The Simple Accountant

The Great Shift: China Rising, U.S. Falling

A few comments on the Chinese ascendancy / US decadence meme:

1. China has developed and presently recognized the other side of the aggressive mercantilist policy. For example, so much of the state funding has gone into heavy industrial capacity, that the state has imposed a prohibition on the construction of new aluminum smelting plants, etc. This overcapacity can only be absorbed by steady foreign buying, and the US market will continue to be an important element. Just based on the size and maturity of its markets, the US can only fall so far, even if it is nowhere near its former heights .

2. US deindustrialization has been a long ongoing process (I remember writing papers and debating the matter as a university student in the 1980s, by which time there was already a considerable literature). The only possible remedy is a governmental policy solution which will be highly controversial. For example, the firm in which I work, a US manufacturer, was late to the Asia import game and entered only reluctantly. At that point, our competitors were "all in" and began to undercut our prices materially, so we faced a stark choice: either join the foreign sourcing party, or go out of business. In either case, we could not sustain the same level of domestic production and employment.

We chose the lesser of two evils, and still employ some US manufacturing workers. Margins have eroded anyway, because buyers know the foreign sourced product is cheaper, and nobody in our industry has much pricing power. We live and raise our families in these communities, and would have preferred to maintain full employment. That would only have been economically feasible if something like a tariff had decreased the cost gap between foreign sourced and domestically produced goods. Is that an argument for protectionism? Would such a thing be viable? I understand perfectly well what economists say, having been educated by them.

What about the indirect hard and soft social costs of deindustrialization? Unemployment insurance, law enforcement and prisons, falling property values, etc, social stability, human happiness. How much do any of these matter? Certainly the economists will have their answers for these as well.