The tariffs which President Trump is imposing on China are a good way to look tough in front of the voters. But as long as the Federal Reserve keeps making it possible for America to consume more goods than it produces, the American working man will remain obsolete.
As anyone
who hasn’t spent the last two years hiding under a rock must know by now, President
Trump is waging a so-called Trade War with China. The idea – insofar as there
is any idea behind it – is that by bringing home the victory in the trade war,
Mr. Trump will restore the jobs that have been bled out of this country over
the last few decades.
Now, it’s
true that America has been losing manufacturing jobs since the 1980s, and many
of our rust belt towns are only a shadow of what they once were. But if the
situation really calls for a ‘war,’ trade or otherwise, then it’s necessary to
answer the question of just what belligerent act started the hostilities, and
just how it is that further belligerent acts will force the enemy to back down.
But
thinking about those questions will cast a lot of doubt on the idea that a ‘Trade
War’ with China is a good idea, or that it’s something which the United States
(or China, for that matter) could possible ‘win.’
Like
all of the economic problems in the modern world, the trade deficit with China
– which is supposedly Trump’s causes bellum – is tightly bound up with
monetary policy and central banking. America has a trade deficit with China
because the Federal Reserve, by printing so much paper money, has allowed
America to import more goods than it exports without running out of currency.
But if
you listened to the politicians, you would hear that China is a currency
manipulator, which is true, of course. China, like the United States, has laws
which assign arbitrary monetary value to paper currency; both countries
manipulate their tokens of currency to be worth more their intrinsic value. If
China does this in a way that America doesn’t approve of, so what? It isn’t
like America’s day-by-day decisions as to what it’s money should be
worth don’t also create winners and losers.
No amount
of currency manipulation by China would allow America to do what it does – that
is, to consume more goods than it produces – if it weren’t for America’s own
bankers creating enough dollars from thin air to support America’s present
trade deficit. If we still used gold or silver money, trade deficits would be impossible.
As it is, the easy money which the Fed has been providing, with Mr. Trump’s support,
for the last few years will guarantee a continuation of the status quo, no
matter how many tariffs and counter-tariffs are imposed to distract us from
that fact.
As long
as the dollar remains the global reserve currency, and America keeps on
exporting dollars in lieu of actual goods and services, the American working
man will keep on losing. Eventually, this arrangement will have to end, but
after decades of deindustrialization, America can’t lose its ability to rely on
foreign labour without becoming, in the meantime, a vastly poorer country.
America’s wealthy classes are benefitting handsomely from an arrangement in
which the Federal Reserve replaces the American worker as the means by which
America pays for its imports.
And so,
no matter what sort of rhetoric they put out for public consumption,
politicians on both sides of the aisle will do their best to keep the trade
deficit in place. Meanwhile, as the trade war continues, farmers will complain
about being unable to find buyers for their grain, construction workers will
complain about the higher price of steel, and Democrats will blame all our
economic woes on President Trump and his deplorables, because they, like the
Republicans, have no desire to talk about what has really made the American
worker obsolete.
Now, the
fact that America is losing the Trade War does not mean that China is going to
win. Trade is, after all, supposed to be a mutually beneficial arrangement; no
matter how hard you try, you can’t win at trade when the other side insists on
seeing it as a zero sum game. Rather, what’s really going to happen to the
Chinese, sometime in the next decade or so, is that the consequences of dealing
with the United States on the terms I have described will finally catch up to
them.
If the United
States consumes more than it produces, then somebody has to produce more than
it consumes, and the primary country filling that role today is the People’s
Republic of China. For a great many years, China has done the opposite of what
America has done; China has exported more than it imported, and that surplus
has led China to accumulate of over a trillion dollars in imaginary paper
wealth – specifically, in US Treasury Bonds.
The
Chinese have lent us the money to buy their own products. It made them rich, in
a sense, for the time being. But in the long term, it’s a losing strategy. China
now owns so many dollar-denominated assets that the Chinese stand to be the
next biggest loser, after America itself, when the bottom finally falls out of
the US Dollar.
Both
countries know this. Neither side really wants to upset the apple cart. The
Trade War is a distraction, created out of political necessity, as President
Trump must placate his voters with tariffs, and President Xi must save face by
responding in kind. And at the end of the day, the game has no winners.

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