NAFTA and Other Trade Deals Have Not Gutted American Manufacturing—Period: Live at Vox.com

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Live at Vox.com: NAFTA and Other Trade Deals Have Not Gutted American Manufacturing—Period: Politically speaking, there was no debate on United States international trade agreements in 2016: All politicians seeking to win a national election, or even to create a party-spanning political coalition, agree that our trade agreements are bad things…. From the left… Bernie Sanders…. From the right—I do not think it’s wrong but it’s not quite correct to call it “right,” at least not as Americans have hitherto understood what “right” is—but from somewhere… now-President Donald Trump…. From the center establishment… popular vote–winning (but Electoral College–losing)… Hillary Rodham Clinton…. “I will stop any trade deal that kills jobs or holds down wages, including the Trans-Pacific Partnership. I oppose it now, I’ll oppose it after the election, and I’ll oppose it as president.…” The rhetoric of all three candidates resonates with the criticism of trade agreements that we heard way back when NAFTA was on the table as a proposal—not, as today, something to blame all our current economic woes on… Read MOAR at http://vox.com


This piece actually does only a third of what I wanted to do:

  1. Lay out how our trade agreements have not decimated manufacturing.
  2. Lay out what a properly-nurturing macroeconomic and industrial policy to increase the health of our important and valuable communities of engineering practice would be–but stress that such policies would not bring back mass manufacturing jobs.
  3. Account for the political mishegas.

But I only got through (1). And it is 8000 words. And I had to drop the extended notes and digressions that will go into the bibliographic essay…

Must-Read: Gideon Rachman: Xi Jinping Has Changed China’s Winning Formula

Must-Read: Gideon Rachman: Xi Jinping Has Changed China’s Winning Formula: “What Mr Xi has done is essentially to abandon the formula that has driven China’s rise…

…created by Deng Xiaoping… and then refined by his successors…. In economics, Deng and his successors emphasised exports, investment and the quest for double-digit annual growth. In politics, China moved away from the charismatic and dictatorial model created by Mao Zedong and towards a collective leadership. And in foreign affairs, China adopted a modest and cautious approach to the world that became colloquially known in the west as hide-and-bide…. Under Mr Xi, who assumed the leadership of the Chinese Communist party towards the end of 2012, all three key ingredients of the Deng formula have changed….

China has moved back towards a model based around a strongman leader…. The years of double-digit growth are over…. The Xi era has seen a move away from hide-and-bide towards a foreign policy that challenges US dominance of the Asia-Pacific region….

In economics… the shift to a new model is perilous… an unsustainable splurge of credit and investment…. China still has to get used to lower rates of growth…. A healthy economy is crucial…. The country’s leaders have relied on rapid economic growth to give the political system a ‘performance legitimacy’, which party theorists have argued is far deeper than the mandate endowed by a democratic election…. When it comes to politics, in the post-Mao era the Communist party has… embrace[d] a collective style of government, with smooth transitions…. Mr Xi has broken with this model…. Many pundits believe that Mr Xi is now determined to serve more than two terms in office…. At the same time as economic and political tensions within China have risen under Mr Xi, so the country’s foreign policy has become more nationalistic….

The key to the Deng formula that created modern China was the primacy of economics. Domestic politics and foreign policy were constructed to create the perfect environment for a Chinese economic miracle. With Mr Xi, however, political and foreign policy imperatives frequently appear to trump economics. That change in formula looks risky for both China and the world.

Must-Read: Andrew J. Nathan

Must-Read: Wilhelmine China: a rapidly-industrializing country ruled by a social caste that has lost its role…

Andrew J. Nathan: Who Is Xi Jinping?: “Xi Jinping’s respect for Mao is not a personal eccentricity…

…It is shared by many of the hereditary Communist aristocrats who… form most of China’s top leadership today as well as a large section of its business elite….. Contrary to the Western consensus that Deng saved the system after Mao nearly wrecked it, Xi and many other red aristocrats feel that it was Deng who came close to destroying Mao’s legacy…. The children of the founding elite see themselves as the inheritors of… a vast world that their fathers conquered under Mao’s leadership. Their parents came from poor rural villages and rose to rule an empire. The second generation… do not propose to be the generation that ‘loses the empire.’… They see no irony in cheering Xi Jinping’s attack on corrupt bureaucrats although Mao purged their own fathers as ‘capitalist roaders in power.’ Mao’s purges they excuse as a mistake. But they see today’s bureaucrats as flocking to serve the Party because it is in power and not because they inherited a spirit of revolutionary sacrifice from their forebears. Such opportunists are worms eating away at the legacy of revolution.

