The Art of Industrial War

The Art of Industrial War

Written by EUSSR

Trade deficits America and Britain run large structural trade deficits. The respective Governments have financed these ongoing deficits with sales of state assets (Intergenerational wealth), issuance of bonds (Future wealth) and allowed surplus nations to reinvest by taking ownership in listed equities. The US deficit is largely due to an imbalance of trade with China, some 80% of its deficit is from this trade. China rather than allowing its currency to appreciate continually buys US issuances of debt used to fund this trade deficit. Currently it is estimated that the Chinese Yuan is 40% undervalued which translates into an export subsidy for Chinese manufacturers and a consequential reduction in direct US workers of nearly 1 million jobs. Since 2000 an estimated 1.9 million manufacturing jobs have been lost in the US. Currently China has reserves of some 3 Trillion US dollars. If China entered into trade on a mutually beneficial basis and imported from the US the same as it exported, then the US would almost certainly bounce back from its high unemployment figures of 13.5 million (8.8%), simply because each manufacturing job has a multiplier effect of between 2 to 5 additional jobs created/lost. The 1 million direct jobs recovered and another 2 to 5 million additional ones created would reduce US unemployment down to 4.9-6.8% in line with the long run US unemployment rate since 1948 of 5.7%. What are the motives behind Chinese surpluses? China appears to be end gaming the US. Chinese workers are not receiving the benefit of their efforts (surpluses) and Western workers are unemployed. China is engaging in currency manipulation which suppresses US industry/exports while China mechanises. Surpluses are being used to vertically integrate its supply chains through the acquisition of natural resources. Through central planning they focusing on specific industries (with Government aid) further decoupling US comparative advantage (Industry clusters) thereby eroding downstream supply chains and necessitating further production to shift to China. This blue print process would appear to be partially through its plans, with the end game additionally and likely being the influence though listed equities in major corporates (Procurement/Outsourcing) and Channel ownership (Sales) [Or straight ownership if they can get away with it]. What are the current consequences? Western nations manufacturing employment is below expected levels due to Chinese currency manipulation. Industrial innovation and technological development impaired. Industrial and economic sovereignty impaired. Massive systemic and financial risk to world markets due to unprecedented levels of Chinese “hot” money. (Think of the cyber attacks on US installations for starters). Chinese workers are denied the benefits of their efforts as surpluses have not been passed back to them. So what should be done? Quite simply the US/UK and others should put an ultimatum to the Chinese that international trade must be fair and equitable. They must import the same amount as they export and tariffs will be imposed to ensure equilibrium if they will not honour this notion. In effect a multi year trade balance equation should be developed that China must achieve equilibrium over say a rolling 5 year time frame. The greater the deviation from equilibrium the greater the imposition of tariffs to mitigate unfair actions until it is rectified (Simple gaming theory). It should be noted that China would actually BENEFIT from this action as any increase in the West would translate into increased demand for its exports. This is the whole basis for international trade, it is mutually beneficial. But it is clearly evident that China appears to have ulterior motives otherwise as communists they would be helping their people foremost. That’s what the true Peoples Party would do.