trade

A tale of two halves

Published by Anonymous (not verified) on Fri, 21/02/2020 - 10:22pm in

Tags 

investment, trade, UK

When the banks fell over, they knocked the stuffing out of the British economy. The UK’s productivity has been dismal ever since. Unemployment has fallen to historic lows and wages are rising, but productivity growth remains near zero. This “productivity puzzle,” as it is known, has had economists scratching their heads for best part of a decade.

But UK productivity is a tale of two halves. Experimental statistics recently released by the Office for National Statistics (ONS) reveal widely varying productivity levels across the UK. “Productivity grew in half of the 12 regions and countries of the UK in 2018,” says the ONS, “with output per hour increasing in both Scotland and the East Midlands by more than 2%; in contrast, output per hour fell in Yorkshire and The Humber and in Northern Ireland by at least 2%.”

 It would be easy to ascribe this stark divergence in productivity growth to the dominance of financial services and decline of manufacturing. Financial services are centred on London and to a lesser extent Edinburgh. The South East and the Midlands benefit from spillovers from London, and Scotland similarly benefits from spillovers from Edinburgh. The places losing out are traditional manufacturing and mining areas, which were gutted in the 1980s and have never recovered. It’s a neat explanation that fits well with the theory that the UK’s relative decline is due to the “finance curse,” a form of Dutch disease: an over-dominant financial services industry draining investment and talent from other industrial sectors and hampering exporters with an unnecessarily strong exchange rate. There is some support for this “finance curse” theory from IMF research showing that an over-large financial sector can be a drag on economic growth.

 Those who subscribe to the “finance curse” theory say that if the financial services industry is cut down to size, manufacturing industries will recover, productivity growth will be restored, and Britain will be Great again. Or perhaps German again. Some people, particularly on the Left, seem to want the UK to become an export-led heavy manufacturing powerhouse like Germany.

 At first sight, the ONS’s figures appear to support this theory. London and the South East are by far the most productive areas of the UK, exceeding average output per hour by (respectively) 36.1% and 9.1%. They are the only areas where output per hour exceeds the UK average. If this is entirely due to financial services, then cutting the financial services industry down to size would have a disastrous effect on UK productivity, at least in the short term. I suppose you can’t make an omelette without breaking eggs, but trashing the UK’s most productive industry doesn’t seem a great strategy for reversing the UK’s relative decline. Surely a better approach would be to find ways of raising investment, wages and productivity in other sectors?

Fortunately – or unfortunately, depending on your point of view – the “finance curse” theory doesn’t stand up to close analysis, at least in these statistics. The ONS analyses UK productivity growth by industrial sector in two example regions, one dominated by financial services and the other a traditional manufacturing and mining area. The map above shows that the South East (financial services) is storming ahead, while Yorkshire & the Humber (manufacturing & mining) is declining.

In both regions, financial services is the most productive industry, so the fact that the South East has a far larger financial services industry than Yorkshire & the Humber could explain the difference in output per hour. But between 2016 and 2018, output per hour in financial services fell by over 4% in the South East. There, the fastest productivity growth is in information & communication, and in arts, entertainment and recreation (which increasingly are technology led). The South East’s productivity growth seems to be led by technology, not financial services.


And Yorkshire & the Humber’s falling productivity isn’t primarily in manufacturing & mining, as might be expected. No, it seems to be technology. Information & communication output per hour dropped by over 6%.  However, “arts, recreation and entertainment” was a bright spot, so perhaps technology growth isn’t quite as dismal in this region as the collapse of the information sector suggests.


This chart shows that Yorkshire and the Humber is suffering from falling productivity across most industries, including sharp falls in transportation and storage and in non-manufacturing production and agriculture. Productivity has fallen in these industries in the South East, too, though not as much. This could speak of an aggregate demand shortage, not so much within the UK (since wholesale and retail trade seems to be holding up) but outside it. When the external sector struggles, so does the transportation industry. If so, then the UK's "productivity puzzle" might be partly due to the slowdown in global trade that has been evident since the financial crisis - and is now worsening because of trade frictions, rising protectionism and the strong US dollar. But this doesn't explain the divergence between the regions. Why would Yorkshire and the Humber be more affected by a global trade slowdown than London, one of the largest trading hubs in the world?

