The End of China’s Growth?

Or just a bump in the road?

For at least two decades, experts have warned that China’s political system depended on an unsustainable rate of growth. They defied those predictions for years. Not any more.

NYT (“China’s Economy Shrinks, Ending a Nearly Half Century of Growth“):

The coronavirus outbreak has brought China’s extraordinary, nearly half-century-long run of growth to an end — a stark reminder of the enormous task ahead for world leaders trying to restart the global economy.

Chinese officials on Friday said that the world’s second-largest economy shrank 6.8 percent in the first three months of the year compared with a year ago, ending a streak of untrammeled growth that survived the Tiananmen Square crackdown, the SARS epidemic and even the global financial crisis. The data reflects China’s drastic efforts to stamp out the coronavirus, which included shutting down most factories and offices in January and February as the outbreak sickened tens of thousands of people.

The stark numbers make clear how monumental the challenge of getting the global economy back on its feet will be. Since it emerged from abject poverty and isolation more than 40 years ago, China has become perhaps the world’s single most important growth engine, one that lifted fortunes during previous times of trouble, like the financial crisis.

Now China is trying to restart its vast, $14 trillion economy, an effort that could give the rest of the world a much-needed shot in the arm. The coronavirus’s spread to the United States and Europe, which froze the economies there, has led to forecasts that the world’s output could shrink far more this year than it did even during the financial crisis.
That global halt will, conversely, hurt China’s efforts to get back on track, creating a difficult economic puzzle for top leaders in Beijing. The pandemic and attempts to contain it have sharply cut the world’s appetite for China’s goods, which could lead to factory shutdowns and worker furloughs even as the country tries to get back to business.

WaPo (“Can you raise prices after a pandemic? China’s purveyors of hot pot test the waters.”):

China said on Friday that its economic output fell at an annualized 6.8 percent in the first quarter, the first contraction since the country began releasing the figures in 1992. The figures offer a glimpse into wider challenges. Massive stimulus from China helped stave off a deeper global downturn in 2008, but this time a return to business requires more than cash. The adversary is a microscopic one that thrives on many of the most cherished forms of ­economic consumption: movie theaters, live concerts and, yes, even tongue-obliteratingly-hot hot pots.

“This is a long-term change,” said Chiara Capitanio, a Beijing-based advertising executive. “Brands will need to rethink their business models.”

[…]

China’s government is expected to step in to support its economy in coming months, though what exactly this will look like is still coming into focus. What’s clear is the country’s current leader Xi Jinping is less interested than his predecessors in economic growth for its own sake, but harbors deep ambitions for a Chinese geopolitical rise.

Beijing will likely consider its diplomatic interests as it shapes its stimulus plan, while keeping a close eye on simmering domestic dissatisfaction.

Michael Spencer, Deutsche Bank’s chief economist for the Asia Pacific, said that in the longer term, he expects the pandemic to speed the decoupling of global supply chains between the United States and China. But that could take decades, he said, with a critical mass of companies in a sector all deciding to move to the same place before the math makes sense.

In the nearer term, what happens with service businesses in China — and around the world — will be key. Capitanio, the ad executive, says brands will need to develop new ways to provide customers with experiences and service, and to effectively communicate to customers the reality of higher costs for virus-prevention measures.

CNN is more optimistic (“China’s economy just shrank for the first time in decades. It could still eke out growth this year“):

The coronavirus pandemic has dragged China’s economy into its worst three-month period in decades — and the road toward recovery will likely be long. But the country may still eke out some growth this year, unlike its Western counterparts.

The world’s second largest economy shrank 6.8% in the first quarter of 2020 compared to a year earlier, according to government statistics released Friday. That’s slightly worse than analysts polled by Reuters were expecting, and amounts to about 693 billion yuan ($98 billion) in lost output.

