> A strong dollar made imports even cheaper by comparison
I think that summarizes the article. It has been cheaper to import, so we do. The strong dollar policy supports some industries at the expense of others.
There are three aspects to this - cost of manufacturing in the US, cost of manufacturing + shipping in China and exchange rates. I do think the relative dollar strength is a factor, but Chinese labour was effectively free vs US labour. If someone is willing to do work for free, then the economy will give them work.
The issue that the free marketeers have been railing about for approximately the last 50 years it seems like almost every major policy the US adopts increases the cost of manufacturing relative to a hypothetical entity that didn't do that. It has been a constant adjustment of labour law, environmental law, energy policy and financial regulation away from manufacturing. It is plain why US manufacturing isn't the global top dog. The real question is whether it is a bad outcome or not.
Over the last 50 years China has improved their energy use by 1 UK economy per capita. IMO we should also ask more seriously if those regulations were worth it. A UK per capita energy is a lot of QoL improvements and it was linked to doing a lot of manufacturing. The US on the other hand is behaving politically like people are worse off than they were.
> The real question is whether it is a bad outcome or not.
It's definitely bad. The U.S. won't even have the world's biggest navy pretty soon because of that. And there are tons of scenarios where the U.S. is economically hosed because of some international conflict. Not only does the U.S. not make things, it doesn't know how to.
We should absolutely increase our industrial capacity but who gives a shit about the biggest Navy? Outside of the problem countries like China and Russia, we have military alliances with nearly every country on earth..
US has somewhere around 450 Navy vessels.. China has closer to 350 but is rapidly adding new tonnage. Sounds ominous! Except Japan has another 150, Australia has 50 more, the UK has 70 more, Spain has 150, France 180, Korea has 160, if some war ever comes down to the sheer number of available ships -- it literally won't matter who has more since the nukes will have flown long before some Canadian frigate is exchanging fire with some Chinese gunboat.
Also, number of ships doesn't mean too much. I could buy 1,000 canoes. And tonnage only means a bit more - there is plenty of tonnage in old ships rusting at docks.
Naval power isn't easily measured with statistics. The capabilities of a single US 100,000 ton aircraft carrier overwhelms entire fleets, unless their capabilities include long-range anti-ship missiles or submarines. Then adding tonnage won't help the US; they need capabilities to counter those two threats.
You should look into it. I wasn't referring to canoes. Even then, you're wrong. Number of ships and ability to replace ships correlates to wins in times of conflict.
Yes, but you forgot about informational war, which started long before direct armed conflict. Today, it's possible to influence a foreign election with an army of bots, to turn a country into a self-defense mode, so alliance will not work, because domestic problem, like border with Mexico, will overweight.
Why is 'making things' tied to income or wealth? In the mid-20th century it was, but those are the 'good old days'. We don't want a mid-20th century economy.
The US has the most productive, wealthiest economy in the history of the world, and a very strong one at the moment, without so much of the 'making things'. Why change?
(And why do American taxpayers have to subsidize someone else's uncompetitive, unproductive business? Perhaps they are better off letting the free market allocate the revenue.)
Outcomes of major wars were directly tied to domestic manufacturing ability. By not having manufacturing ability, the U.S. exposes itself to great risk.
The US has by far the most powerful military in the world, with its current domestic manufacturing capability. The idea that the US will be self-sufficient - a path followed only by North Korea - isn't realistic or desireable. They'd give up all the enormous advantages, including manufacturing capability, of all those allies, including S Korea, Japan, Germany, etc etc.
This is the answer to all American manufacturing woes. The dollar as a reserve currency gives the US a ton of global leverage but requires a trade deficit thus it comes at the expense of domestic industries.
Because trade deficits induce demand for dollars? Like how Japan and now China hold a bajillion US dollars? So if the US had (prolonged) trade surplus, no one would be holding dollars?
But wouldn't trade partners still need US dollars to buy US goods? Like the situation post-WWII?