The legacy is threatened by other forces… a slowing economy… laid-off workers… underperforming giant state-owned enterprises… bad bank loans… climate change and environmental devastation… downsize and upgrade the military…. Any leader who confronts so many big problems needs a lot of power, and Mao provides a model of how such power can be wielded…. Xi emulates Mao in exercising power through a tight circle of aides whom he can trust because they have demonstrated their personal loyalty in earlier phases of his career…. Xi wants ‘rule by law,’ but this means using the courts more energetically to carry out political repression and change the bureaucracy’s style of work. He wants to reform the universities, not in order to create Western-style academic freedom but to bring academics and students to heel (including those studying abroad). He has launched a thorough reorganization of the military, which is intended partly to make it more effective in battle, but also to reaffirm its loyalty to the Party and to him personally. The overarching purpose of reform is to keep the Chinese Communist Party in power….

Deng built a system… senior leaders were limited to two terms… divided leadership roles… made decisions in consultation with other leaders and retired elders. By overturning Deng’s system, Xi is hanging the survival of the regime on his ability to bear an enormous workload and not make big mistakes. He seems to be scaring the mass media and officials outside his immediate circle from telling him the truth. He is trying to bottle up a growing diversity of social and intellectual forces that are bound to grow stronger. He may be breaking down… the consensus about China’s path of development…. He has broken the rule that retired leaders are safe once they leave office, throwing into question whether it can ever be safe for him to leave office. As he departs from Deng’s path, he risks undermining the adaptability and resilience that Deng’s reforms painstakingly created for the post-Mao regime.

As the members of the red aristocracy around Xi circle their wagons to protect the regime, some citizens retreat into religious observance or private consumption, others send their money and children abroad, and a sense of impending crisis pervades society. No wonder Xi’s regime behaves as if it faces an existential threat. Given the power and resources that he commands, it would be reckless to predict that his attempt to consolidate authoritarian rule will fail. But the attempt risks creating the very political crisis that it seeks to prevent.

Must-read: Ben Thompson: “China Watching”

Must-Read: Ben Thompson: China Watching: “I am often asked why I don’t write more about China…

…the reason, as I’ve explained in the past, is that the country, particularly anything having to do with the government–which by extension covers all big businesses, tech included–is basically unknowable to an outsider, and the more you learn about China, the more you realize this is the case. To that end, while I feel relatively confident about what I am going to write, given the Chinese angle I am unashamed to admit that I could be 100% wrong; frustratingly, we will probably never know for sure…

Must-read: The Economist: “Chairman of Everything”

Must-Read: I do not understand China. But it now looks more likely than not to me that Xi Jinping’s rule will lose China a decade, if not half a century…

The Economist: Chairman of Everything: “Two curious articles appeared in government-linked news media…

…The first [was] written in an allegorical style traditionally used in China to criticise those in power, in this case in the form of an essay praising the seventh-century emperor, Taizong, for heeding a plain-talking courtier… [and] called for more debate and freer speech at a time when China’s president, Xi Jinping, has been restricting both. ‘The ability to air opinions freely often determined the rise and fall of dynasties,’ it said. ‘We should not be afraid of people saying the wrong things; we should be afraid of people not speaking at all.’ The second article, in the form of an open letter, ran—fleetingly—on a state-run website. ‘Hello, Comrade Xi Jinping. We are loyal Communist Party members,’ the letter began. It called on Mr Xi to step down and eviscerated his record in office. The president, it said, had abandoned the party’s system of ‘collective’ leadership; arrogated too much power to himself; sidelined the prime minister, Li Keqiang; caused instability in equity and property markets; distorted the role of the media; and condoned a personality cult….

The historical essay was reposted on the disciplinary commission’s website (where it remains); it was clearly more than the work of a single disgruntled editor. The letter may have been planted by a lone dissident who managed to hack into an official portal, but it raised many eyebrows in China. The police have reportedly detained around 20 people…. When he became the party’s leader in 2012, more was known about Mr Xi’s family and personal qualities than about his politics. He was a princeling…. Mr Xi had spent almost 20 years in Fujian, a southern province far from political nerve-centres. More is now clear. As Geremie Barmé, an Australian academic, puts it, Mr Xi is China’s ‘COE’, or chairman of everything….