No, there is something else going on. And to understand it, we need to look more closely at these charts. The yellow dots indicate that in certain sectors productivity growth is much lower than was expected, and in others it is much higher than expected. And there is regional divergence in these figures. Productivity in financial services, for example, is far worse in the South East than was expected, but in Yorkshire and the Humber financial services are performing as poorly as expected. Productivity in transportation and storage is far worse in Yorkshire and Humber than was expected, but in the South East is better than expected. And the most stark divergence is in information, where the forecasters appear to have completely misread the direction of travel.

This speaks to me of a supply-side slowdown due to investment collapse, particularly since the UK voted to leave the EU (hence poor performance relative to the pre-2016 trend). The investment axe seems to have fallen particularly hard on those areas that voted for Brexit. Belligerence towards the EU in those areas hasn't gone unnoticed. Investors are unforgiving, and attitudes matter. 

The UK’s “tale of two halves” may in the past have been about over-dominant financial services and declining manufacturing & mining. But now, it seems to be more about technology. Technology is important in all industries. When there is inadequate investment in technology – perhaps coupled with over-reliance on cheap labour - productivity falls. So the UK’s productivity puzzle won’t be solved by cutting financial services and resurrecting the heavy manufacturing industries of the past. Substantial investment in technology and associated skills will be needed, particularly in the regions where productivity is falling across the board.

But investment alone will not be enough. Equally important will be openness to trade and labour mobility. Sadly popular opinion not only in the UK, but around the world, seems to be pushing governments towards protectionism and closed borders. I fear that even with the investment that the Government is talking about pouring into the North, it will remain depressed relative to London, the South East and Scotland for the foreseeable future. Rejuvenation of the North may prove to be yet another beautiful but unfortunately evanescent dream.

Flooding: Private Eye Cover Shows How Nothing Has Changed Under Tories

Here’s a piece of de ja vue, courtesy of Private Eye’s issue for 10th-23rd January 2014. It shows former Prime Minister, David Cameron, surveying one of the areas then hit by disastrous flooding. Dodgy Dave has to bear some responsibility for the disastrous, as it was his government that cut funding for the flood defences.

Well, it’s six years later, we’ve got a Tory government that’s promising to increase funding to the public infrastructure, and Tweezer declared that ‘austerity was over’. But there has been no increase in public spending, or at least, none I’ve been aware of. And the country’s now hit by disastrous floods.

Which shows that almost nothing has changed.

Except one thing:

David Cameron at least visited some of the areas that had been hit, like the Somerset Levels, and pledged more funding – funding that should never have been cut anyway.

Boris Johnson, however, is nowhere to be seen. He’s retreated to Chevening, a 115 room mansion in Kent. He’s probably hiding from having to answer awkward questions about why he thought it would be a good idea to hire Andrew Sabisky, a racist, misogynist eugenics nut. Or if he holds the same vile views.

It also shows his own, cynical attitude to public welfare. Johnson hasn’t called any emergency meetings. He did before he was elected, but that was when he needed people’s votes. Now he has them, and is in No. 10, although obviously not physically, he just doesn’t care. But he has sent his deputy official spokesman – not his official spokesman, mind – to reassure us that he is receiving briefing updates and that the flooding is terrible for people affected.

How very reassuring!

Mike in his article points out that one reason Johnson may be dodging this issue is because it raises awkward questions about climate change and global warming. But Donald Trump and the Republic Party don’t believe in it, and are passing laws to gut their Environmental Protection Agency and prevent anyone in it from publishing any research showing that it exists. Because the Republicans and Trump are also heavily funded by the fossil fuel lobby, particularly the Koch brothers. And so they pretend that it doesn’t exist.