So then we'd "loan" partners US dollars to buy our stuff?
Aiugh. My brain just broke.
How does a noob like me learn about these systems. I know it all probably makes sense to the learned. But with my folk (mis)understanding, these claims sound counterintuitive.
In a normal, non-reserve-currency situation, the demand for a country's currency is proportional to the demand for its products. After all, that's what you use a currency for: to buy the products that are sold in that currency. This has a well-behaved equilibrium, because if a country produces a lot of good products, that means the value of its currency will rise, which makes goods developed in that country relatively more expensive, which cuts demand, until everything equilibrates at a point which is roughly reflective of the actual quality and productivity of the country.
In a reserve-currency situation, the currency is used for many things other than buying the products of the country. For example, oil is priced in dollars; if India wants to buy oil from Saudi Arabia, it needs dollars to make the transaction, and then Saudi Arabia has an excess of dollars. Frequently it uses these to buy U.S. T-bills or invest in American tech startups like Uber or WeWork, both other sources of demand for dollars. The dollar is basically the currency of the global financial system: instead of directly converting rupee to riyal, you convert rupee to dollars, handle your transaction, and then convert dollars to riyal.
This creates a large source of demand for dollars outside of the traditional market for a national currency. Indeed, America's export here is basically financial services, which as a sector has been doing great since 1990, one of the few areas where you're likely to get paid handsomely. The other area is tech, which at its core is about enabling these cross-border commerce flows - Amazon, Google, Facebook, UpWork, Stripe, CoinBase, Ripple, Stellar, PayPal, E-bay, Shopify, AirBnB are all about creating global marketplaces where you can buy anything from anywhere.
Finance and tech crowd out everthing else that you would normally use dollars for. Basically America has specialized in being the global marketplace - it's only purpose is to be the common standard that every other country needs to transact in. Because there's so much demand for dollars simply to do international transactions, it pushes the price of the dollar up. This makes everybody who's trying to sell actual things in dollars (rather than take a commission when other people sell things in dollars) uncompetitive.
It works great, until the rest of the world decides that it wants to cut out the middleman. At that point, since we don't produce anything anymore, we're screwed. America's basically given itself Dutch Disease, where our only viable industry is financial services.
>It works great, until the rest of the world decides that it wants to cut out the middleman.
Isn't this why the US invests in having the world's biggest military by a long margin, plus the world's most powerful spy agencies? To make sure nobody dares cut them out of their privileged position otherwise they get a dose full of aircraft carriers, F-35 and B-2s after the NSA finds out what their plans is from the spyware they put in their iPhone.
The challenge - alluded to in the article - is that having a functional military requires a domestic manufacturing base and machine tool industry. The U.S. generally tries to keep its arms manufacturing in-house, for obvious national security reasons. But even if you've kept the existing defense contractors alive, you lose out on the ability to repurpose the country's civilian manufacturing base if it doesn't exist. This was pretty critical in WW2: General Motors made more TBM Avengers than Grumman, Chrysler made more tanks than all German manufacturers combined, Kaiser made Liberty Ships by the hundreds. Without the ability to quickly tool up, you'll end up defeated in any war of attrition.
There's a pretty significant risk that we'll find out that the U.S. is a paper tiger if it comes to any sort of prolonged war with a near-peer power.
>Without the ability to quickly tool up, you'll end up defeated in any war of attrition.
Why is this a risk? The biggest tool makers in the world are Germany and Japan which are in the US sphere of influence whether they want to or not and are therefore incentivized to sell to the US as many machines it would need to fight a war.
The risk for Japan or Germany not wanting to sell tools to the US feels insignificant, as they aren't in a position of power to refuse to play ball.
Japan and Germany are entirely metric. Pretty much the entire US manufacturing industry, or rather the zombie the pentagon keeps on life support, is in US standard.
That means everything needs to be adjusted or replaced. That's not viable in peace times, it's even less so in times of war.
Obviously this applies primarily to tanks and ships, not planes nor guns.
