what amazes me is that this was pretty obvious decades ago but the lazy/greedy/incompetent western political and business leadership were too busy canabalising public infrastructure and inflated property markets to care - China has also benefitted from years of blatant patent theft, market protections and cheap labour - China has also been lending other countries money to buy things from China - at some point all of this must fall apart but in the meantime we party on.
What a load of sour grapes. The USA built its economy for the first 100 years or more on systematic patent theft from Europe. Led by the sainted Thomas Jefferson, who never came back from Europe without a laundry list of useful inventions which he helpfully published at his own expense with the sole intention of giving Americans an advantage. And with utter contempt for "intellectual property".
As for "market protection", who made that a religious obligation? It may surprise some Westerners to hear that governments are instituted for the benefit of their people as a whole, not just - as in the West - the super-rich. Same applies to "cheap labour".
The Chinese have been doing almost everything right for 30-40 years, and as a result are already way ahead and getting further ahead every year. And Westerners hate it. But not enough to start doing things right themselves. Getting rid of systematic corruption, for instance. Or giving up the perpetual war habit.
I think Tom that you misread my comment as nowhere was I presenting the US as a paragon of international trade and by saying China has been doing everything right for the past thirty years you ignore the fact that little dumb old NZ has abided by a set of international rules that China has not simply blatantly ignored but exploited to its considerable advantage - it is akin to playing poker with a group where one player who is allowed to cheat. The point I am making is that the US has gone from the position of exploiting everyone else to now being exploited by China - it still exploits NZ and Australia by running a closed economy with tariffs on our exports to them while requiring that we run a completely unprotected economy. However China has turned the tables on them and Europe using a wide range of subsidies to give their industries an unbeatable cost advantage and the US (and the rest of us) has become addicted to the deluge of cheap stuff. And borrowing a bundle from China to pay for it - this is not sustainable in the longer term for either side - because just as in any commercial enterprise if the business model is based on lending to your customers for them to buy your goods with no prospect of the loans ever being paid back - reality must impose the inevitable sooner or later
"NZ has abided by a set of international rules..." Those would perhaps be the "rules-based order" that Western politicians keep prating about - which are mysteriously different from international law and the UN Charter, which they seem content to ignore whenever it suits them.
I am genuinely sorry if I went off half-cocked and did you an injustice. One gets so used to all the same stale and unjustified libels against China and Russia that sometimes I find the rebuttals flowing when there is no call for them. A kind of conditioned reflex, only instead of drooling I growl. 8-)
If the Chinese Government wants to subsidise our lifestyle by creating cheap manufactured products for us to enjoy then bully for us. People used to say exactly the same about the Japanese. It is a transfer of wealth created in China to consumers in the west. With the money we save as a result we can buy local services which improve our standard of living and provide local employment.
The problem comes when that same manufacturing capacity is put to use making weapons. It then means China has a war machine that wins wars and the West does not.
Only if someone attacks China. It doesn't attack anyone, but it's not going to be caught again the way it was in the 19th century when Europeans and Americans invaded China, captured Beijing, overthrew the government, and looted everything.
Next nation to try that will get its teeth knocked down its throat.
Sure don’t buy missiles from China. Quality not quantity will win if there ever is a conflict. Satellites, the space industry, advanced chip design etc. will be the most important and are the things the U.S. is good at. The U.S. making its consumers pay 25% more for MAGA hats and iPhones won’t help it militarily.
Dream on. China is already well ahead of the USA in software, space exploration, and missiles. Thanks to Western sanctions, it will soon take the lead in computer hardware. It's not smart to force people who are cleverer than you to do their own research and development. But since they are smarter than you, you don't see that.
Much manufacturing is now moving from China to Vietnam. India, Bangladesh etc because labor is cheaper than in China. Charity you are right has nothing to do with it. It creates jobs as much as it takes them away.
Ah, the neoliberal fallacy rides again! No, because we lose manufacturing jobs and, in a developed world with a welfare state, we socialise the costs of supporting the people who would otherwise be doing them.
No. The rate of unemployment is at historic lows. No jobs are lost but as with technological change people move from one type of work to another. Generally service jobs are better than working on the production line. Sure some are flipping burgers or painting nails but others are doing things more creative. The point is nearly everyone is richer because stuff cost less. The $1,000 you save on an iPhone you can use to have a weekend away or improve your house.
Thank you for this article. Current trade imbalances are unsustainable, and anything that is unsustainable will end one day. Either mainstream politicians tackle this issue in an orderly way, or the resolution will be messy.