But Johnson needs Trump’s trade deal, which will do precious little for the country except hand over British industries and utilities, including a privatised NHS, to the Americans. But it will make Johnson and the Tories backing it rich, so Johnson wants to dodge the issue as well.

Meaning that as Britain starts sinking into the sea and primordial ooze, Johnson is holed up in his mansion hoping that it will all go away.

While Britain sinks, Boris Johnson hides

 

The Labour, Pro-Working Class Arguments for Brexit

The decisive factor which swung 14 million people to vote Tory in the general election two weeks was Brexit. Labour’s programme of reforms was popular, despite the predictable Tory attacks on it as impractical, costly, too radical, Marxist and so on. 60 to 70 per cent of the public in polls supported the manifesto, and the party received a slight boost in popularity in the polls after its public. The areas in Labour’s heartlands in the midlands and north that turned Tory were those which voted ‘Leave’. Craig Gent in his article for Novara Media on the lessons Labour must learn from this defeat lamented this. By backing Remain, Labour had ceded Brexit to the Conservatives, allowing them to shape the terms of the debate and the assumptions underlying it. But Gent also argued that it could easily have gone the other way.

Indeed it could. Labour’s policy, before the right-wing put pressure on Corbyn to back a second referendum, was that Labour would respect the Leave vote, and try for a deal with the EU that would serve Britain the best. Only if that failed would Labour consider a general election or second referendum. This is eminently sensible. The referendum was purely on whether Britain would leave the European Union. It was not on the terms under which Britain would leave. Despite Johnson’s promise to ‘get Brexit done’, he will have no more success than his predecessor, Tweezer. The EU’s chief negotiator, Michel Barnier, has stated that the negotiations are going to take far long than the eleven months Johnson claimed. The people who voted for him are going to be sorely disappointed.

The right-wing campaign for leaving the EU heavily exploited racism and xenophobia. Not only had Britain lost her sovereignty to Brussels, but it was because of the EU that Britain was being flooded with immigrants taking jobs and placing a burden on the social and economic infrastructure. In fact, the Black and Asian immigrants entering Britain were permitted, as Mike showed on his blog, through UN agreements covering asylum seekers. Moreover immigrants and foreign workers were a net benefit to Britain. They contributed more in taxes and took less in benefits. But with this was drowned out, along with other, vital Remain arguments in the Tory rhetoric of hate.

But there was always a part of the Labour movement that also distrusted the European Union for democratic, socialist reasons. The late Tony Benn devoted an entire chapter to it in his 1979 book, Arguments for Socialism. One of his primary objections to it, as he outlined in a 1963 article for Encounter magazine, was

that the Treaty of Rome which entrenches laissez-faire as its philosophy and chooses its bureaucracy as its administrative method will stultify effective national economic planning without creating the necessary supranational planning mechanisms for growth and social justice.

Like right-wing Eurosceptics, Benn also objected to Britain joining the EU because of loss of national sovereignty and democracy through inclusion into a European superstate. He was also worried about the threat from Brussels to British industry. The European Union hated Britain’s nationalised industries, and Benn said that he was told by Brussels bureaucrats that investment, mergers and prices in the former British steel industry would have to be controlled by them. Every issue of state aid to British manufacturing industry would have to be subject to the European commission. He was very much afraid that British manufacturing would be unable to compete against the better financed and equipped European firms, and so close. And he also argued that membership in the European Union would create higher unemployment through the EU’s economic policy, which was exactly the same as that tried by Conservative premier Ted Heath’s first government. He believed that EU membership would leave British workers with a choice of either being unemployed at home, or moving to Europe to seek work. Only the directors and shareholders in European companies would profit. He then gives the statistics showing how much Britain was paying to the EU for policies like the Common Agricultural Policy, that penalised Britain’s highly efficient farming system in favour of that of the continent, and the disastrous effect EU membership had had on British industry and jobs. The devastation caused to some sectors of British industry and agriculture also formed part of Conservative attacks on the EU. The former Mail, now Times journo, Quentin Letts, bitterly criticises the EU in his book, Bog Standard Britain, for the way the common fisheries policy drastically cut back our fishing fleet to a fraction of its former size.