While a contraction was expected, it’s still a historic moment for China. The plunge is the worst for a single quarter that China has recorded since it started publishing those figures in 1992. It’s also the first time Chinahas reported an economic contraction since 1976, when Communist Party leader Mao Zedong’s death ended a decade of social and economic tumult. The economy shrunk 1.6% that year.

China’s three major engines for growth — consumer spending, exports and fixed asset investment — all sputtered as large swaths of the country were placed on lockdown in late January and early February to contain the spread of the virus. Retail spending dropped 19% last quarter, while exports plunged more than 13%. Fixed asset investment declined 16%.

[…]

“The March data add to broader signs that China’s economy is past the worst,”wrote Julian Evans-Pritchard, senior China economist for Capital Economics, in a research note. He added, though, that China may still not be fully acknowledging the extent of the downturn.

China’s labor market continues to show signs of strain. The unemployment rate, which tracks jobless numbers in urban areas only, jumped to 5.9% in March — better than February’s record high of 6.2%, but still worse than the 5.2% China recorded in December. That means 3.6 million more people were out of work in March compared to the end of last year, according to a CNN Business calculation using government data.

“China is in for a drawn-out recovery,” Evans-Pritchard added.

The country’s unemployment rate is of particular concern for state authorities.

While the metric has often been criticized as too stable — official data has barely budged beyond 4% and 5% in recent years — messaging from Beijing before the coronavirus hit showed how concerned officials were that the existing economic slowdown would take a toll on jobs. The fact that China acknowledged record unemployment during the pandemic suggests the country knows it has a problem on its hands.

“Stability in employment might become the top policy priority for this year,” said Chaoping Zhu, a global market strategist for J.P. Morgan Asset Management.

Job losses caused by the coronavirus have also weighed on consumer spending, another problem for a country that was already dealing with cooling domestic demand. Per capita income declined nearly 4% in the first quarter compared to last year. That lead to a 12.5% plunge in consumer spending, according to Friday’s government data.

Zhu said those declines could push authorities to consider additional measures to ease the country’s economic pain, including more rate cuts meant to make it cheaper for small businesses to borrow money and stay afloat. (China has already been spending billionsto support its economy by pumping money into infrastructure projects to create jobs and reducing taxes on small businesses.)

Even as China reels from the shock, the country could still end the year with a growing economy.

The International Monetary Fund earlier this week predicted that China’s economy will grow 1.2% in 2020 before jumping 9.2% next year — making it the best performer among major economies.

That annual growth could come even as much of the rest of the world shrinks. The IMF expects the global economy to contract by 3% this year as it slumps into its worst recession this year since the Great Depression in the 1930s.

Chinese officials seem wary of making predictions, though. While Beijing has set an annual GDP target every year since 1985, it has not yet done so for 2020. Asked whether the government could still set one this year, Mao Shengyong, spokesman for China’s National Bureau of Statistics, said Friday he was not certain.

Even so, Chinese authorities on Friday were optimistic about the country’s prospects, pointing specifically to the recent IMF forecast. If the IMF’s predictions come true, China would average growth of 5% over the next two years, Mao said.

Its command economy makes it easier in some ways for the Chinese to rebound from this disaster. But people more knowledgable than me are predicting a massive reordering of world affairs in the aftermath. Not so much because they blame China for COVID-19–although their social practices may well have led to humans being infected by the virus and their political culture almost certainly helped transform it into a pandemic—but because the risks of putting so much of our critical infrastructure under Chinese control are suddenly much more apparent.

Indeed, we are likely to be in for retrenchment from the wide-open globalism that was the elite consensus for decades. We had already seen a backlash over megacorporations exploiting the system to avoid paying taxes and the movement of jobs to countries with the lowest wages and weakest labor practices. Now, people are rightly asking why we’re not manufacturing essential items like respirators and testing kits here at home.

