US trade war with china is blamed for the working class being left behind. It’s a common excuse used by politicians today. They declare a ‘trade war’ because China is taking all of America’s jobs. Find out why its a fallacy.
China is only a willing participant in America’s fall, on its own sword. Viewed pragmatically, trade between two nations, happily doing business together, is wholly virtuous.
The trouble with trade begins when there is an imbalance, when one country buys more then it sells. As it turns out American is buying a lot more from other countries then it is selling to them. This may seem great for America until the mechanics of the deal are studied more closely.
Trading Paper Money for Products
Trade is essentially swapping products. However, the American dollar became the default currency of international trade after WWII (The Lasting Effects of the Nazis).
One country produces a collection of goods and sells them to another country for dollars. Since America enjoys the strongest currency in the world, trade with other countries is always based in dollars.
Other countries send their products to America and the stockpile of dollars in other countries builds. In essence, America’s trading partners are forced to buy American products to equalize the trade.
If they do not cycle currency back into the market in exchange for products, they risk holding money that will devalue because of inflation. This is the case for China, a country that has a healthy trade surplus with the United States.
However, China is not buying products back from the United States. They are buying government debt issued in the form of Treasury Bills, Bonds, and Notes.
Buying debt is very different from buying products — for both America and China. On the one hand, selling government bonds artificially increases the value of the USD, as each bond comes with interest and the transaction has no effect on currency exchange rates.
The Fed underwrites the repayment of bonds, which means they will pay it no matter what. On the other hand, selling debt only delays the purchase of American products to a later date. The interest paid on the treasury bonds will mean that China will potentially get much more for the dollars at a later date.
And most importantly manufacturing in America goes idle as China and other countries hold off on buying American goods and services. This period of idle productivity is rotting America to the point of being unable to compete because America is not evolving its capabilities.
Despite these issues with selling debt, the American government continues to do so because it offers two short-term gains:
Cheaper Borrowing Rates.
Bond yields go down when there is strong demand. Or to put another way: the cheaper the bond value is, the higher your potential yield is. The government promises to pay back the bond value plus interest rate over the determined period.
So, in the first place, it is in the interest of the government to keep demand high so that their payout is lower for each bond. In the second place, increased demand means more borrowed money for the government to invest.
Lower Tax Rates.
If the government can access liquidity from selling bonds to foreign countries, they do not need to raise taxes. Lower taxes increase earnings for American businesses.
It also increases the strength of the American dollar relative to other currencies. Thus, the cycle of buying cheap products from overseas continues!
So why not limit the sale of government bonds? That would be the right answer if you were looking to optimize the American economy for manufacturing and the workers that it employs.
However, the government is more interested in funding it’s military. America already has the most impressive armed forces in the world by a long shot. In 2018 the military budget will be over $824 billion — and they need to finance this behemoth somehow.
Finally, there is America’s Moneyed Interests. America’s commercial banks make money by selling financial products. In essence they make money from selling Treasury Bonds.
So, if the government is running a deficit the bankers are making money. If the government is running a surplus the bankers business is drying up. Commercial Banks are one of the biggest spenders on political campaigns and lobbyists. In fact, the commercial banks took over the whole economy back in 1913.
US War on the Working Class
The price for borrowing money to pay for tax cuts and the military industrial complex falls squarely on the working class. There is nothing more damaging to the American worker then America’s National Debt, yet China gets the blame.
Why is this happening? Follow the money, if a company’s shareholders can buy the product from China for less than they can produce it in their factory in Ohio. The shareholders will then spend money from their factory in Ohio on lobbyists to get the politicians to allow them to source the products from China and then close their factory in Ohio.
A strong dollar allows this to happen. And if lower taxes puts money in the pockets of the shareholders then they will spend money on lobbyists to lower taxes which causes the deficit to go up and the dollar to gain in strength making the American worker even more uncompetitive in a global economy.
Automation, the Lethal Blow to the Working Class
Can the evolution of automation replacing workers be tied to the national debt? Yes, here’s how. Automation is a capital investment. The lower the interest rate on the loan to pay for the investment in automation the more likely it is to be used to replace workers.
The national debt allows for lower taxes, greater liquidity and lower interest rates. Therefore, the national debt is directly correlated to how fast people are losing jobs to automation.
There is nothing more damaging to the working class then the rise of automation and technology. This is not a Neo-Luddist perspective but it is painfully ignorant to not notice that automation and technology are displacing millions of jobs every year.
And since jobs are the only productive way of getting money into the hands of people one has to wonder if the economy isn’t collapsing in on itself. If it were not for the mounting personal, corporate, national and global debts the economy would most certainly be shrinking. For an exciting solution, look outside the box, How to Engineer the Government out of Debt… the Debt Solution.
The real issue behind the tensions with China is America’s national debt. If the government was fiscally responsible, it would be selling products manufactured in America to the Chinese.
That is how trade should work. Instead, they choose to leverage the value of USD despite the potential for economic ruin. So, when Donald Trump says a US trade war with China or trade war is good , he is vouching for a broken American financial system that sells debt to finance the military-industrial complex.
If the President and Congress were sincere about creating jobs and balancing the trade deficit, they would first and foremost address the national debt.
America’s moneyed political system is very short sited. Tax cuts are great for the people who get a lower tax bill. On the other hand, it is awful for the workers whose jobs are displaced by automation and foreign imports. The wealthy are eventually going to have to pay the taxes America owes to other countries.
And other countries are eventually going to have to sell their treasury bonds and buy American products. When that day comes the tables will turn, the American dollar will be greatly devalued, and America will be on sale at a steep discount.
This means stock and real estate markets will crash and the wealthy will lose many times over what they saved by getting tax cuts. America is borrowing staggering amounts of money from foreign governments to fund its exuberant spending and foolish tax cuts.
The American people are getting fat and lazy on cheap imports and an overvalued dollar. Thinking the party will last forever is the definition of insanity.
For more straightforward logical arguments about today’s issues, click here.
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