) other reasons – like for example ”showing the so called establishment the middle finger” – doesn’t negate the fact that in the so called ”Rust Belt” a lot of unhappy workers voted for the Clownstick.

26

nastywoman 06.10.19 at 12:23 pm

@18
– seems to me a very complicated explanation for:

”If a country doesn’t produce what it consumes…
Such a country is entirely F… ed!

-(if the country doesn’t have ”some oil” or any ”other valuable resources” – which can be traded – in order to order the Lambos, Gucci bags and German Designer kitchens WE want)

27

Hidari 06.10.19 at 4:21 pm

@23

It’s no surprise that the place where the Americans ‘drew the line’ was Huawei. The American surveillance and control technologies (Google, Apple, Microsoft and the rest) are absolutely crucial to American control of the world economy and, therefore, the world. There is no conceivable way that the Americans are going to allow a company from outside ‘the West’, especially not one with links to the Chinese government, to muscle in on ‘American turf’.

The Americans are kind of floundering around at the moment, but I would imagine that their strategy will firm up for the next 5-10 years and it will be to try and ‘decouple’ the Chinese (especially in key industries: i.e. arms, surveillance/control) from an American led economy using tariffs, then sanctions and pressure on American/Western companies who do business with the Chinese. The Americans are still very powerful: look what they have done to the Venezuelan and Russian and Iranian economies.

The Chinese of course have their own ideas.

https://www.theguardian.com/cities/ng-interactive/2018/jul/30/what-china-belt-road-initiative-silk-road-explainer

Yet again, there is no way that the Americans are going to sit back and allow this to happen (at least putting up a fight).

OTOH the Americans are fighting for power. The Chinese are fighting for survival.

28

Michael Furlan 06.10.19 at 11:39 pm

@4

John Quiggin seems very optimistic.

“What should we think about the costs and benefits of such a transition?”

I hope for a smooth transition too but I think a crisis is more likely.

As Hidari says:

“But it is unquestionably and unarguably true that American conflict (which may or may not be of a military nature) with a rising China is literally inevitable (at least for as long as China continues to ‘rise’), and we are seeing the first warning shots being fired now.”

29

MisterMr 06.11.19 at 11:16 am

@nastywoman 26

“– seems to me a very complicated explanation for: If a country doesn’t produce what it consumes… Such a country is entirely F… ed!”

This is totally NOT what I said, so I’ll restate my point differently.

IF people (localists, sovereignists etc.) really wanted less globalisation, without global supply chains, etc., then it would be possible, at a price (in terms of productivity).

BUT in reality localists, sovereignists etc. don’t really want de-globalisation for the sake of it, they mostly want to increase exports and decrease imports, and in fact these localists desires are stronger in countries (USA, UK) that are big net importers, and therefore think they are losing in the globalisation race.

The reason localists want to increase exports and decrease imports is that it is a form of mercantilism: if exports increase and imports decrease, there are more jobs and contemporaneously there are also more profits for businesses, so it’s natural that countries want to import less and export more.

BUT exports are a zero sum game, so while this or that country can have some advantages by being a net exporter, this automatically means that some other country becomes a net importer, so onne can’t solve the problem of unemployment by having everyone being net exporters (as Krugman once joked by having everyone export to Mars).

So the big plan of localists cannot work in aggregate, if it works for one country it creates a problem for another country. This is a really big problem that will cause increasing international tensions.
We are seeing this dinamic, IMHO, in the Brexit negotiations, where in my opinion many brexiters had mercantilist hopes, but of course the EU will not accept an accord that makes it easy for the UK to play mercantilist.
I’ll add that I think that Brexiters don’t really realise that they are mercantilists, but if you look at the demands and hopes of many Brexiters this is their “revealed preference”.
This is also a problem because apparently many people (not only the Brexiters, see also EU’s policies towards Greece) don’t really realise what’s the endgame for the policies they are rooting for, it seems more like a socially unconscious tendency, so it is difficult to have a rational argument with someone that doesn’t really understand what he wants and what he is in practice trying to do.

The reason that every country is trying to play mercantilist is that in most countries inequality rose in the last decades, which creates a tendence towards underconsumption, that must be countered through one of these 3 channels:

1) Government deficits;
2) Easy money finance and increased levels of financial leverage;
3) net exports.

The first two channels lead to higer debt levels, the third apparently doesn’t but, as on the other side of net exports there has to be a net importer, in reality it still relies on an increase in debt levels, only it is an increase in debt levels by someone else (sometimes known as the net exporter “vendor-financing” the net importer).

The increase in leverage goes hand in hand with an increase of the value of capital assets VS GDP, that is an increase of the wealth to income ratio.

So ultimately the increased level of inequality inside countries (as opposed to economic inequality between countries, that is falling) leads to a world where both debt levels and asset prices grow more than proportionally to GDP, hence speculative behaviour, and an economy that is addicted to the increase of debt levels, either at home or abroad (in the case of net exporting countries).

The countries that seriously want to become net exporters have to depress internal consumption, wich makes the problem worse at a world level.
The countries like the USA, where internal consumption is too much a big share of the pie relative to what the USA could gain by exports, are forced to the internal debt route, and so are more likely to become net importers.
However, in this situation where everyone acts mercantilist, by necessity someone will end up a net importer because import/export is a zero sum game, so it doesn’t really make sense to blame this or that attitude of, for example, Americans for theiy being net importers: they are forced int it because otherwise they would be in perma-depression.