FILED UNDER: *FEATURED, COVID-19, Economics and Business
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. steve says:

    “Indeed, we are likely to be in for retrenchment from the wide-open globalism that was the elite consensus for decades. ”

    Someone has been taking their optimist pills this morning. The US financial system, with help from other banks around the world, destroyed the world economy leading to the Great Recession. Within moths those same bankers were getting big bonuses again. Few lost their jobs and what few changes were made to keep them from repeating the same mistakes have largely been undercut or repealed. We will see the same thing again. For a few years things might change, but then Big corporation X will say it needs to move manufacturing to some place in South America, Asia or Africa to stay competitive. They will continue to get tax breaks that allow them to do that. The investor class will make lots of money, workers will lose jobs and the consumer might, if we are lucky, see a tiny drop in price. Bank on it.

    I think it was Churchill who said the tin the end America will always do the right thing. Maybe, but even more certainty special interest groups, in this case the wealthy, will make sure that we keep making the same mistakes over and over.

    Steve

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  2. JohnMcC says:

    Should be read in conjunction with the IMF projections. They estimate at least 3% decline in global GDP, 6% in Asia and that’s if the virus is brought under control rapidly and a ‘V-shape’ recession occurs.

    1
  3. Scott says:

    Yes, there is a pressure to decouple the two economies. But what are the ramifications of this? One, I see is an increase in costs of manufacturing and the price of goods, particularly if they are made in the US. Two, if prices go up, then people are going to want to be paid more so that can afford stuff. Upward pressure on minimum wages.

    Another problem. It is not enough just to talk about manufacturing end items. The supply chain is complex and international. Was talking to a friend of mine in the pharmaceutical manufacturing business. They made their products here but the coatings were made in China Are we going to make all the components here to be safe? I doubt it. BTW, 90% of rare earths used in electronics come from China. We are all pretty interdependent.

    Which is why Trump’s adversarial foreign policy is such a failure. But that’s another topic.

    6
  4. Dave Schuler says:

    The open question both for China and the U. S., just as in the 2007-2008 Great Recession, is whether the downturn will be V-shaped, U-shaped, L-shaped, or W-shaped. V-shaped would be indicative of a downturn followed by rapid recover, U by slower recovery, L little or no recovery, and W rapid recovery followed by another, possibly deeper recession. We just don’t know about either economy.

    As I have been saying for well over a decade I think that a decoupling of the two economies is necessary to maintain the health of the U. S. economy. We’re not going to become a society composed entirely of the “creative class”, whose competitive advantages are in consumption and finance.

    But breaking up is hard to do, particularly because there are quite a few people making handsome livings based on those assumptions. It’s going to be painful but IMO necessary.

    We need to engage in more primary production. The challenge will be in doing it while not degrading the environment.

    7
  5. Kathy says:

    Given that economic inequality is widespread, though not as stark in some countries, a possible solution would be to implement international treaties, perhaps as complements to existing trade treaties, to homogenize tax rates and labor practices over as much of the world as possible.

    2
  6. gVOR08 says:

    What has changed that would prevent us from returning to the status quo ante? Have corporations changed their short term outlook? Have investors decided not to press for short term returns? Have we decided to have an industrial policy? (Not having an industrial policy is an industrial policy, just a bad one.) Have lobbyists lost their clout? Have relative national wage rates changed? Have unions gained membership? What has changed?

    We’re going to continue being rudderless at least through January, giving the Chinese a head start.

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  7. Sleeping Dog says:

    @Kathy:

    Bless your internationalist heart. Standardizing laws across the world would solve many problems. George McGovern would have been pleased with you.

    Likely the decoupling from China will mean a diversification of suppliers. China wants to move on from being the assembler of low value products and sub-assemblies and move on more technically sophisticated products. The US will continue to manufacture, high value, high skill required products, but those will add little to manufacturing employment as the work will likely be conducted by robots. Assembling iphones and the like will move elsewhere in Asia and Africa, which is good for the world.

    China’s future economic growth will need to come by spurring their own consumer economy as they won’t simply be able to sell to others.

    1
  8. Kit says:

    @Scott:

    if prices go up, then people are going to want to be paid more so that can afford stuff. Upward pressure on minimum wages.