It also seems that Ted Heath also used some very underhand, dirty tricks to rig the initial referendum to give the result he wanted: that the British people agreed with him and wanted to join Europe. This was the subject of an article in the parapolitical/ conspiracy magazine, Lobster some years ago.

I’m a Remainer. I was as shocked by the Tories’ victory as everyone else on the Left. I expected that they would win because of the vast propaganda and media resources they had poured in to attacking Labour and Corbyn personally. But I was astonished by how large the victory was. I believed that the continuing failure to secure a deal with Europe would have made Brexit less popular, not more. The result of the original referendum was so narrow that I believed a second would reverse the decision. How wrong I was.

Some of the Eurosceptic arguments against Europe are overstated or simply wrong. The EU was a threat to our nationalised industries, but it seemed nothing prevented the French, Germans and Dutch from retaining theirs and buying up ours, as the Dutch firm, Abellio, was awarded the contract for some of our rail services. Britain’s entry into the EU did not result in us losing our sovereignty. We retained it, and all law passed in Brussels had to become British law as well. And I believe very strongly that leaving Europe, especially under a no-deal Brexit, will badly damage our trade and economy.

But understanding Brexit and the arguments against EU membership from the Left from people like Tony Benn, may also provide a way of winning back some at least of the support Labour lost at the election. Labour can show that it understands the fear some people in those communities have about the loss of sovereignty, and the effect EU membership has had on trade, manufacturing and employment. But we can also point out that the Tories are using the same set of economic principles as the EU, and that this won’t change so long as Boris is Prime Minister. And any trade agreement he makes with the Orange Generalissimo will be worse than staying in the EU. It won’t secure British jobs or support British industry, manufacturing or otherwise. Indeed, it will cause further damage by placing them at a disadvantage against the Americans.

A proper Brexit, that respected British workers and created a fairer, better society, could only be brought in by Labour. But the Thursday before last, 14 million people were duped into rejecting that. But Labour is learning its lesson, and people are getting ready to fight back.

Labour can and will win again, on this and other issues. Brexit may have got Johnson in, but it may also be the issue that flings him out. 

Private Medicine and the Demand for the Privatisation of State Medical Care

Published by Anonymous (not verified) on Tue, 17/12/2019 - 11:02pm in

The book Health Reform: Public Success – Private Failure also makes it clear where the demands for NHS and the privatisation of other systems of state healthcare come from: the private medical sector, including the insurance industry. The book states

Arguments for private markets in health care are not only persistent, and resistant to both analysis and evidence, but they also come forward from the same groups of people. Again over the decades, and across countries, one finds the same arguments for private organization and funding coming from spokesmen for private practitioners’ associations – physicians, dentists, pharmacists – as well as from private insurance companies and drug manufacturers. In addition they tend to come, as noted above, from representatives of ‘business’ and, more recently, from ‘ideological entrepreneurs’ that support themselves and their organisations by championing the interests of the wealthy, cheerleading for the private marketplace. Indeed, they are simply taking advantage of the general ideological climate, currently more favourable to re-open old issues. (p. 28).

‘Ideological entrepreneurs’ seems to be another term for right-wing thinktanks and astroturf pressure groups.

The book states that in contrast with hospital workers, who want to see cheap or free medical treatment provided to the poorest, the private sector is interested in maximising its income.

Hospital workers, whose patients/clients tend to be very ill and/or have very limited resources – the unhealthy and unwealthy – are generally very supportive of public payment systems. Their opportunities in a private marketplace would be quite limited. But they do not support hospital ‘downsizing’ or containment more generally; the ideal policy would be more money from public sources, to hire more highly trained and better paid staff….

