ECONOMIC WAR
  Karl Arnold Belser
28 June 2018



China is apparently reaching the limits of the economic gains that can be achieved by Big Push Industrialization . The big push is central control of huge investments that bet  on the development of markets to consume the products that are made. Russia did this kind of push after WWII and Japan did the same until the crash of the seventies. The problem is that the authoritarian approach gets the economy off the ground very rapidly, but the steady state economy needs wide diversification for innovation to continue . Neither Russia nor Japan could change their government to a more democratic and diversified form.

The leaders in china apparently realize that they need to become a world economic player to survive. They have initiated the Made In China I2025 initiative to try to compete. This is an authoritarian initiative like what Russia did after WWII and that Japan did in the last century with MITI (Ministry of International Trade and Technology).  Neither initiatives worked because I think, the cultural change was too large for people in the country to adapt to. China has done a much better job in this transition with more free market economics. I think that the US feels threatened.

China  now wants to be the world leader in Artificial Intelligence (AI) a, robotics and automation. As a result of the demographic issues I describe in my post Rising China, China is going to need technology to increase the nation's productivity. The Made in Chin a initiative is essentially a declaration of economic war on the west.

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The book Global Economic History describes the four major policies that a nation can use in economic competition. Firstly, a nation needs a national market with no internal tariffs along with a good transportation system to distribute goods. Secondly, a nation needs tariffs to protect
 national industries, especially the ones needed for defense. Thirdly, a nation needs a stable monetary system with low inflation. Lastly, The nation needs an effective mass education system that provides workers that  are needed as the economy changes. This is nationalism.

President Trump is instituting exactly this set of economic changes to protect the US with his America First initiative.

The US already has a good domestic market with good transportation and national communication systems.

Next, Trump has imposed tariffs on many types of imports in order to protect the US's domestic industries. For example steel tariffs will save the steel industry given that  China is grossly over-producing steel to try to wipe out the US industry. The US cannot fight a war without the ability to produce steel. Trump is preventing the Chinese buying advanced technology companies in the AI, Robotics and automation industries. Trump is also trying to lower the current account deficit of the US.

Thirdly, The US does have a stable money supply that will likely be will managed in the future as I describe in my post Fiat Money.

However, the US is managing is educational systems poorly.
The centrally dictated Common Core primary and secondary programs do not prepare students adequately to either get jobs or go to college. Further, College education is more than ten times as expensive as it was 50 years ago based on inflation adjusted  costs. In many cases the return on investment is nnot there. In addition affirmative action gives preference to some of the least capable people at the expense of the best and brightest. Indescriminantly given student loans might make some of the students debt slaves for life  all in the name of social justice. This tragedy in my opinion is because of rent seeking by the universities with no regard for value for money.

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Two recent Supreme Court decisions give me hope that Trump will be able to turn the US around.

One is that the president will be allowed to reject immigrants to the US based on National defense concerns. This limit can be applied to any person who cannot contribute to the US economy, because the US cannot today fulfill the pension and welfare promises to its citizens. It makes no sense to allow more free riders to jump on the boat.

Next non-union workers are no  longer forced to contribute a percentage of salaries to the unions. Both the central government and the unions are causes of the poor effectiveness of the US education system. This change may weaken the unions so that constructive change, like firing bad teachers, can happen.
 
Last updated June 28, 2018
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