I guess we need to be careful about getting drawn into the same game. If all Western nations decide to play to gain a competitive advantage then we will all be worse off. Perhaps the best thing the West can do is to each focus on our comparative advantages but to ensure there is much more collaboration. A tricky balance.
China is a 'company'. Every Chinese is a worker in this 'company'. There is only on paper a divide between 'private' held companies and the government. So the 'West' are competing with a very, very large company called China, all the while having to operate within the rules of changing and sometimes non coherent government policy. I'm not saying what is good or bad, but I don't think we should act suprised of the outcome when players have a different set of rules.
Ed, yes, sure, 'subsidies' c.f. OECD but ... look at parameters 'per capita' especially consumption and strategic priorities, e.g. Electricity kWh/yr
1 China 5,474
2 United States 11,267
3 India 1,025
China's strategy priorities: urbanisation / housing; electrification; education; transport infrastructure (e.g. h. speed rail); and latterly automation.
A comparison of per capita primary energy consumption by source is instructive for UK c.f. China (World of Data 2022). China consumes now marginally more primary energy per capita than UK - but looks like China has bigger fraction of hydro/wind/solar in the mix which accounts for that margin. Yes, coal allowed for all that catch up, but ... the future?
When you come up with a coherent answer on what to do about it, that doesn't trigger a massive inflation boom please let me know.
FWIW US DOE have a RFI on this very subject. The simple answer is tax the E&S differential - but if the competitive advantage is finance (and I believe it is) both in capex and being able to live through price slumps the answer is less obvious.
I suspect that ultimately many of these policy attempts will fail because Senator X from State Y won't vote for more expensive iPhones.
I know that was a cheap shot but I'm trying to finance a tungsten mine and to get lenders over the line we need a minimum price.....
Brilliant piece Ed. Trade Wars are class wars is a seminal piece of work. The historical stuff on Hamilton and the founding fathers debate on manufacturing is so relevant here. Something echoed in David Sainsbury’s super book Windows of Opportunity.
There is something much more fundamental going on than the subsidies, although that is a competitive advantage that compounds. Eventually though subsidies come to a dead end, something it feels like is happening in many ways in China right now.
The bigger issue is what do countries value. When I was younger I wanted to study Manufacturing in the UK. I could not find a single university which taught manufacturing. The closest I could find was a course in Industrial Systems and Business Management, in what is now University of Westminster, but was PCL when I started there.
If you want to know how the UK lost its way, look no further. Manufacturing lost its lustre for the ruling, moneyd class. Since it was no longer valued it wasn't even taught.
I went on to work for a double glazing company on my placement year and was shocked when only white collar workers were invited to the Xmas party, none of the blue collar ones who worked on the factory floor.
Instead in the UK the top professions are bankers, lawyers, landowners, trust funders, media etc. Not saying they're better or worse, but it explains a lot about how we got where we are in the UK.
In the 1960s the cool thing to be was a creative artist of some kind. A 20 year old young man from a 19th century big industrial owning family would be much more likely to seek a career as say a fashionable photographer hanging out with top models and The Beatles while letting the family firm,boring,grubby old factory dwindle away into desuetude. Now it's upmarket luxury loft apartments no one can afford to buy!
Quote: “To put it differently, if China subsidizes EV exports, American consumers of EVs do indeed benefit from cheaper prices. But whether Chinese producers or American producers pay for the cost of these subsidies depends on whether higher Chinese exports result in higher Chinese imports or higher Chinese surpluses. In the former case, one set of Chinese producers pays for the subsidies delivered to another set of Chinese producers. In the latter case, it is US producers that pay for the subsidies delivered to Chinese producers.”
I think Stiglitz pointed this out too.
You can have “competition” only between roughly equal players. Take a premier football team against an average “village 11” and there is no competition at all.
All playing fields in the English Premier League are level. All playing fields in the MLS are level. The only playing fields that are NOT level are at the lowest amateur rank like elementary schools.
Kind of ignores the ownership element of industrial strategy. “We” didn’t shut steel plants, private employers did because a. Yes, competitiveness, but b. Private companies have no long term stake in the industrial policy of a specific nation.
Until Europe operates as an entity and plans strategically, this trend will continue. It’s great that the EU aims for net zero but bizarre that it didn’t occur to anyone that this would hand a massive competitive advantage to China over industries where Europe has been a leader. Also shows that notions of “left wing v right wing” politics is really just 19th century answers to 21st century challenges.