    My experience is that countries with higher minimum wages have higher standards of living. A Swiss couple working in a supermarket have a better life than the average American couple. On the other extreme, you can go to India where labor is so cheap that any educated person can afford servants. I guess it depends on what sort of society you wish to live in.

    6
  9. Michael Reynolds says:

    Can someone explain why repatriating more of the automotive or electronics industry is in any way related to this pandemic? We ran out of masks so we need to get workers in Arkansas assembling iPhones? We don’t have ventilators so we’re what, going to start making our own clothes? Huh?

    Our two closest trading partners, Canada and Mexico might have a case to make that they should shut us out as both are doing far better than we are at managing the disease, but I fail to see how stiff-arming Mexico right now would be a good thing. Where are we getting fruit and vegetables if not from Mexico? Is it Canada that’s killing car parts manufacturing? Why no, that would be us.

    The problem here is not over-reliance on foreign production, the problem is lack of competent leadership and an inability to plan for perfectly predictable crises like, say, yet another infectious disease outbreak like ebola, like SARS, like MERS? Would making more TV’s in Texas have helped?

    This is American arrogance and xenophobia. We more than any other economy caused the Great Depression. Our lousy policy and our banks brought on the recession. Our lack of leadership both domestically and in the world is exacerbating this pandemic. So the solution is to tell developing countries to fuck off and die because we’re making our own sneakers from here on out? What? Connect those dots for me.

    Is the world economy too interconnected? Or does it provide useful redundancy? What if next time we’re the first ones hit? You know, like we were when we were the actual source of what we were pleased to call the Spanish Flu. Where do we go for our phones and TV’s and avocados then?

    People with a pre-existing hard-on against globalism are jumping on their hobby horses to exploit a crisis to push their own pet theories. Some people just cannot get their heads around the fact that this is to a great degree an American failure of leadership – because that would mean we voters are the ones who fucked up and there are no convenient scapegoats other than ourselves. How about we don’t destroy a system that has created unprecedented worldwide prosperity just because our government is incompetent. Is the problem Canadian car parts? Is it Mexican avocados? Are the Vietnamese failing to keep up with our demand for Nikes? No, we are short of PPE, ventilators and toilet paper, problems that could be ironed out in short order by any competent US government.

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  10. Kathy says:

    @gVOR08:

    What has changed that would prevent us from returning to the status quo ante?

    My latest big idea is that there is a mean, and people and societies, while capable of change, ultimately tend to regress to the mean consciously or unconsciously.

    Change may stick when a “temporary” solution goes on for long enough that people get used to it, or when it proves a clear benefit, or when it’s preferable to the status quo ante, or, more commonly, when an external force is applied to keep it in place.

    About the biggest change in recent times is Europe. The whole continent went from continuous warfare and balance of power politics to trade and pacifism. In a way this started well back in the XIX Century after Napoleon scared everyone sh**less, but that led to moving the conflicts to Asia and Africa, along with conquest and subjugation in the form of “colonial” empires. It took two ruinous World Wars for Europe to want to change.

    And the biggest regress to the mean is dispossessing the lower classes and enriching the higher classes over and over. We’ve seen it time and time again, usually covered as, or by, market forces.

    That’s THE mean: a few rich people growing richer and holding most of the power, with a small middle class that may live comfortably but on the edge of losing it all, and a vast mass of lower classes kept down and working.

    Change in that often involves who makes up which class. That does happen, and it’s been happening since ancient times. Any other change requires a massive catastrophe. Like the Black Death, which leads to a labor shortage and therefore better wages. Or like massive wars which require literal life and death sacrifices from all classes, but mostly the lower ones, which have to be paid off eventually.

    4
  11. Kathy says:

    @Michael Reynolds:

    Our two closest trading partners, Canada and Mexico might have a case to make that they should shut us out as both are doing far better than we are at managing the disease, but I fail to see how stiff-arming Mexico right now would be a good thing. Where are we getting fruit and vegetables if not from Mexico?