Mr Hu was a wooden leader whose rule was overshadowed by the retired Mr Jiang; Mr Jiang, while in power, had to bow to his retired predecessor, Deng Xiaoping; even Deng trod carefully for fear of upsetting fellow party elders. Mr Xi, like Mao, appears unfettered by such concerns. He wants the country to know it, too…. Mr Xi is no Mao, a man whose whims caused the deaths of tens of millions and who revelled in the hysteria of his cult. But he rules in a way unlike any leader since the Great Helmsman. After Mao’s death, Deng tried to create a leadership of equals in order to push China away from Maoist caprices. Mr Xi is turning from that system back towards a more personal one. Indeed, he is more of a micromanager than Mao ever was….

The anti-corruption campaign has involved a radical change in the unwritten rules that have held the party together since the near civil war that Mao inflicted on it…. The anti-graft campaign is popular with the public, which suffers hugely from officials’ corruption, negligence and incompetence (a scandal that came to light in March involved rampant corruption in the state’s oversight of the sale and use of vaccines). But it has dismayed officials, many of whom have responded with passive resistance and fear-driven inertia…. Mr Xi has also sown alarm throughout the 2.3m-member People’s Liberation Army (PLA), the collective name for the armed forces. He has arrested generals for graft who were once considered untouchable, announced a trimming of the ranks by 300,000, shaken up the outdated command structure and slimmed down the top-heavy high command. Any one of these moves would have been impressive…. Mr Xi’s willingness to take on these tasks simultaneously suggests remarkable confidence….

Both in his reforms of the PLA and in his fight against corruption, Mr Xi’s actions aim first and foremost at tightening control: both the party’s over the army and his own over the party. It is similar in other areas of politics…. Mr Xi is determined to reimpose discipline on a querulous society that in recent years, thanks to the rapid spread of social media, has become much better equipped to organise itself independently of the party and to evade official controls. In the war against dissent, however, Mr Xi is facing visible resistance. Ren Zhiqiang, a property mogul turned commentator, said the media should serve readers and viewers, not the party….

Mr Xi has been even more hesitant in his handling of the economy. Months after taking power, he proclaimed that under his leadership markets would play a ‘decisive’ role. Since last year he has begun to talk of a need for ‘supply-side’ reforms, implying that inefficient, debt-laden and overstaffed state-owned enterprises (SOEs)—ie, most of them—need shaking up. But his approach has been marked by uncertainty, U-turns and, occasionally, incompetence…. Mr Xi’s lack of clear focus on the economy, and his unwillingness to let people more expert in such matters (namely, the prime minister, Mr Li) handle it, have caused a series of errors…. Markets are unpredictable and no Chinese leader (including Mr Xi) has any experience of the way they work in Western economies. But it is also likely that Mr Xi’s desire to hog power is partly to blame…. Mr Xi understands power, is not afraid to use it and is willing to take risks. He understands less about the new complexities of a changing society and worries about social unrest, so plays safe. He does not understand the economy well, is not sure what to do and does not trust others to act for him.

The way Mr Xi rules has three broad implications. The first is that problems common to all dictatorships will grow…. Another implication is that it is no longer reasonable to argue that China is a model of an authoritarian country opening up economically without doing so politically…. The third is that Deng’s policy of putting ‘economic construction at the centre’ is no longer the country’s most hallowed guiding principle. For Mr Xi, politics comes first every time…. The success of Mr Xi’s rule will rest not just on whether he wins the battles he has chosen to fight, but on whether he has picked the right ones. Seen from the point of view of China as a whole, it does not look as if he has. Mr Xi seems bent on strengthening his party and keeping himself in power, not on making China the wealthier and more open society that its people crave.

Must-read: Martin Wolf: “China’s Struggle for a New Normal”

Must-Read: Martin Wolf: China’s Struggle for a New Normal: “Beijing must be decisive and yet responsive to the needs of the people…

…At present, it seems strangely indecisive on the economy and yet increasingly authoritarian on the politics. Only a fool would consider political instability anything but a disaster for China and the world. Equally, the desire of President Xi Jinping to attack corruption and so strengthen the legitimacy of the Communist party is understandable…. [But] its political institutions must surely move beyond the ‘democratic centralism’ invented by Vladimir Lenin a century ago. The challenges are daunting. It is only the successes of the recent past that provide confidence in those of the future.