I'm so glad I can comment here,thank you. I read this with interest as I was born in the mid 1950s when industrial Britain was still a thing(but not in an industrial area),but even in my 1960s childhood there was a sense of our industrial heritage dying and slipping away. The 'creative industry' was pitched as our future. We had The Beatles,Tom Jones,Cliff Richard,Michael Caine,David Bailey and a host of other glamorous and charismatic people to 'sell" Britain to the world and 'London Swings'. But most of this dwindling industrial power was based on CAPTIVE MARKETS a fact I was shocked to learn a few years ago. Thanks to our British Empire created by Military Strength and a bit of canny Craftiness in the 18th to 19th century we passed laws in Africa,India and other places,this is really shocking,making it the law that those countries had to buy things they needed from us,only us. As soon as we gained political power in India (for nearly 200 years our presence was as a trading company,a business only,we made it illegal for Indians to weave cotton cloth.except very low grade for domestic use,and took the trade to Manchester which became Cottonopolis and thus also reinforced the Black Slavery regime and trade in USA. It's all very well to point out that we Brits abolished the Slave Trade in the early 19th century then set our Royal Navy to police the seas and intercept other nations ships carrying slaves but that ignores the fact that by importing vast quantities of cotton from Southern USA we relied on established USA slavery and when the USA Civil War stopped supplies of cotton getting to Manchester so that the Cotton Mills closed down,people starved to death. There was no safety net,no social welfare,no public dole,no work,no eat,die. People did. Some mariners,the sort of brave entrepreneurial types who always like to be counter cultural used to evade the blockades,sneak into Southern USA ports,load up with cotton and once again evade the USA defence ships ,it was risky,dangerous,but some people love that and the financial reward was high. They would take the cotton to Manchester and at that place thanks to the limited work they enabled to a lucky few they were accounted heroes,of freedom and liberty. I cite 'Yankee Jack's of old Watchet Town . (Go figure,as the Yanks say). Most of our booming trade in the 19th century was not because our wares,be that printed cotton,ceramics,or steam engines was the best available but because much of the world had - by law - to buy it. No wonder we were rich and they were poor.
Production of essential goods getting concentrated in one place - I wonder what happens with prices in such cases. Chinese companies will keep the prices low, right? Right?
There’s plenty of “state aid” in OECD countries… it just doesn’t go to productive people.
That’s on the consumption side. The author is discussing subsidies on the production side.
But that’s the rub. Western companies spend their gov funds on safety nets (and related rent seekers, especially in health care), and consumption.
China spends their funds on supply.
Neither has the money to do both.
what amazes me is that this was pretty obvious decades ago but the lazy/greedy/incompetent western political and business leadership were too busy canabalising public infrastructure and inflated property markets to care - China has also benefitted from years of blatant patent theft, market protections and cheap labour - China has also been lending other countries money to buy things from China - at some point all of this must fall apart but in the meantime we party on.
What a load of sour grapes. The USA built its economy for the first 100 years or more on systematic patent theft from Europe. Led by the sainted Thomas Jefferson, who never came back from Europe without a laundry list of useful inventions which he helpfully published at his own expense with the sole intention of giving Americans an advantage. And with utter contempt for "intellectual property".
As for "market protection", who made that a religious obligation? It may surprise some Westerners to hear that governments are instituted for the benefit of their people as a whole, not just - as in the West - the super-rich. Same applies to "cheap labour".
The Chinese have been doing almost everything right for 30-40 years, and as a result are already way ahead and getting further ahead every year. And Westerners hate it. But not enough to start doing things right themselves. Getting rid of systematic corruption, for instance. Or giving up the perpetual war habit.
I think Tom that you misread my comment as nowhere was I presenting the US as a paragon of international trade and by saying China has been doing everything right for the past thirty years you ignore the fact that little dumb old NZ has abided by a set of international rules that China has not simply blatantly ignored but exploited to its considerable advantage - it is akin to playing poker with a group where one player who is allowed to cheat. The point I am making is that the US has gone from the position of exploiting everyone else to now being exploited by China - it still exploits NZ and Australia by running a closed economy with tariffs on our exports to them while requiring that we run a completely unprotected economy. However China has turned the tables on them and Europe using a wide range of subsidies to give their industries an unbeatable cost advantage and the US (and the rest of us) has become addicted to the deluge of cheap stuff. And borrowing a bundle from China to pay for it - this is not sustainable in the longer term for either side - because just as in any commercial enterprise if the business model is based on lending to your customers for them to buy your goods with no prospect of the loans ever being paid back - reality must impose the inevitable sooner or later
"NZ has abided by a set of international rules..." Those would perhaps be the "rules-based order" that Western politicians keep prating about - which are mysteriously different from international law and the UN Charter, which they seem content to ignore whenever it suits them.