Japan and Germany are vulnerable to Chinese aggression. The primary reason why a declining company like Micron was gifted a new fab in Syracuse NY is that their Boise fab is within range of a larger portion of the Chinese arsenal.
That's why (well, one reason why) the U.S. keeps Japan and Germany in its sphere of influence. Same for Saudi Arabia (major oil producer) and Taiwan (major chip producer). Notice that U.S. / Saudi relations soured a fair bit after the U.S. became the largest global oil producer again (thanks to fracking and shale oil). We're a bit less willing to overlook an authoritarian dictatorship when we don't need them.
The challenge with all international relationships is that they're not stable. Germany almost didn't back us on Ukraine, for example, because Russia threatened to cut off the supply of natural gas and make its citizens freeze in the winter of 2022/2023. Only because the NordStream pipeline blew up anyway (an act of sabotage that American journalists have attributed to the U.S.) and the U.S. secured alternate sources of heating for Germany did they back us on Ukraine. Had it been a different regime in power in either the U.S. or Germany, that could've turned out very differently.
But the lack of cheap gas fucked up a small but important part of the german industry: chemical commons. That cripples the economic competitiveness and together with other negative developments, e.g. the change to EVs, will result in very hard times for the Germans.
In consequence the right party is rising, in eastern Germany to an already serious level.
It appears the western public's understanding of geopolitical realities is always a decade behind. _Right now_, all of NATO combined can't even outproduce Russia alone. We don't need to be talking hypotheticals, it is literally happening in real time.
plus if a conflict like that occurs then clearly the US has lost significant power. so why would it be a given that American neo-colonies stay on its side?
>_Right now_, all of NATO combined can't even outproduce Russia alone.
What? Don't know where you're getting your sources but NATO combined definitely can outproduce Russia. Why it isn't, is that Russia is in war mobilization mode with all their industry running 3 shifts for the war effort, while NATO's industry is still in peace-time mode because they're not under attack.
I'm not sure, honestly. I certainly think it's a risk that the next big war starts, it goes poorly for America, and then we resort to nuclear weapons to squeeze out "victory" (i.e. everybody dies) if we're all going to die anyway.
But I think there's another possibility that most people aren't considering: disintegration. It's very common for countries to cease to exist as countries when they start losing a war, particularly a war that happens because they're moribund and falling apart internally anyway. Witness the Austro-Hungarian, Ottoman, and Russian Empires in WW1; the end of the Roman empire; England during the War of the Roses in the aftermath of the Hundred Years War; Yugoslavia and the Soviet Union in the wake of the Cold War; etc. This also doesn't have to wait until the end of the conflict: most of the big disintegrations in WW1 happened in 1917, before the armistice, and sometimes even to "victorious" parties.
Modern nuclear weapons are very tightly controlled with PALs, so that you physically can't arm them without correct codes produced by the Pentagon/NSA bureaucracy. If that bureaucracy falls apart, it's likely they will just rot in their silos, while humanity dukes it out with relatively primitive technology because nobody wants to work together anymore.
I heard this was the real reason the US took out Saddam Hussein. Basically, Saddam had been saying for years that he wanted Iraq to abandon the dollar for trading its oil. If he was successful at this, other Arab Nations would most likely do the same. This wasn't acceptable to the powers in the US, so the US tax payers funded the war in Iraq to send a message to other nations: Don't even think of abandoning the dollar.
Not sure if there's any truth to that at all, but it's at least believable.
> Qaddafi's government holds 143 tons of gold, and a similar amount in silver. During late March, 2011 these stocks were moved to SABHA (south west in the direction of the Libyan border with Niger and Chad); taken from the vaults of the Libyan Central Bank in Tripoli. This gold was accumulated prior to the current rebellion and was intended to be used to establish a pan-African currency based on the Libyan golden Dinar. This plan was designed to provide the Francophone African Countries with an alternative to the French.franc (CFA).