    Not to contradict you, but Mexico is doing far worse at dealing with the pandemic. His Majesty waited to set a lock down, and has allowed for exceptions and lax enforcement. A weaker federalism means states can only do so much, for instance states can’t close schools. Testing is pitiful. Economic support for business is non-existent.

    Also, don’t tell anyone, but Mexico imports a great deal of fruit, grain, vegetables, and meat from the US (and elsewhere). We do have a large agricultural industry, but limited land. Mexico is a big country, as compared to the average, but much of it is mountainous areas poorly suited for farming.

    On the pandemic front, we’re lucky to be less physically connected to Asia and Europe compared to the US, and to have a poorer, slower domestic transportation system. That, and a willingness by the population to take precautionary measures, is what’s keeping the numbers, thus far, from overwhelming out health system.

    6
  12. Scott says:

    The focus on China is interesting because the Administration and Republicans in general are in a full court press to blame China for everything with the goal to deflect from their own miserable performance. Whether they succeed or not depends on whether anyone buys it.

    Some folks at American Conservative dont:

    Pompeo’s Wuhan Dodge

    merican officials in China cabled Washington several times, warning that a biolab in Wuhan was conducting risky experiments on bats and coronaviruses, according to new reports. The State Department received those cables two years ag

    The American people should be informed about what the State Department knew—but don’t expect to hear the answers anytime soon from Secretary of State Mike Pompeo

    2
  13. Michael Reynolds says:

    @Kathy:
    I count corpses. Obviously that is not 100% reliable, but corpses are a good way to start.

    US deaths per million: 107
    Canada: 33
    Mexico: 4

    If anyone should be an object of concern in North America, it would be us. Set China aside because we know their numbers are bullshit, let’s compare and contrast with some of our more civilized trading partners:

    Spain: 417
    Italy: 367
    France: 275
    UK: 215
    US: 107
    Germany: 50
    South Korea: 4
    Japan: 2
    Taiwan: 0.3

    Spain, Italy, France, UK, all densely-populated and mass transit dependent, and got hit earlier, so we may yet catch up. We are certainly climbing the charts. I guess I don’t see any part of this that looks like, ‘we better close our borders and start milling our own cloth.’

    3
  14. Michael Reynolds says:

    @Dave Schuler:

    As I have been saying for well over a decade I think that a decoupling of the two economies is necessary to maintain the health of the U. S. economy. We’re not going to become a society composed entirely of the “creative class”, whose competitive advantages are in consumption and finance.

    But breaking up is hard to do, particularly because there are quite a few people making handsome livings based on those assumptions. It’s going to be painful but IMO necessary.

    Yes, you’ve been saying it for well over a decade, a decade during which we somehow managed to add 6 or 7 trillion dollars to our GDP despite negligible population growth. In that decade our PPP income has gone from ~$49,000 to ~$63,000.

    I can certainly see why we need to take apart a system that has made both us and the Chinese richer. Now, where are my sabots?

    How about the fact that all that growth went to the 1%? Do we need to do anything about that? Maybe redistribute it a bit? Or are we supposed to imagine that a few more steel workers and a whole lot more steel-working robots are going to fix that?

    Covid does nothing at all to advance the notion that we need to decouple from China. Not a single thing. Those dots do not connect. If you want to make that case, talk defense, there’s at least something to be said there.

    6
  15. Kingdaddy says:

    If the ramifications were not colossal, I might enjoy a little Schadenfreude at the CCP’s self-inflicted situation. They have been cooking the economic indicators for decades, playing nasty games about market access, stealing IP for decades, and been fearful of the backlash from their barely-tolerated authoritarian rule that the CCP thinks is necessary to hold it all together. Now, because of their “lack of transparency” (a.k.a. lying) about the pandemic outbreak, they are facing severe economic backlash. Who wants to deal with a regime that you can’t trust, at this level? And their prickly sense of sovereignty is likely to run afoul of the perfectly reasonable expectation, on the part of the rest of the world, to stop being a major source of pandemic outbreaks.

