Though I think it's all wrong, and in a few places incoherent. To fit everything into a Marxist story he oversimplifies.
Mr. Mackler starts with the Sept/Oct issue of Foreign Affairs (FA) headlined "How a global trading system dies." (Those articles look interesting, but unfortunately they're paywalled.) He credits FA with being a voice of the "ruling class," and I suppose in some sense that's true. But in this case it appears they're writing mostly on their own account. FA readers (and writers) are overwhelmingly employed by the State Department, intelligence services, other related government agencies, and academia. A Trumpian foreign policy--if it survives Trump--renders this collective expertise as obsolete as Kremlinologists were upon the collapse of the Soviet Union. Indeed, whole PhD programs will go extinct.
So no wonder they hate Trump--you can think of them as the "deep state." Their cry of pain does not reflect any consensus among the "ruling class," to the extent such exists. When all opinion has to be categorized as either "ruling class" or "proletarian," then meaningful distinctions are lost. Simplicity becomes the enemy of truth.
More telling is that among politicians the China tariffs are relatively uncontroversial. It is pretty much a given on both sides of the aisle that our previous policy toward China is not tenable, and a new relationship has to be worked out. You can't trade with somebody you can't trust, and China has proven itself untrustworthy.
Mr. Mackler says China is a capitalist country--recall that SA's position is all countries are capitalist except for Cuba, which is a worker's state. This terminology is useless, and again elides meaningful differences between the US and China.
It is far more accurate to say that China is mercantilist, which means they don't care if they make a profit. Instead the only issue is positive cash flow--as long as an exporter brings in US dollars it's good to go. It doesn't matter if it loses money in Renminbi (RMB) terms--the Chinese government can fudge that at will. (They can print money, absolve debts, steal fortunes, eliminate people, or do whatever else they need to do. But they can't print dollars.)
Why does China need US dollars? In Mr. Mackler's opinion they don't:
...Trump’s public complaints about the U.S. trade deficit with China, wherein Chinese imports to the U.S. exceeded U.S. exports to China by $419 billion in 2018, fail to take into account that the U.S. corporations pay for these imports with increasingly inflated dollars, printed with abandon by the U.S. Treasury in the form of paper money or the issuance of computer-generated federal bonds and/or related promises to pay. Again, any government that prints money with no regard to its material basis in commodity production risks disaster. The U.S. “coin of the world realm” is, in this writer’s view, in deep trouble.This is all wrong. Dollar inflation is definitely not a problem, remaining well below the Fed's 2% target. The Fed's massive money printing is something of a myth. Yes, they printed money, but they also started paying interest on reserves, which soaks up the cash as fast as it's printed. The result is a huge bump in the Fed's balance sheet, which may someday lead to inflation, but not soon. More, the issue isn't inflation per se, but rather differences in inflation between currencies. The rate of dollar-inflation is lower than RMB inflation.
The fact is that the dollar is the only possible reserve currency around. The euro is politically unstable. The yen, like the Swiss franc, is from too small a country. The RMB is not freely tradable, and is subject to arbitrary confiscation by the Chinese government. Bitcoin doesn't have the necessary capitalization yet (and may never get there). The fraction of world trade (pdf) settled in RMB in 2017 was 1.61%.
China needs dollars because it is resource poor and has to buy food and energy on the world market. The US is the world’s granary, and a long-term boycott of American agricultural products is not a tenable strategy. Today, because of a devastating swine flu epidemic, China is forced to buy American pork, that being their primary protein source.
Likewise, China depends on the Persian Gulf for oil, and by extension they depend on the US Navy to keep the supply route open. Given that North America is now energy-independent, our Navy is gradually withdrawing that service. Indeed, I’ll go further and suggest that the strong sanctions against Iran are directed more toward China than against Iran.
China is much richer today than it was in 1980. Even Mr. Mackler acknowledges that:
The question therefore inevitably arises of how China made the transition from a relatively poor nation, largely bereft of modern technology, to a world-class player on international markets? The answer lies in how China made the transition over the past 40 years from a deformed workers’ state that essentially banned capitalist private property, established a planned economy that focused more on addressing human needs—including providing free health care and education to all its citizens—than capitalist profits, to a leading capitalist and imperialist nation with trillion-dollar infrastructure investments in China and, increasingly around the world...His answer to the question is utterly bizarre.
A serious approach to answering this critical question, a complex matter to be sure, begins with China’s adoption of the key features of the BRICS nations—Brazil, Russia, China, India and South Africa. In all these relatively underdeveloped nations, the ruling elite focused on a massive transfer of wealth from the poor to the rich that they expected to result in the emergence of a relatively well-off layer of perhaps 20 to 25 percent of the population, consisting of “middle class” and working-class sectors, who would be capable of purchasing a broad range of nationally produced consumer commodities typical of their counterparts in advanced nations. This massive transfer, of course, was to be at the expense of the vast majority of their respective populations, who were in turn driven into abject poverty.In other words, Deng Xiao Ping literally stole money from poor Chinese peasants in order to provide 400 million other people with a middle class income comparable to those in the West. This is ridiculous! The median income of a Chinese peasant was $2/day, or about $700/year. All that bought was a Mao suit and a couple copies of the Little Red Book. There was nothing to steal!
No--the bump in income is entirely due to global trade. The Chinese sold us toys, telephones, computers, clothes--in a word, just about everything you can buy at Walmart. Through Walmart, China raised the standard of living of every American. In return, the Chinese got food, jumbo jets, business services, and access to global resources (e.g., oil). I detail this in my two posts responding to Lynn Henderson (here and here).
Indeed, thanks to Sam Walton and Deng Xiao Ping, every Chinese citizen is vastly richer than they were in 1980. They didn't get that way just by stealing from each other. Mr. Mackler's theory is as silly as his presidential campaign.
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| Increase in wealth in Chinese households, both urban and rural. (source) |
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