jakiro
Source: FT Chinese
Since Trump was elected president, he has once again claimed that he would use a tariff stick to solve the trade deficit problem of “robbing Americans’ jobs”; and many American politicians have also performed etiquette, saying that tariffs will only be brought.Come to inflation.
The U.S. trade deficit problem has not been a day or two, and the solutions of successive presidents are also very different.Economic theory tells us that the best way to reduce imports, boost exports, and reduce trade deficits is often to depreciate the currency – which will increase the prices of imported goods and services calculated in domestic currencies and export goods calculated in foreign currencies.and service prices have dropped, thereby curbing imports and encouraging exports.
As theorized says, many American presidents regard devaluation of the dollar as the only way to solve the trade deficit problem – this story has been staged as early as the era of President Reagan.In the 1980s, when Reagan was first elected president, the U.S. economy was suffering from severe inflation.To ease inflation, Reagan supported Fed Chairman Volcker’s plan to recover currencies by raising interest rates at a double-digit rate, and to reduce the burden on SMEs through tax cuts.
Although the sharp interest rate hikes have reduced inflation, they have also caused the US dollar to appreciate significantly.When Reagan first took office in January 1981, one dollar could be exchanged for more than 200 yen; by the highest point of the interest rate hike policy in November 1982, one dollar could be exchanged for more than 270 yen.Although the interest rate hike ended in 1983, until January 1985, when President Reagan’s first term ended, the dollar against the Japanese yen remained at a high of more than 260 yen.
The high domestic interest rate has caused the US manufacturing industry to bear heavy capital costs and greatly affected its competitiveness; the sharp international appreciation has also caused Western Europe and Japan, represented by automobiles, to conquer cities and territory in the United States.With the combination of the two, the United States’ automobile manufacturing industry was defeated and the workers’ anger was rampant.In 1982, this anger finally reached its peak with a tragedy. In June 1982, Chen Guoren, a Chinese-American living in Detroit, was beaten by two unemployed car workers and died.
Reagan, who fixed inflation problems during his first term, had to fix trade deficit problems during his second term.Therefore, when Reagan’s second term began in 1985, when the United States responded to the export surplus of Japan, Germany, France and other countries to the United States, it issued the Plaza Accord, which greatly appreciated the yen, pound, franc and German mark against the US dollar when it responded to the surplus of exports from Japan, Germany, France and other countries., which greatly stimulated the US exports to Europe, and saved the life of the US industry.
Since then, the strategy of adjusting interest rates has been frequently used by the US government, establishing a business model of “low interest rates, low exchange rates, and low tariffs”.Due to the low federal funds rate, the interest expenses corresponding to treasury bonds are low, thus controlling government spending; and controlled government spending allows the government to reduce taxes, thereby reducing the burden on enterprises.On the other hand, the government was able to borrow money to build infrastructure, while low interest rates lowered the dollar exchange rate, thereby promoting exports and curbing imports, which overall stimulated domestic demand.By combining the two and taking a two-pronged approach, the situation of manufacturing enterprises has been improved to a certain extent.
It is said that twenty years of the earth are a cycle of reincarnation.Over the past 20 years, China’s economy has developed rapidly and gradually replaced the status of Japan, Germany, France and Britain in manufacturing.The RMB is naturally beyond the reach – since 2005, the exchange rate of the RMB against the US dollar has been appreciated all the way, from 8.3 in 2005, steadily with the US dollar’s interest rate cut and the RMB exchange rate reform, it has appreciated all the way to 6.3 in 2013.The huge appreciation of the RMB against the US dollar has greatly improved the US trade deficit: on the one hand, Chinese people began to travel and study in the United States, and the export of service trade has become one of the important commodities of the United States’ “export” to China.
However, Trump discovered a problem after taking office.In order to alleviate the trade deficit in the Reagan and Obama era, the US dollar depreciation method actually caused an uneven development development between the US states.For example, inbound tourism developed by the depreciation of the US dollar will naturally benefit states with more scenic spots and relatively developed tourism industries; studying in the United States will benefit states with developed education; purchasing agricultural products will benefit ChinaWestern Agricultural State.It was finally found that industrial products such as automobiles in the “Rust State” in the central and western regions were difficult to benefit from.
As for why the manufacturing industry cannot be supported by mud and rotten wood cannot be carved, this is closely related to the Galapagosization of American industries.It is better to reduce the exchange rate and benefit is international development, but international development first requires the industry itself to have international capabilities.Galapagosy just describes the situation where products are uncompetitive internationally in the context of trade protectionism.
What we are more familiar with is the Galapagosization of Japanese society, but there are similar problems in the United States.For example, the domestic automobile industry in the United States has long abandoned the sedan industry under the trade protection policy for small trucks and has started to produce small commercial vehicles.However, the “small” commercial vehicles in the United States are still too big for Europe, Japan or China – the smallest pickup truck in the United States is often five meters long and two meters wide, but narrow and densely populated by Europe, Japan and Japan.In eastern China, vehicles that are often four meters long and five meters long and one meters wide are used.Against this background, the US automobile industry has long been transformed into a customized product that can only meet the domestic market and sells at will in the foreign market.