    8
  16. Kathy says:

    @Michael Reynolds:

    I count corpses.

    To each their own.

    But Mexico’s been lucky, plain and simple. there’s good performance and there’s luck (see any athletic contest).

    2
  17. An Interested Party says:

    Who wants to deal with a regime that you can’t trust, at this level?

    That would describe the executive branch of our federal government right now, wouldn’t you say?

    6
  18. Kingdaddy says:

    @An Interested Party: I would not argue with that assertion. Add that to the price tag for this farce.

  19. Michael Reynolds says:

    @An Interested Party:
    Indeed: According to Pew, in a survey of 32 countries, confidence in Trump is at 29% and in Xi is 28%. Just to round it out, Merkel: 46%, Macron: 41% and Putin: 33%

    World confidence in the democratically elected president of the United States is on par with the authoritarian Xi, and well below Merkel.

    Is that just a reflection of anti-Americanism? Nope. USA favorable is 54%, even with Trump.

    You know what percentage of Germans have no confidence in Trump? 85%. The UK’s level of contempt? 67%. Japan? 61% And the Japanese are very polite.

    At this point in his first term, Obama was trusted by 88% of Germans, 81% of Japanese, and 75% of Brits.

    But China’s the real problem. They’re the reason we don’t have toilet paper.

    7
  20. Kingdaddy says:
  21. Kingdaddy says:

    Whoops, meant to put that in the daily forum.

  22. Kathy says:

    @Kingdaddy:

    I sometimes wonder what such people use for brains.

  23. Joe says:

    @Michael Reynolds:

    But China’s the real problem. They’re the reason we don’t have toilet paper.

    That and the robocalls.

    2
  24. Dave Schuler says:

    @Michael Reynolds:

    Can you provide one example from the last 50 years in which the U. S. has redistributed from the richest to the poorest? I can think of lots of examples in which we’ve redistributed from the richest to the top 5% of income earners but none of richest to poorest.

    What I take from that is that distribution is much, much easier than redistribution.

    1
  25. Just nutha ignint cracker says:

    Now, people are rightly asking why we’re not manufacturing essential items like respirators and testing kits here at home.

    That’s easy to answer: comparative advantage is a microeconomic concept in the US. If someone here can discover a means where there will be more profit (for that someone) in making them here than is importing them, ladies and gentlemen, welcome to the new emerging protective equipment business in the US, otherwise, don’t hold your breath waiting.

    We’re not going to become a society composed entirely of the “creative class”, whose competitive advantages are in consumption and finance.

    I wouldn’t count on that. What percentage of our economy right now is not primarily centered in consumption and finance? What product do we make more of than “deals?” Unfortunately, this question becomes important because

    Not having an industrial policy is an industrial policy, just a bad one.

    For the counterpoint, we have Reynolds arguing that the economy in aggregate (i.e. the top 8 to 10% of the workforce along with the owners of 90% of the capital–much of which is offshore at the moment) is doing just fine.

    1
  26. Modulo Myself says:

    China holds many cards. Look at Amazon’s 2019 earnings. They’ve been trying to get into China. Their ass has been kicked though. So that’s why they made 7 billion in North America but they lost 1.6 billion internationally, and that’s why all of this talk about America pulling away from China will hit a wall when China lets Amazon compete in exchange for changing nothing. Like anyone who thinks that Trump or the GOP or some dipshit combo of PE will restructure the American economy is out of their fucking mind. Like after 9/11 when pundits were ready for decades of moral seriousness and then four years later we get The Apprentice and reality tv.

    1
  27. Modulo Myself says:

    That’s easy to answer: comparative advantage is a microeconomic concept in the US. If someone here can discover a means where there will be more profit (for that someone) in making them here than is importing them, ladies and gentlemen, welcome to the new emerging protective equipment business in the US, otherwise, don’t hold your breath waiting.

