"It has become a liability."
"It has become a liability."
The world hopes the US-China trade war will be resolved peacefully with two sides seeing reason than in keeping high the banner of blind chauvinism. The major trading partners need to have their voices heard instead of the US attempting to conscientize countries of the problem that is of its own making.
The US’ lamentation of its huge trade deficit represents one side of the coin. The other half is whether the US is willing to adjust its currency to a more realistic level for China and other countries to buy more from them as the surest formula to narrow down the trade gap. The US imports goods not only from China but from other countries without equivocally thinking that the inability of other countries to import is the result of the high cost of the US dollar translated in terms of production cost. Focusing on that issue alone, one could see it as a sign that something is wrong in the US monetary policy.
As of 2017, the US has a serious trade deficit with at least 10 countries. Leading is China with $357 billion; followed by Mexico with $76 billion; Japan with $20 billion; Germany with $56 billion; Ireland with $39 billion; Vietnam with $38 billion; Italy with $28 billion; Malaysia with $21 billion; India with $21 billion; and, with South Korea with $21 billion. China alone represents 47 percent of the total US trade deficit.
Even if the US succeeds in inducing China to increase its imports to narrow down the trade deficit, that would not solve the problem if there are countries that produce and export the same goods to the US at lower prices. It is the American importers that determine when, and from whom to import, at what price. Other countries that offer lower price cannot be accused of undercutting the US. Rather, it speaks of the truth that production cost clinches the deal. China cannot be forced to import goods from the US if that would result in trade loss. The same principle goes to US importers if there are countries offering those goods at lower prices than that offered by China.
The US was initially happy at this monetary arrangement where the dollar commanded higher value compared to other currencies. The dollar could buy more, but American producers could sell less of their products abroad. American neoliberals believe that through this new mode of imperialism done through currency manipulation, the US and its allies thought it will work forever to their advantage. China and other underdeveloped countries then could only offer their vast and teeming manpower as their means of exchange to sustain the one-sided trade with the US.
Most distressing is that US President Trump could not comprehend why US companies entered into agreement to allow the manufacture of local components of its products, say for the production of vehicles, electronic parts and machineries. It could not see the logic that many US companies opted to outsource their production to China as it was beneficial to the companies and to the US consumers. For the exporting countries, the trade arrangement created local employment for those engaged in the manufacture of the local components, and allowed US products to lower its production cost and remain competitive with other countries producing the same goods.
Most economists sympathetic to the US position reject the idea that the exchange of goods is measured on the value of one’s currency. Maybe Marx was probably still unaware that beyond the value of labor, goods can astronomically increase its value through currency manipulation. Translated into business, the one who could sell his goods at the cheapest price usually comes out the winner.
This is consistent with the view that he who could produce more at the cheapest cost wins the market competition. Adam Smith called this the “comparative advantage theory” to suggest that it would be much cheaper for France to import wool from England just as it would be cheaper for England to import wine from France.
When the US thought of dropping gold to measure the value of the dollar, it relied wholly on the strength of its own GDP, being then the leading manufacturing country. The US came out with an economic formula they thought could make the US economic invincible caused by the cycle of boom and bust. They thought wise to just expand and contract the value of the currency vis-a-vis to increase or decrease trade in what it calls “adding liquidity” to the market, ignoring altogether the importance and value of production which in fact is the foundation of wealth creation.
For instance, the US decision to slap a 25-percent tariff on steel and aluminum forced US car manufacturing plants in China and elsewhere to increase their production cost until it eventually affected their sales. China did not retaliate to impose the same level of tariff but on the contrary, reduced tariff on car imports from other countries. Car and car parts imports from Germany, and even the US brand Tesla were granted 15 to 40-percent tariff reduction. Even BMW and Mercedes which were manufactured and assembled in the US were included in the tariff reduction.
This strategy was undertaken to emphasize just how vulnerable US products can be when subjected to the rigors of competition. US trade analysts should have paid attention not so much on countries where it is saddled with trade deficit but to its consumers which is the real culprit that is causing the trade deficit. In that, one could decipher that American consumers, through their business importers, want to stretch the cost of their money which conversely means that they could buy more goods made in China, than elsewhere.
As the saying goes, water will always seek its own level, which in this case money will seek to buy goods which stand out as the cheapest in the market. The strategy used in the application of tariff on imported cars is classic; that American made cars cannot withstand the rigors of competition in the international market, and quality has little bearing to it but on what their money could buy, which only those that rely on the US dollar are raking in profit not on the product, but on the margin and difference in the exchange of currency. This came as no surprise why suddenly GM plants in the US, Mexico and China suddenly announced closure.
The reliance by the US to use the dollar to facilitate loans and credits attracted more and more portfolio investments. Hand in hand with the growth of finance capital was the growth of insurance and reinsurance businesses. Without the Americans knowing it, the profit derived from this form of business, which essentially involves the trading of currency or money market economy seriously lessened their inertia to engage in production, which is the foundation that made it the richest and most powerful in the world. It was pure finance capital that operated the US economy and now causing them much economic pain.
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