Unfair Chinese Trade Practices
WM Trade: Supporting U.S. Workers, Businesses, and the Environment in the Face of Unfair Chinese Trade Practices, December 2, 2021
China is a victim of its own success. It now has a vibrant middle class which is used to living with all of the comforts that implies. Every year, migrants are driven off their land, often by investment housing, seeking factory jobs which will eventually lead them into property ownership outside their home villages. This pattern has repeated itself time and again in the capitalist era.
The Chinese Communist Party is facing a quandary, however. When middle classes are formed, they begin to chaif at authoritarianism. Traditional culture has slowed the desire for revolution, but this does not negate the analysis of none other than Karl Marx. Revolution is inevitable as a matter of economic destiny.
Our comments from June underlie the fragility of authoritarian regimes, such as China. Let me offer four new examples:
Lower level governments fear losing face with the central government. This was especially true in Wuhan at the start of the COVID pandemic. The crisis was hidden until it was too late. Problems were complicated by giving citizens a deadline to flee rather than imposing immediate lockdowns. This probably spread the virus to the entire nation. There is little visibility on the results of such an error, which indicates they are being covered up.
In a fete of pique, the Chinese government objected to Australian Prime Minister Abbott’s off the cuff comments on their response to the virus. This led to a boycott on Australian coal. This coal was bound for the industrial sector. After the current backlog at our ports has been cleared, it may be followed by a different set of supply chain issues. A freer society would not have made this mistake (aside from the prior U.S. Administration).
There has been no let up in the use of coal for utilities, although less is available. There are now power shortages in some areas, according to recent reports. The Party tries to keep the lights on to placate the middle class (peasants don’t really have good electricity). They correctly fear a usually docile urban culture becoming less docile when conditions get worse.
A further example of their impending troubles is the Evergrande crisis (and a housing crisis in general). Authoritarian cultures do things for show. Many of Evergrande’s developments are Potemkin investments that were never designed for actual occupation. These developments are essentially a Ponzi scheme.
As an aside, in America cryptocurrency is such a scheme. Also, much of our single-family rental market is known for leaving maintenance in the hands of tenants. Secretaries Ross and Mnuchin should be called to account for their part in this.
In order to placate the Chinese middle class, some developments are condemned and demolished, which leads to payments for investors - but not enough to keep their boom alive. Their efforts to bail out these investors will divert funds which are currently being invested in U.S. Treasuries into their own crisis. This assumes a slower unwinding than is likely possible. A major crash will not stop at the Pacific Ocean.
For this reason, it is imperative that our own debt limit default issues be dealt with promptly. Adding uncertainty to the mix may crash the world. Currently, some American investors are taking profits before higher capital gains taxes are enacted in Build Back Better. This will further deflate our overvalued markets, cushioning the blow from the inevitable crisis in China.
A full-on Chinese economic crash is an existential threat to the Communist Party in China (and they know it). Such a crash is also an existential threat to the value of trillions of dollars of American bonds. The only way out is to raise taxes more than Build Back Better’s levels. Taxing the wealthy takes money out of speculation (deflating Ponzi schemes even further) and diverts funds to the consumption sector (including credit for the middle class).
A collapse of the Chinese economy may or may not help American workers. Factories do not spring up overnight. Businesses will certainly take a hit and, unless Congress is as generous in dealing with this crisis as it was for COVID, poorer families will be hit with liquidity issues and scarcity through no fault of their own.
The tenure of Mick Mulvaney at the Consumer Financial Protection Authority has created a ticking time bomb at NYMEX’s oil futures market. Global supply is fine. The trading rules have been gutted. Hopefully, the Administration will be able to undo the damage before what is an inevitable recession (or depression if housing values again drop below mortgage debt obligations). This time, mortgage loans that are purchased by the Federal Reserve must be written down to loan balances, reducing M3 and inflationary pressure. This will restart the world economy. Punishing the lower middle class is not an option.
The donor class is about to take a big financial hit to their investment portfolios - and not because of rising taxes. It is time for them to put pressure on both parties to do something soon. They may not suffer physically, but a loss of paper wealth is inevitable if action is not taken now.
posted by Michael Bindner at 7:00 AM
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