The loud voices for privatisation, by contrast, come from those who believe that they could do better, in the form of increased sales of or higher prices for their products and services, in a more entrepreneurial environment. It is not clear how many, if any, of these would support a truly private system, with no direct or indirect contribution of public funds. The economic mayhem among providers would be truly awesome. Instead what seems to be contemplated is a continuation of public support on a large scale, but without limits on private fee setting or delivery, or private insurance – rather like the United States, in fact, before more widespread ‘managed care’. 

This sounds very much like the thinking behind the privatisation of NHS services – private healthcare providers supported by the state – and Trump’s intention to open up the NHS to American private healthcare firms and remove the NHS’ price fixing mechanism keeping drug prices as low as possible.

NHS privatisation is all about private profit, not public care or the provision of health services at minimal cost. Don’t fall for the rhetoric of the Tories or Blairites in Labour. Get rid of it, and them.

Barnier Recording Shows Johnson Will Not Get Brexit Done Next Year

Published by Anonymous (not verified) on Sat, 14/12/2019 - 11:27pm in

It looks like all those, who voted Tory believing that Boris really will ‘get Brexit done’ are in for a very rude disappointment. Thursday’s I carried a story that a recording of the EU’s chief negotiator, Michel Barnier, shows him stating that a proper deal with EU will take longer than the 11 months anticipated by our buffoonish, lying Prime Minister. The report by Hugo Gye ran

Boris Johnson won’t be able to get a Brexit trade deal by the end of next year, the EU’s chief negotiator says.

Michel Barnier was caught on tape telling diplomats that 11 months would not be long enough to strike a comprehensive free-trade agreement between Britain and Europe. He predicted that the only deal possible would be a bare-bones “vital minimum” arrangement.

Mr Johnson’s opponents claimed the recording proves he is lying about Brexit – but the Tories insisted Mr Barnier will be proved wrong.

If the Prime Minister is re-elected, he has promised Britain will leave the EU on 31 January and enter a transition period ending on 31 December, 2020. He has vowed not to extend that period even if there is no trade deal in place.

In a recording published by The Independent, Mr Barnier could be heard saying: “We will not get everything done in 11 months. It is unrealistic.” He said that a “cliff-edge” Brexit was still possible if a stripped back deal was not agreed.

Labour’s campaign chief, Andrew Gwynne, said a cliff-edge no-deal was “exactly what he [Johnson] wants so he can drive the UK into a toxic trade deal with Donald Trump and put the NHS up for sale”.

A Tory spokesman responded: “Barnier also said the Withdrawal Agreement couldn’t be reopened”. 

Perhaps when the supposed transition period fails to end, some of the people who voted for the Conservatives because of Brexit might realise how they’ve been fooled, just like the British public’s been fooled before. But on the other hand, you can depend that the Tories and their compliant press will frame this as all the EU’s fault, and try to promote a no-deal Brexit as the best thing that’s ever happened for Britain.

Which it will be for the hedge funds supporting the Tories and banking on Britain’s economic collapse.

Aide Swears and Boris Runs into Freezer to Avoid Interview with Morgan and Reid

Published by Anonymous (not verified) on Thu, 12/12/2019 - 1:04am in

More weird, buffoonish behaviour from the unfunny clown pretending to be our Prime Minister. Boris and the rest of the Tories, it has been remarked many times, don’t like giving interviews. They don’t like them so much in fact, that they actively run away from them. Andrew Neil has tried several times to get Johnson on his show to no avail. Jeremy Corbyn has been vilified by the Tory press as a coward for supposedly running away from interviews, but he has in fact consistently turned up for them. Johnson’s fear of being interviewed by anyone not carefully selected and trusted to lob him soft questions was graphically shown this morning on Good Morning Britain when he ran away and hid from Piers Morgan and Susanna Reid.