    How much profit can you make on PPE equipment? A better answer might be that profits are so low that it’s not worth investing in.

  28. Michael Reynolds says:

    @Dave Schuler:
    So your argument is that our past failures justify refusing to try to solve the actual problem, and instead we should – for reasons no one has yet explained – dismantle the system of world trade. The system that has improved living conditions virtually everywhere on earth, including here.

    Do we have a lack of funds in the US? Nope. All kinds of money, tons of money. The problem is not that we aren’t earning, it’s that it’s all going into very few pockets. And decoupling from China solves that problem, does it?

    Let’s turn your question around. When in the last 50 years have we successfully reduced imports? Have Trump’s sanctions worked? Haven’t seen any evidence that they have.

    If phones from China hypothetically cost half as much as phones from Arkansas, you want us to insist on buying US phones because why? Because that will create a bunch of high paying jobs? We can’t export phones if they cost twice the going international rate, so all we can do in your world is make our own high-priced phones which will, absent international competition, fall increasingly behind the technological curve. Like Soviet-era washing machines. To hell with Samsung et al, we’ll have our domestic iPhones made by guys making $30 an hour. And Apple and its shareholders will be happy paying $30 an hour, they wouldn’t be thinking, screw that, I can hire five guys to build a robot that replaces 50 workers and make me and my fellow shareholders richer.

    We’re on the precipice of worldwide Depression and you’re touting Smoot Hawley redux. You’re promoting inefficiency as a cure. Why pay a dollar when we can pay two? Lowered productivity as a cure to the problem of lack of basic planning at the federal level.

    You know what would have been a real solution? Stockpiling supplies like PPE and ventilators. Or pushing the WHO to be more aggressive in dealing with livestock markets. Or having a health care system in place so that should a pandemic arise we can get people tested without the disincentive of cost. Total cost: peanuts. But no, let’s destroy the world system of trade because we don’t like China and God forbid we should find a way to redistribute income fairly.

    10
  29. DrDaveT says:

    @Just nutha ignint cracker:

    What product do we make more of than “deals?”

    Software. Which, apart from the ever-declining shrink-wrap market, is not counted in the balance of trade calculations.

    1
  30. Michael Reynolds says:

    By the way, here’s how impossible it is to redistribute income:

    1) UBI. Alaska’s been writing checks to its people for decades and it has the lowest Gini number of any state (tied with Utah).

    2) Publicly finance elections, reducing the influence of big money.

    3) Raise income tax rates on the rich, include all forms of income, staff up the IRS and make the penalties really hurt. Like a 10x multiplier of what they failed to pay. Companies that systematically avoid taxes should be taken over by the US government which would have the power to replace the CEO and Board.

    This isn’t even hard, unless you’re a Republican and committed to limp learned helplessness.

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  31. OzarkHillbilly says:

    @Kathy: trump’s twitter feed.

    1
  32. Kathy says:

    @OzarkHillbilly:

    No, no. For working brains 😉

  33. OzarkHillbilly says:

    @Kathy: They have no need of a working brain. 🙂

    1
  34. Barry says:

    @Kathy:

    “My latest big idea is that there is a mean, and people and societies, while capable of change, ultimately tend to regress to the mean consciously or unconsciously. ”

    This is a very bold statement.

  35. Barry says:

    @Michael Reynolds: “How about the fact that all that growth went to the 1%? Do we need to do anything about that? Maybe redistribute it a bit? Or are we supposed to imagine that a few more steel workers and a whole lot more steel-working robots are going to fix that?”

    Note that if that’s not fixed, then the burden of the decoupling will fall entirely on the bottom half of US population (by income).

    1
  36. Kathy says:

    @Modulo Myself:

    Like after 9/11 when pundits were ready for decades of moral seriousness and then four years later we get The Apprentice and reality tv.

    Those decades of moral seriousness lasted for months.