Must-read: Ben Bernanke: “China’s Trilemma—and a Possible Solution”

Must-Read: The extremely-sharp Ben Bernanke continues to make the argument that the Washington-Consensus Great-Moderation division of labor between technocratic central banks and directly-elected governments–central banks tasked with macroeconomic stabilization, and directly-elected governments focused on rightsizing a public sector funded by an appropriately-prudent debt management system–is simply wrong and inadequate, as we have learned to our great cost. Here he addresses the problem of macroeconomic balancing in China, and says smart things:

Ben Bernanke: China’s Trilemma—and a Possible Solution: “Is the no-devaluation strategy a good one for China?…

…If it is, what does China need to do to make its exchange-rate commitments credible?… China’s ability to avoid a significant devaluation in the medium term will depend on a number of factors, including the country’s other policy choices. China… cannot simultaneously have more than two of the following three: (1) a fixed exchange rate; (2) independent monetary policy; and (3) free international capital flows….

Start with four premises…. 1. China is undergoing a difficult but necessary transition… to [a growth model] that focuses on… services and… consumer demand… accompanied by a slowdown in Chinese GDP growth…. 2. China’s growth appears to have slowed recently by more than the leadership expected or wanted…. 3. To support economic growth… China has eased monetary policy…. 4. At the same time, China has continued a process of reforming and opening up its capital markets. Notably, private Chinese citizens are allowed to invest some of their savings abroad, to a limit of $50,000 per person. Points #3 and #4 are the sources of China’s trilemma…. Chinese households and firms who are able to do so are spurning yuan-denominated investments and looking abroad for higher returns. However, increased private capital outflows also constitute a flight from the yuan toward the dollar and other currencies; that, in turn, puts downward pressure on China’s exchange rate.

In the short run, the PBOC can offset this pressure by selling some of its enormous stocks of dollar-denominated securities and buying yuan…. [But] here is the trilemma in action: If China wants to use monetary policy to manage domestic demand and to simultaneously free up international capital flows, it may not be able to fix the exchange rate at current levels…. One approach would be to devalue now and get it over with. (A series of small devaluations wouldn’t work, as expectations of future devaluations would just accelerate capital outflows.)… [But] a big yuan devaluation would likely be deflationary for the rest of the world… [and] would work against the goal of promoting services over exports. A second possibility… would be to stop or reverse the process of liberalizing capital flows…. This strategy… would sacrifice some of the progress that China has made in opening up its financial system…. Moreover, the horse may be out of the proverbial barn, in that the effectiveness of new capital controls in China would be uncertain…. A third option is to wait and hope…. However, hope is not a plan.

So what to do? An alternative worth exploring is targeted fiscal policy, by which I mean government spending and tax measures aimed specifically at aiding the transition…. Fiscal policies aimed at increasing income security, such as strengthening the pension system, would help to promote consumer confidence and consumer spending. Likewise, tax cuts or credits could be used to enhance households’ disposable income, and government-financed training and relocation programs could help workers transition from slowing to expanding sectors…. Targeted fiscal action has a lot to recommend it, given China’s trilemma. Unlike monetary easing, which works by lowering domestic interest rates, fiscal policy can support aggregate demand and near-term growth without creating an incentive for capital to flow out…

Must-read: Rob Johnson: “The China Delusion”

Must-Read: The extremely sharp Rob Johnson is in the camp of those who think that China’s principal short-run problems of problems of macroeconomic management–that investors are not confident that their investments in China will remain profitable–rather than the more-fundamental problems of political economy: the fear by investors that their investments in China are insecure. There’s a return-problems camp. There’s a risk-problems camp. Rob Johnson is in the first:

Rob Johnson: The China Delusion: “China’s transition from an export-led growth strategy to one propelled by domestic consumption…

…is proceeding far less smoothly than hoped. For some people, visions of the wonders of capitalism with Chinese characteristics remain undiminished…. The optimists’ unreality is rivalled by that of supply-siders, who would apply shock therapy to China’s slumping state sector and immediately integrate the country’s underdeveloped capital markets into today’s turbulent global financial system. That is a profoundly dangerous prescription. The power of the market to transform China will not be unleashed in a stagnant economy, where such measures would aggravate deflationary forces and produce a calamity.