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nastywoman 06.11.19 at 11:31 am

“But it is unquestionably and unarguably true that American conflict (which may or may not be of a military nature) with a rising China is literally inevitable”

As long as the US Casino -(”the stock market”) will react unfavourable to a (real) American-Chinese conflict – there will be no (real) American-Chinese conflict –
(just the games which are going on currently) – and just never forget – all of my Chinese friends are really ”tough gamblers”.

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Mike Furlan 06.11.19 at 2:30 pm

@30

“As long as the US Casino -(”the stock market”) will react unfavourable to a (real) American-Chinese conflict – there will be no (real) American-Chinese conflict “

Crash, then conflict?

One possibility is a US market crash entirely due to domestic shenanigans, followed by demagogue blaming it all on “Chiner.”

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nastywoman 06.11.19 at 4:40 pm

@29
”This is totally NOT what I said, so I’ll restate my point differently.

So I read the restated point and I got the following essence:
Countries want to become ”exporters” as there are more jobs – but there is this – supposedly zero-sum-thing and the joke from Krugman about exporting to Mars and the theory that ”if it works for one country it creates a problem for another country”.

But in our current reality the major problem of US and UK is NOT so much that we want to export more – the much, much YUUUGER problem is – that we have to import so much stuff we don’t produce anymore?

While once upon a time – we did -(produce most of what we consumed) –
with all the pleasant consequences for our job market – and – mysteriously? – this – shall we call it ”system”? didn’t create more problems for other countries –
(well it did – but NOT for so called advanced countries which ran on the same level and the same system – we did)

So in other words:
We just didn’t have this crazy split – between ”Predominant Consuming” – and ”Producing” Countries) – which now means:

If a country doesn’t produce what it consumes… Such a country is entirely F… ed!”

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nastywoman 06.11.19 at 4:58 pm

@29 – about this ”financial-thing” –
One for sure can produce money -(instead of stuff) – and then – with all the produced dough buy aaall the stuff somebody else produces.

BUT as ”producing money” produces such few jobs and the Producing Countries suddenly have so much more jobs for ”the people” -(we don’t have anymore) – there is ”trouble brewing” –
if you know what I mean?

34

Hidari 06.11.19 at 7:43 pm

‘“As long as the US Casino -(”the stock market”) will react unfavourable to a (real) American-Chinese conflict – there will be no (real) American-Chinese conflict “’

This is an example of ‘vulgar Marxism’, i.e. a crude economic determinism that not even ‘hardcore’ Marxists really believe. The idea being that whoever is in the White House literally and objectively simply takes their orders direct from the Wizards of Wall Street and then does their bidding.

Life does not in fact work like this.

And even if it did, which it doesn’t, there’s always the element of chance. No one (not even the Wizards of Wall Street) really wanted World War One, or at least not the World War One they actually got. CF also all the times that ‘we’ nearly got a nuclear war (in 1962 e.g. or 1983) that no one presumably wanted.

The thing about starting wars, even ‘cold wars’, is that they can spiral out of control and become hot wars, even if no one really wants that to happen.

And to being this back to the OP, war is the continuance of politics by other means, but economics is also the continuance of politics by other means. In other words, economics is always subordinate to politics.

Therefore the statement: ‘If Trump’s tariffs are maintained, and met with retaliation, the obvious response will be to return to the simplified supply chains of the 20th century.’

Yes but who will be forced to return to these simplified supply chains? The Americans? The Europeans? The Chinese? A lot rides on the answers to these questions.

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nastywoman 06.11.19 at 8:54 pm

@
”This is an example of ‘vulgar Marxism’, i.e. a crude economic determinism that not even ‘hardcore’ Marxists really believe”.

Agreed – as everybody I know – who believes:
‘“As long as the US Casino -(”the stock market”) will react unfavourable to a (real) American-Chinese conflict – there will be no (real) American-Chinese conflict “ –
is a so called ”capitalist”.

And the idea – that whoever is in the White House literally and objectively simply takes their orders direct from the Wizards of Wall Street and then does their bidding – is pretty much outdated – since we have somebody in the White House who takes his order directly from ‘the lower part of his body’ – and ”the dough” – without any filtering through Wall Street.

And that’s how Life -(in Trump World) actually works – with the agreement that ”there’s always the element of chance”.

Or let’s say – ”Completely random” – but as ”the Don” of MY family needs the income from gambling in the Stock Casino – he also needs a certain amount of predictability concerning the returns –
and as his predictions – until now – have been around 78 to 84 percent precise – his prediction that: “As long as the US Casino -(”the stock market”) will react unfavourable to a (real) American-Chinese conflict – there will be no (real) American-Chinese conflict “ –
has a chance to be between 78 to 84 percent – precise.

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John Little 06.12.19 at 8:48 pm

Nastywoman and Hidari are pretty accurate, but as a global Supply Chain specialist, I can say that they, and most others, are missing a very central point to any globalist topic. The fact that the US Dollar is the world’s fiat currency. This absolutely dictates policy in all other countries around the idea of needing to purchase dollars before purchasing anything else. Even though the frequency has diminished over the years, we have yet to witness the time when the US will need to perform the same preliminary step to purchase renminbi, or any other currency, before acquiring a given commodity. Though the USA did this in the past, it will be a total game changer in the future.

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