However, maintaining the domestic market does not mean that you can be exempted from foreign competition – even in the Galapagosy market, foreign competitors can survive and develop by imitating it.For example, even in the traditional “pickup truck” industry in the United States, Japanese companies have developed products like Toyota Tacoma, challenging the status of American companies; as for other fields, there are countless competition from Chinese companies, so there is no need to say much.
At the same time, even if it is Galapagosized in demand, it is often globalized in the raw material supply chain.Even if there are products like pickup trucks that are “local-produced” in the industry, there are often a large number of foreign parts.In this context, there will be significant problems in exchange rate policy – under the depreciation of the US dollar, the costs of industries that rely on foreign supply without the support of their own upstream industries will naturally rise.
In this context, exchange rate policy has not played a role.Therefore, the Trump team can only turn to tariff barriers – unlike the flooding, the exchange rate is evenly distributed. In the view of American politicians represented by Trump, tariffs can be “targeted strikes” against final products without affecting parts.import.
But where is such a good thing on earth? I will have to pay it back sooner or later when I come out.As a trade protection policy, the essence is to raise the price of imported goods to the same as that of domestic goods. After all, if foreign traders lower prices and the price of bringing tariffs is lower than that of domestic goods, then people will not buy domestic goods.commodity.At the same time, for domestic commodity manufacturers, after tariffs are added, the best game strategy is actually to maintain existing production capacity: once the production capacity is expanded and the market share increases, the government will think that the problem has been solved, and will stop or reduce it instead.Tariff subsidy.
Under the logic of “doing business to the government”, instead of improving products and improving product competitiveness, domestic commodity manufacturers should manage directly upward, first increase the price of domestic commodities, and then cry for the government to increase tariffs, thereby earning the tariff increase and bringing price increase.The extra profit margin is better.
Therefore, the policy is constantly increasing under the logic of “left foot stepping on the right foot” of “left foot stepping on the right foot” of “adding tariffs – increasing prices of imported goods – increasing prices of domestic goods – market share rises first and then declines – lobbying the government to further increase tariffs”, which ultimately leads to social goodsPrices generally rise.This has created a rare wonder in the world of “tariff inflation” – all the tariffs added to consumers.
In order to reduce inflation, the Federal Reserve will introduce high interest rates accordingly, trying to ease inflation by recycling currencies.As early as the end of the Obama regime, interest rates began to rise; and during the Trump regime, interest rates continued to rise until 2019.If it weren’t for the epidemic, interest rates would probably rise.
However, there is a big problem with high interest rate policies – the profit margins of the real economy are not that high.
Normally, it is necessary to improve the situation of domestic voters as industrial workers, actively introduce foreign capital, and encourage direct investment in domestic capital.More investment increases the supply of local factories and “bosses”, thus allowing industrial workers to gain an advantage in the game with their bosses, and the workers’ situation can be improved.This is something any country in the world has experienced – even in the United States, port workers have gained tangible dividends due to the expansion of port trade.
But the current situation in the United States is completely the opposite: the high interest policy has greatly hit the willingness to invest in the US manufacturing industry.Therefore, taking foreign funds as an example, although the US FDI has been soaring, the funds invested in the United States are indirect investments (such as securities investments). The direct investment in the manufacturing industry is actually falling year by year.Foreign funds are already like this, and domestic funds are even more unspoken.Due to the lack of direct investment in manufacturing and the number of companies has not increased, it is difficult for workers to improve their bargaining power and situation.
At the same time, the high dollar exchange rate and severe domestic inflation have caused Americans to start running out and spending outside.We often hear news mentioning that Hong Kong people go to Shenzhen to spend, largely because of the peg of the Hong Kong dollar and the US dollar, which appreciates the RMB, and the increase in Hong Kong’s 100 things.As the original, the United States is certainly not inferior: if you check the number of issued US passports, you can see that Americans’ enthusiasm for outbound travel has been soaring with the US dollar interest rate hike in 2015. Now 2,500 will be issued in 2024.Ten thousand US passports.
At the same time, the appreciation of the US dollar brought about by the US dollar interest rate hike largely offset the effect of tariffs “raising prices for foreign products”, which made the tariff policy not implemented.Although American politicians have long said that China is a “transfer rate manipulator”, in fact, even if it is not imported from China, goods will be imported from other countries (even saying that “vietnamese passes” and “mexico passes as we know before””), U.S. manufacturers did not benefit from tariffs, but instead suffered from high capital costs brought about by rising interest rates and demand outflows caused by rising exchange rates.
Looking back, this has become a rare wonder in the world – high tariffs, high inflation, high interest rates, and high exchange rates. The above four factors can coexist in a country, which is really amazing and eye-opening.Among them, there are probably only those rich people who rely on savings to survive.