BoJob appeared to be shown around a dairy when the programme’s roving reporter finally caught up with him. He greeted him, and asked him if would appear on the programme. Boris’ aide, Rob Oxley, turned around and appeared to mouth ‘For fuck’s sake’, to the astonished gasps and faces of the two in the studio. Someone else told the reporter that he wasn’t going near Boris.  The hack continued following Johnson, asking him about his promise to talk to Piers and Susanna, and telling him they were ready to go. Boris carried on moving around on his little tour, leaving him behind. The reporter also said that he was being pushed and shoved by BoJob’s minder.  When they finally catch up with Johnson, it’s outside the dairy’s freezer. The hack repeats the question, our comedy Prime Minister says, ‘One moment’, and then disappears with his aids and guides inside the freezer, closing the door. Morgan then praises the hack, telling him he was ‘truly heroic’.

Here’s the Guardian’s video:

Zelo Street in its coverage of this farce makes the point that it demolishes the Tory claims about the respective strengths of Johnson and Corbyn as protectors of this country’s security. Corbyn, they claim, is a positive security risk. Johnson, however, is a truly Churchillian figure who will defend our island from all the evil foreigners out there, as well as driving a hard deal in the trade negotiations with Trump. But this incident shows it all to be a sham. Tim writes

‘Not only did the Fridgegate incident show that Bozo is so yellow that he would never keep the UK safe, it has also showed that when it comes to intolerance and thuggery, it is the Tories and their entourage who are the ones really doing it.

You want to rid the UK of this entitled shower? You know which way to vote tomorrow.’

See: https://zelo-street.blogspot.com/2019/12/fridgegate-uk-not-safe-with-bozo.html

 

The Tories’ Brexit Cover-Up on Northern Ireland

Published by Anonymous (not verified) on Tue, 10/12/2019 - 2:06am in

It wasn’t a good weekend for the Tories. For one thing, Jeremy Corbyn used leaked Treasury documents to show that the Tories were covering up the effects Brexit would have on trade between Northern Ireland and the rest of the UK. This was reported in the I in the article ‘Corbyn accuses Tories of Brexit cover-up’ by Hugo Gye. This ran

Jeremy Corbyn has accused the Conservatives of trying to hide the true effects of their Brexit deal, claiming it would put a border in the Irish Sea despite Boris Johnson’s denials.

The Tories insisted Labour is indulging in “wild conspiracy theories” after the party produced leaked Treasure documents on the implications of the Withdrawal Agreement.

The new Brexit deal puts Northern Ireland in a different customs and regulatory regime from the rest of the UK. The Prime Minister has told Northern Irish business leaders that if they are asked to fill in forms when transporting goods to or from Breat Britain, they should “throw that form in the bin.”

But the Treasury documents say: “Exit summary declarations will be required when goods are exported from NI to GB.” It adds that the Government “will need to balance the benefits of unfettered access against the risks of reduced control over imports”.

The dossier adds that increased friction on trade across the Irish Sea will increase the price of high street goods and hit business profits. It is the equivalent of imposing tariffs on 30 per cent of all purchases in Northern Ireland, officials wrote.

Mr Corbyn said: “For trade going from Northern Ireland to Great Britain the Government cannot rule out regulatory checks, rules of origin checks and animal and public health checks.

“And for trade going the other way from Great Britain to Northern Ireland there will be all of the above plus, potentially damaging tariffs. This drives a coach and horses through Boris Johnson’s claim that there will be no border in the Irish Sea. It’s simply not true.”

Asked about the leak, Mr Johnson said: “I haven’t seen the document you are referring to but that’s complete nonsense.

“What I can tell you is that with the deal we have, we can come out as one whole UK – England, Scotland, Wales, Northern Ireland, together.”

His own ministers have previously admitted that some form of checks will be needed on goods crossing the Irish Sea. 

So the Treasury predicts that there will have to be customs checks for goods going to and from Northern Ireland, despite the Tories’ assurances to their DUP allies that this wouldn’t happen. And there is the danger of a 30 per cent rise in the cost of goods in the Six Counties. And, note, Boris has offered absolutely no evidence to back up his denial that this will occur.