I am genuinely sorry if I went off half-cocked and did you an injustice. One gets so used to all the same stale and unjustified libels against China and Russia that sometimes I find the rebuttals flowing when there is no call for them. A kind of conditioned reflex, only instead of drooling I growl. 8-)
If the Chinese Government wants to subsidise our lifestyle by creating cheap manufactured products for us to enjoy then bully for us. People used to say exactly the same about the Japanese. It is a transfer of wealth created in China to consumers in the west. With the money we save as a result we can buy local services which improve our standard of living and provide local employment.
The problem comes when that same manufacturing capacity is put to use making weapons. It then means China has a war machine that wins wars and the West does not.
Only if someone attacks China. It doesn't attack anyone, but it's not going to be caught again the way it was in the 19th century when Europeans and Americans invaded China, captured Beijing, overthrew the government, and looted everything.
Next nation to try that will get its teeth knocked down its throat.
Sure don’t buy missiles from China. Quality not quantity will win if there ever is a conflict. Satellites, the space industry, advanced chip design etc. will be the most important and are the things the U.S. is good at. The U.S. making its consumers pay 25% more for MAGA hats and iPhones won’t help it militarily.
Dream on. China is already well ahead of the USA in software, space exploration, and missiles. Thanks to Western sanctions, it will soon take the lead in computer hardware. It's not smart to force people who are cleverer than you to do their own research and development. But since they are smarter than you, you don't see that.
They don’t do it out of charity. They get financial assets in return.
Also, as the author points out, the impact on factory workers has been pretty brutal in the US.
Much manufacturing is now moving from China to Vietnam. India, Bangladesh etc because labor is cheaper than in China. Charity you are right has nothing to do with it. It creates jobs as much as it takes them away.
They do it because they make the same mercantilist mistake that Adam Smith wrote about in The Wealth of Nations.
Ah, the neoliberal fallacy rides again! No, because we lose manufacturing jobs and, in a developed world with a welfare state, we socialise the costs of supporting the people who would otherwise be doing them.
No. The rate of unemployment is at historic lows. No jobs are lost but as with technological change people move from one type of work to another. Generally service jobs are better than working on the production line. Sure some are flipping burgers or painting nails but others are doing things more creative. The point is nearly everyone is richer because stuff cost less. The $1,000 you save on an iPhone you can use to have a weekend away or improve your house.
Thank you for this article. Current trade imbalances are unsustainable, and anything that is unsustainable will end one day. Either mainstream politicians tackle this issue in an orderly way, or the resolution will be messy.
I guess we need to be careful about getting drawn into the same game. If all Western nations decide to play to gain a competitive advantage then we will all be worse off. Perhaps the best thing the West can do is to each focus on our comparative advantages but to ensure there is much more collaboration. A tricky balance.
Except in critical military sectors.
Which, properly interpreted, means "everything".
We e been very very complacent, and many good businesses have folded because of our lack of an industrial strategy.
China is a 'company'. Every Chinese is a worker in this 'company'. There is only on paper a divide between 'private' held companies and the government. So the 'West' are competing with a very, very large company called China, all the while having to operate within the rules of changing and sometimes non coherent government policy. I'm not saying what is good or bad, but I don't think we should act suprised of the outcome when players have a different set of rules.
Ed, yes, sure, 'subsidies' c.f. OECD but ... look at parameters 'per capita' especially consumption and strategic priorities, e.g. Electricity kWh/yr
1 China 5,474
2 United States 11,267
3 India 1,025
China's strategy priorities: urbanisation / housing; electrification; education; transport infrastructure (e.g. h. speed rail); and latterly automation.
A comparison of per capita primary energy consumption by source is instructive for UK c.f. China (World of Data 2022). China consumes now marginally more primary energy per capita than UK - but looks like China has bigger fraction of hydro/wind/solar in the mix which accounts for that margin. Yes, coal allowed for all that catch up, but ... the future?
When you come up with a coherent answer on what to do about it, that doesn't trigger a massive inflation boom please let me know.
FWIW US DOE have a RFI on this very subject. The simple answer is tax the E&S differential - but if the competitive advantage is finance (and I believe it is) both in capex and being able to live through price slumps the answer is less obvious.
I suspect that ultimately many of these policy attempts will fail because Senator X from State Y won't vote for more expensive iPhones.
I know that was a cheap shot but I'm trying to finance a tungsten mine and to get lenders over the line we need a minimum price.....
Brilliant piece Ed. Trade Wars are class wars is a seminal piece of work. The historical stuff on Hamilton and the founding fathers debate on manufacturing is so relevant here. Something echoed in David Sainsbury’s super book Windows of Opportunity.
Thanks for such stimulating and important work.
There is something much more fundamental going on than the subsidies, although that is a competitive advantage that compounds. Eventually though subsidies come to a dead end, something it feels like is happening in many ways in China right now.