> French intelligence officers discovered this plan shortly after the current rebellion began, and this was one of the
factors that influenced President Nicolas Sarkozy's decision to commit France to the attack on Libya.
> For example, oil is priced in dollars; if India wants to buy oil from Saudi Arabia, it needs dollars to make the transaction, and then Saudi Arabia has an excess of dollars. Frequently it uses these to buy U.S. T-bills or invest in American
If it priced the oil in Euros or Yen or Riyals or Rupees or US Dollars it has to pay its costs. Sure it may end up with a profit its then free to invest those where it likes, there is no reason it has to buy USD assets. Many wealthy and/or exporting nations choose to buy US assets because its a large, safe and well established market, but it has nothing to do with being the most popular trading currency.
> America's basically given itself Dutch Disease, where our only viable industry is financial services.
Clearly this is not true. The largest companies in the USA are not financial.
> Clearly this is not true. The largest companies in the USA are not financial
According to this list[1] of the top 100 largest (public) companies in the US, 14 of the largest companies are in the financial industry, and five more are in insurance. Six if you count Berkshire Hathaway; eight if you also count health insurers (although they're not exactly a financial service exporter, so probably don't count).
So between 19-22 of the largest 100 US companies are in the finance industry. In comparison, there are only eight or nine tech companies, and 11 petroleum businesses. So sure, the.. six largest companies aren't financial companies, but finance is very well represented among the largest companies in the US below that level.
Honestly I learned the basics in Econ classes during college and have an interest in international relations/geopolitics so I’m not sure a good single source for learning about it all. But yeah there is some macroeconomic wizardry involved here. I’ll add it is a political thing and not a right v wrong policy. Choosing manufacturing power or global influence is a trade off with pros and cons.
> So then we'd "loan" partners US dollars to buy our stuff?
Other way around, they buy T-bonds -- i.e., "loan" dollars to the US Government. But the country is still owed that money back - it's like a trillion dollar bank account. One could say China "lends" dollars to the Treasury, but it's also just as accurate to say they "deposit" dollars into the Treasury. It's all just words to describe the action of giving money to another party to hold onto temporarily.
"Strong" currency means there's more demand for it. Demand is usually a function of what you can buy with the currency.
When countries reinvest their dollars into T-Bonds, they are double dipping on establishing demand for dollars. On one hand, they are owed back the dollars handed over to the Treasury (thus, creating future demand for USD), and on the other, accepting USD for the sales of their goods/services induces demand for USD, since it is yet another good that can be purchased with USD.
"Weak" currency means that there's less demand for it. Weak currencies tend to be those from countries that produce little in the way of goods and services, or they only produce commodities (like oil) that are generally traded in other currencies.
A weak currency can be a benefit. Hence why so many countries seek to artificially weaken their currency (aka currency manipulation). They often do this by strengthening the the USD. Sell to the USA, accept USD from foreign trade partners, buy T-Bonds with excess currency. The market for USD is so damn big that this is often trivial to do unnoticed, like using ocean to fill a swimming pool. But economies like Japan and China eventually grew to the point where their currency manipulation had a meaningful impact on the USD and American economy, rising the ire of American politicians. You can read about the Japanese "lost decade" which was suspected to be the result of American politicians intentionally targeting the Japanese economy due to currency manipulation and a general fear that the Japanese would "take over the world." (you can see these fears highlighted in 80s movies)
> How does a noob like me learn about these systems.
Take an economics class. Eco 101 is kind of trash for understanding anything truly useful. But at higher levels, you get into mathematical models for the underlying systems that govern trade. Granted, it's a little more hand-wavy, since economists can't conduct experiments at the scale that physicists can. But there is generally some experimental data supporting the models (it just might be data collected on college students trading candy bars).
You can read about what happened to the Swiss economy during the pandemic. They are a smaller economy that's been plagued by an absurdly strong currency. There's been a lot of reporting and research into the many factors contributing to the currency's strength as well as the impacts it has had on such a small country.