It’s more waffle from a waffling, mendacious, deceitful government, and a party, which has done so much to break up the centuries-old union between England, Scotland, Wales and Ulster.

Corbyn is right, and is the right man if anyone is, for sorting out Brexit and creating a lasting peace in Northern Ireland. A peace that has been thrown into grievous jeopardy by Brexit and the Tories.

Only Cask Wine From The Goon Region Allowed to Be Called Goon

Published by Anonymous (not verified) on Fri, 01/11/2019 - 8:11am in

goonsack-619-386Winemakers from the Goon region of South Australia are today celebrating after international trademark laws were changed to allow only cask wine from the region to be labelled as “Goon”.

“If you want to release a “Goon” style cask wine from grapes not grown in the Goon Valley it must now be labelled as “sickly tasting cheap piss easily carted from party to party by swaying teenagers”,” said Charles Chunder, president of the Goon Winegrowers Board. “We’ve spent many years building up the reputation of our product and we want kids who are pooling their pocket money to buy a 4 litre cask to feel confident they are getting an adult to buy them the real thing.”

“As long as it gets me shitfaced I don’t care what they call it,” said renowned goon connoisseur James “Simmo” Simpson. “As long as it tastes roughly the same going back out as it does going in I’ll still drink it.”

Wines with the Goon label are now likely to attract a premium price of about 50 cents extra for a 4 litre cask, provided they contain the minimum requirement of 14% methylated spirits.

Peter Green
http://www.twitter.com/Greeny_Peter

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Asia-Pacific Trade Deal: Trading Away Indian Agriculture?

Published by Anonymous (not verified) on Tue, 22/10/2019 - 3:55am in

Colin Todhunter On the back of Brexit, there are fears in the UK that a trade deal will be struck with Washington which will effectively lower food and environmental standards to those of the US. At the same time, it seems that the Transatlantic Trade and Investment Partnership is being resurrected and could have a …

Squeezing a Balloon

Published by Anonymous (not verified) on Thu, 26/09/2019 - 8:50pm in

Tags 

trade, USA, Asia, China

Via the Financial Times I have read the Asian Development Bank Asian Development Outlook 2019 Update. The outlook has an interesting section on the impact of the US-China trade war on the region. Let me simply quote the relevant paragraph: “Recent trade data also provide evidence of trade redirection. In the first 6 months of 2019, US imports from the PRC fell by 12% from the same period in 2018. At the same time, US imports from the rest of developing Asia rose by about 10%, with notably large increases of 33% for Vietnam; 20% for Taipei,China; and 13% for Bangladesh” (page 14). I also copied and pasted the figure in the following page:

This was to be expected. Of course trade diversion is not automatic, nor costless. Supply chains need to be reorganized, bottlenecks may appear. But it is obvious that as long as US demand for the goods produced abroad remains strong, if the price of these increases in China, the demand will look elsewhere. Now, the US has been recording substantial negative net lending (the sign of an excess of domestic demand over supply) since at least the early 1990s:

The source of this excess demand has not always been the same. Sometimes corporations, rarely households (most notably in the run-up to the crisis), and most of the times the government.

In particular, in recent years households have experienced excess savings, initially joined by corporations which then gradually went to equilibrium. The government is keeping demand high, and as a consequence the trade deficit alive.

The tariffs on China, in this context, are just like squeezing a balloon. As long as US domestic demand remains strong, compressing Chinese imports simply pops imports from Vietnam, or Bangladesh, or who knows what other country next. As long as American excess demand will persist, somebody elsewhere will provide the supply for it. Reducing bilateral trade deficit with China is not a solution to persistent excess domestic demand.

Of course, the US could impose barriers to imports from all countries. This would solve the problem and reduce the trade deficit. Higher import prices and competition between households, firms and the government, would reduce purchasing power and, together with excess domestic demand, the welfare of American voters. Mr. Trump should try this before November 3rd, 2020.

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