The persistent downward pressure on the renminbi reflects a growing fear that Chinese policymakers have no coherent solution to the dilemmas they face. Floating the renminbi, for example, is a dangerous option. After all, with the Chinese economy undergoing wholesale economic transformation, estimating a long-term equilibrium exchange rate that will anchor speculation is virtually impossible, particularly given persistent doubts about data quality, disclosure, and opaque policymaking processes.

But if the current exchange-rate peg to a basket of currencies fails to anchor the renminbi and prevent sharp depreciation, the deflationary consequences for the world economy will be profound. Moreover, they will feed back on the Chinese export sector, thus dampening the stimulative impact of a weakened currency.

The key to stabilising the exchange rate lies in creating a credible development policy. Only then will the pressure on the renminbi, and on China’s foreign-exchange reserves, subside, because investors will see a clear way forward.

Establishing policy credibility will require diminishing the muddled microeconomic incentives of state control and guarantees. It will also require reinvigorating aggregate demand by targeting fiscal policy to support the emerging economic sectors that will underpin the new growth model…

Must-read: Cardiff Garcia: “China and Traditional Industrialisation-Led Development: The World Was Not Enough”

Cardiff Garcia: China and Traditional Industrialisation-Led Development: The World Was Not Enough: “[My] reaction was to be startled by [Justin Yifu Lin’s] comparison of China’s current position…

…to that of Japan in 1951 and South Korea in 1977…. Japan and Korea started rebalancing and liberalising their economies much later in the process than China did. Distortions… continued to linger for a long time after the rebalancing… the eventual opening is also challenging both in terms of timing and execution…. Japan and Korea are nonetheless held up as success stories of fast catchup growth in living standards. The best account… is Joe Studwell’s How Asia Works — check out Diane Coyle’s summary. Why were Japan and Korea able to pursue this model until per capita living standards were closer to those of rich countries, while China is undergoing this wrenching process so much sooner?…

A note by Credit Suisse economists offers a convincing explanation….

[A]fter growing at a steady pace of around 11% over the decade up until 2001, the pace of real Chinese export growth more than doubled in the period up to the Great Recession…. The problem with an increase in market share is that the adjustment is likely to be a one-off…. For China, this ‘adjustment’ back to a more normal growth model has been made much more difficult by external events and by the sheer size of the Chinese economy…. Despite GDP per capita only increasing to a still-modest 25% of that seen in the US, China now accounts for fully a third of global industrial production (up from only 5% as recently as the 1990s)….When you are that big, it becomes increasingly difficult to grow exports and production at a pace materially faster than growth in final global demand….

Finally… the Great Recession was a tremendous setback to the ultimate objective of more balanced growth…. The main policy mechanism for fighting the slowdown in 2008 and 2009 was a massive increase in investment, which we now know occurred at just the time that the export-driven growth model was breaking down….

The issue is complicated…. Automation… raises the prospect that premature de-industrialisation will be forced on countries who try this strategy anew…. Demographic changes surely also matter…. Still, what I take from the note is that China was just too big (or the world ex-China too small, if you prefer) for the model to ever work as well as it did in Japan and Korea…. That’s not to suggest that China was either right or wrong to follow this particular approach to catchup growth. Given this development strategy’s record in the case of Japan and Korea, maybe it made sense to try. Who can say what a counterfactual approach would have yielded?…

Must-read: Olivier Blanchard: “The Price of Oil, China, and Stock Market Herding”

Must-Read: Olivier Blanchard: The Price of Oil, China, and Stock Market Herding: “The main effect of a slowdown in China would be, through lower commodity prices…

…help rather than hurt the United States…. The oil price explanation… is even more puzzling…. It was taken for granted that a decrease in the price of oil was good news for oil-importing countries…. We learned in the last year that, in the short run, the adverse effect on investment on energy producing firms could come quickly and temporarily slow down the effect, but this surely does not undo the general conclusion. Yet the headlines are now about low oil prices leading to low stock prices…. [Not] convincing… [is] that very low prices lead to such serious problems for oil producers that this will end up… dominating the scene… [or] that the low prices reflect a yet unmeasured decrease in world growth…. Maybe we should not believe the market commentaries. Maybe it was neither oil nor China….

I believe that to a large extent, herding is at play. If other investors sell, it must be because they know something you do not know. Thus, you should sell…. So how much should we worry? This is where economics… gives the dreaded two-handed answer. If it becomes clear… that fundamentals are in fact not so bad, stock prices will recover…. [But] the stock market slump… can become self-fulfilling…. Hope for the first… worry about the second.