The bigger issue is what do countries value. When I was younger I wanted to study Manufacturing in the UK. I could not find a single university which taught manufacturing. The closest I could find was a course in Industrial Systems and Business Management, in what is now University of Westminster, but was PCL when I started there.
If you want to know how the UK lost its way, look no further. Manufacturing lost its lustre for the ruling, moneyd class. Since it was no longer valued it wasn't even taught.
I went on to work for a double glazing company on my placement year and was shocked when only white collar workers were invited to the Xmas party, none of the blue collar ones who worked on the factory floor.
Instead in the UK the top professions are bankers, lawyers, landowners, trust funders, media etc. Not saying they're better or worse, but it explains a lot about how we got where we are in the UK.
In the 1960s the cool thing to be was a creative artist of some kind. A 20 year old young man from a 19th century big industrial owning family would be much more likely to seek a career as say a fashionable photographer hanging out with top models and The Beatles while letting the family firm,boring,grubby old factory dwindle away into desuetude. Now it's upmarket luxury loft apartments no one can afford to buy!
Quote: “To put it differently, if China subsidizes EV exports, American consumers of EVs do indeed benefit from cheaper prices. But whether Chinese producers or American producers pay for the cost of these subsidies depends on whether higher Chinese exports result in higher Chinese imports or higher Chinese surpluses. In the former case, one set of Chinese producers pays for the subsidies delivered to another set of Chinese producers. In the latter case, it is US producers that pay for the subsidies delivered to Chinese producers.”
I think Stiglitz pointed this out too.
You can have “competition” only between roughly equal players. Take a premier football team against an average “village 11” and there is no competition at all.
All playing fields in the English Premier League are level. All playing fields in the MLS are level. The only playing fields that are NOT level are at the lowest amateur rank like elementary schools.
Whence this absurd phrase?
Kind of ignores the ownership element of industrial strategy. “We” didn’t shut steel plants, private employers did because a. Yes, competitiveness, but b. Private companies have no long term stake in the industrial policy of a specific nation.
Until Europe operates as an entity and plans strategically, this trend will continue. It’s great that the EU aims for net zero but bizarre that it didn’t occur to anyone that this would hand a massive competitive advantage to China over industries where Europe has been a leader. Also shows that notions of “left wing v right wing” politics is really just 19th century answers to 21st century challenges.
I'm so glad I can comment here,thank you. I read this with interest as I was born in the mid 1950s when industrial Britain was still a thing(but not in an industrial area),but even in my 1960s childhood there was a sense of our industrial heritage dying and slipping away. The 'creative industry' was pitched as our future. We had The Beatles,Tom Jones,Cliff Richard,Michael Caine,David Bailey and a host of other glamorous and charismatic people to 'sell" Britain to the world and 'London Swings'. But most of this dwindling industrial power was based on CAPTIVE MARKETS a fact I was shocked to learn a few years ago. Thanks to our British Empire created by Military Strength and a bit of canny Craftiness in the 18th to 19th century we passed laws in Africa,India and other places,this is really shocking,making it the law that those countries had to buy things they needed from us,only us. As soon as we gained political power in India (for nearly 200 years our presence was as a trading company,a business only,we made it illegal for Indians to weave cotton cloth.except very low grade for domestic use,and took the trade to Manchester which became Cottonopolis and thus also reinforced the Black Slavery regime and trade in USA. It's all very well to point out that we Brits abolished the Slave Trade in the early 19th century then set our Royal Navy to police the seas and intercept other nations ships carrying slaves but that ignores the fact that by importing vast quantities of cotton from Southern USA we relied on established USA slavery and when the USA Civil War stopped supplies of cotton getting to Manchester so that the Cotton Mills closed down,people starved to death. There was no safety net,no social welfare,no public dole,no work,no eat,die. People did. Some mariners,the sort of brave entrepreneurial types who always like to be counter cultural used to evade the blockades,sneak into Southern USA ports,load up with cotton and once again evade the USA defence ships ,it was risky,dangerous,but some people love that and the financial reward was high. They would take the cotton to Manchester and at that place thanks to the limited work they enabled to a lucky few they were accounted heroes,of freedom and liberty. I cite 'Yankee Jack's of old Watchet Town . (Go figure,as the Yanks say). Most of our booming trade in the 19th century was not because our wares,be that printed cotton,ceramics,or steam engines was the best available but because much of the world had - by law - to buy it. No wonder we were rich and they were poor.
Production of essential goods getting concentrated in one place - I wonder what happens with prices in such cases. Chinese companies will keep the prices low, right? Right?