I'm vaguely aware that partners with a trade surplus end up buying t-bonds. eg China, Japan.
I poorly explained the post-WWII scenarios I was thinking of: to stimulate demand for US goods, the US govt would give aid, grant loans, etc to other countries, for those countries to spend on US goods. Ditto World Bank, IMF, etc.
I've read criticisms of this strategy over the years. Many have suggested it would be better for the developing economies if US/West simply bought their goods. Or maybe a hybrid, like stable investments and purchase agreements.
How does a noob like me learn about these systems. I know it all probably makes sense to the learned. But with my folk (mis)understanding, these claims sound counterintuitive.
Thanks. "
don't worry, your intuition is right. you are on the right track when you say that your brain broke. you are more learned, or rather, more wise than those guys.
because a lot of economics is BS, a hotchpotch of some art, craft, heuristics, observations and formulae, pretending to be a science.
this is exactly why economics is known as "the dismal science", and why there is a saying that if you get 20 economists in a room and ask them the same question, you will get 20 different answers.
(italics mine)
I studied economics in high school for a whole year (11th grade). the course covered both microeconomics and macroeconomics. the Samuelson (MIT prof., IIRC) book was one of our text books.
I did well in class, was among the top few students.
I made some penetrating comments to which my teacher had no satisfactory answer. it was on a situation / question regarding OPEC (the oil cartel).
from that time on, and also from subsequently reading economics articles and news now and then, I could intuit and piece together the opinions that I stated above. :)
Not sure how you can pretend I’m wrong when what I stated is an observation of the world and not an opinion. The US moved its industry overseas and switched to exporting dollars in an effort to buy sway inside of other countries. It did this to isolate Russia and win the Cold War.
trace your way upthread and tell me where I replied to you. i, at least don't see it. but whether it is your error or mine, it may be due to the shitty message threading style used here on hn. I have commented about it in the past. if the better Usenet / NNTP style was used, such confusions would not occur.
So you declare an entire field as BS and your basis of expertise is a high school class you took and a (probably underpaid and overworked) teacher who couldn’t satisfactorily answer your questions?
To quote economist Brad Delong: "... tax cuts created a half decade of deficit, boosting need for government debt which attracted foreign capital and helping to send a false signal to Midwest manufacturers to shrink starting the hollowing out of what became Rust Belt."
I think in the long term (and maybe short term) we will live to regret this error.
I don't understand this quote without more context. Five years of tax cut cycles does not seem abnormal, nor does it explain why only Midwest manufacturers received a (false) signal.
cheaper when not including externalities(losing critical manufacturing capabilities), which is why a proper government would take action. But the problem is our government is heavily lobbied to not protect critical industries in the name of short term corporate profits. And in many cases our government is outright hostile to manufacturing by holding domestic producers to pollution/labor regulations but allowing imports from countries with no regulations
Trade agreements have allowed importing from countries where human rights are (more of) an economic externality. Domestic manufacturers can really only compete on the ability to do small batches, higher tolerances, and quick turnaround; like for R&D projects or medical devices.
That’s just corporate political shade throwing. Fiscal policy has, for a few generations now, incentivized trade deficits for foreign policy reasons. Overtime this results in offshoring of all industry.
Article says machinist industry failed to lobby the same way as US steel. Not that US steel is doing healthy. But at some point it's the govs foresight / job to reign in MBAs via protectionism and industrial policy for strategic sectors. As other's have mentioned, JP has MBAs too. Maybe lesson is JP Gov listened to Zaibatsu/conglomerate lobbying power.
From what I've heard, Japan has very different corporate culture, more focused on loyalty and social stability, than on maximizing profit. They can even keep unprofitable divisions of the company, because they don't want to fire people who work in them.
Would be nice if someone with first-hand knowledge of Japanese corporate world could confirm/deny it.
I think that summarizes the article. It has been cheaper to import, so we do. The strong dollar policy supports some industries at the expense of others.