"The US monetarists started all this."
(Continued from Saturday)
The US cannot afford to stop importing from China and from other countries. Its exports can no longer compete in the international market. The “financialization” of the US economy, as Noam Chomsky would put, it led to the de-industrialization of the US economy. The US monetarists started all this. They subscribed to the theory that hiking the value of the dollar would be a good means to substitute production. They relied on finance capital as some kind of economic magic that can always help them extricate from whatever economic difficulties they are in. Finance capital was their key word. Because it worked in China to help finance rapid industrialization that would also work to bring about the same magic in the US.
One usual observation is that once the Third World countries incurred huge and perennial trade deficit up to the 80s, most of their exports would be mainly confined to minerals, oil and agricultural products they could produce best. Whatever was left to better improve their economy for their exports representing their foreign exchange earnings was spent to help develop the country. The rest dissipated through corruption. Such was the usual and normal cycle. Right after WWII, the US was the only country that was able to avoid devastation. Its industrial and agricultural industries continued to decline. While the two sectors of the economy can be summed up as the result of development, it has considerably been reduced. The US commanded nearly 50 percent of the world’s total industrial and manufacturing output after war. That however has been considerably reduced to 18 percent of the global output, with China leading at 20 percent.
Even if we take it that services continue to grow in the US, that is attributable to population as growth. They are services mostly catering to consumer demands and not related to production or manufacturing which many say can be outsourced like what the US did to outsource labor to China and to other countries in Asia and Latin America. Those services that were retained are those which are either extremely necessary requiring high specialized skill and extremely high wages or ordinary labor and skill that cannot be outsourced. Except for China, none of those countries where the US has an outstanding trade deficit and even huge loan also running to trillions of dollar its loan with Japan has it ever raised the issue of piracy and intellectual property violation.
There is even in trade policy of the US undertones of racism It clearly has not cited the same reason of intellectual property theft and piracy to countries where it has been incurring the same problem of trade deficit. Maybe singling out China in this issue which frankly has nothing to do with trade imbalance as a form of leverage to exact more concession does not augur well on how the administration intended to solve the problem. For sure, China knows the answer how the US could resolve the problem of excess importation but prefers to refrain such suggestion for it might directly pierce the core interest to make the issue non-negotiable in like manner that China has already outlined core issues it cannot negotiate or bargain away in the negotiating table.
American economists are one in saying that a devaluation of the dollar partakes of an official admission that the US has become a de-industrialized nation and its credit standing would plummet never before seen in the US history. Credit ratings made by Standard & Poor, Moody’s and Fitch would seriously affect US financial companies to keep open their credit standing or even to secure a restructuring of their existing loans. The situation may even lead to chaos and civil disturbances because a devaluation of the US dollar could mean an economic depression of great magnitude. Wall Street will not only collapse but that will be pandemonium because it would seem that entire system of financialization of the US economy has finally collapsed like an empty ice cream cone.
The US knows that of an overvalued currency is the one that has been causing its economy to incur trade deficit. It cannot now easily devalue its currency because the cost of wage in the US has been increasing not due to increased production but due to inflation which correspondingly increases the cost of living in the US but the standard living of the people there. Americans cannot that easily devalue their currency to halt the seemingly unstoppable trade deficit or are some would put it the rapid deindustrialization of America. It is ironic for while it hits hard on China over the media on the issue of trade deficit, not a word been mentioned that the leading importers of Chinese goods are American companies namely Wal-Mart, Costco and Target. They rely mostly on consumer products outsourced by US companies to China they could easily be sold in the US market because they are far cheaper those goods produced in Europe. At least there is still some sense of misguided nationalism of buying US brands though made in China.