    See my regress to the mean big idea above. A kind of opposite big idea of mine is that when things are bad, some tend to think they’ll stay bad forever. A kind of “This shall never pass,” rather than “This, too, shall pass.” feeling.

    When the financial disaster hit in 2008, I could have grown richer than Bill Gates if I’d been able to sell short doom of capitalism prophecies (alas!)

    But there is one kind of positive, long lasting change, which is really quite common, albeit very specialized. It’s one of the hobby-horses I ride on in here all the time: commercial air travel safety.

    Seriously, the model works very well. The numbers of accidents, injuries, and deaths varies year to year, but the overwhelming long-term trend is down. This works by determining, as far as humanly possible, the causes of an accident, along with contributing factors, and issuing remedies for each one, and for combinations of them.

    This is done even with close calls, and not-too-close calls as well.

    The crux of the system, why it works so well, is that it’s not dedicated to finding and punishing culprits, but rather identifying mistakes, negligence, systemic failures, etc., and preventing them in the future.

    With the current pandemic we have different ways in which each country got hit, and very different approaches to the problem. We need to investigate all of them, those that worked as well as those that didn’t, and determine what works, what hurts, and what to recommend as standard procedure for the next one.

    There will be a next one. over the last 20 years there have been 4 major outbreaks of infectious, lethal respiratory diseases (SARS, MERS, Swine Flu, and now COVID-19). Four is not a magic number, and Nature does not place limits on pandemics.

    The question, then, shouldn’t be “How to make China pay for its actions regarding the COVID-19 pandemic?” much as many, myself included, would like to see China be made to pay. The far more important, and more useful, question is “How can we get China, and all other countries, to report accurately on future outbreaks of contagious diseases?” If we can save thousands of lives next time by giving China a pass, then lets.

    One last thing: all pandemics are similar, but they are all different. No doubt if we apply the lessons from previous outbreaks, we can do better next time (that’s pretty much what Taiwan did). But we’re also likely to find something new we didn’t, and perhaps couldn’t, prepare for. that can’t be avoided. No one knows what is unknown.

    4
  37. Kathy says:

    @OzarkHillbilly:

    Of course they do.

    But lacking one, they may not be aware of the need 🙂

    1
  38. Just nutha ignint cracker says:

    @DrDaveT: Well and good, but it still is part of the “creative class” segment of the economy. When I buy software, I don’t even contact a sales representative anymore.

    1
  39. Mu Yixiao says:

    @Michael Reynolds:

    Can someone explain why repatriating more of the automotive or electronics industry is in any way related to this pandemic?

    It’s not.

    First, a few facts:

    1) The invariable “6.8% growth” China consistently reports is a pure fabrication. It’s actually a running joke on Reddit.

    2) Most of the major factories in China aren’t Chinese. They’re either WFOEs (Wholly Foreign-Owned Enterprises) or joint-ventures. The remaining factories are (rough guess) 80% contracted by foreign entities.

    The idea that “China is manufacturing our goods” is technically true, but not “realistically true”–because companies have been shifting their manufacturing out of China for years (China Law Blog has been talking about this since 2011).

    Bringing 100% of automotive manufacturing back to the US is unrealistic. At a rough guess, I’d estimate that the cost of a car would double.

    3) China has–over the past 10 years–slowly been ramping up nationalistic and racist rhetoric. They (especially under Xi) have increasingly been seeing themselves as an equal to the US–even if the facts don’t support it.

    China has already lost a significant portion of its manufacturing. Those who haven’t already left are either dealing with legalities or stupid.

    China’s power was being “factory to the world”. Those factories are moving elsewhere. Their artificial economy won’t hold up. In 10 years, China won’t have a leg to stand on.

    COVID-19 may accelerate their decline, but it’s just one more straw on the camel’s back. This has been coming for a long time.

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  40. OzarkHillbilly says:

    @Kathy: Ha!

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  41. An Interested Party says:

    So…what to make of the idea that China would eventually eclipse the United States as the world’s top superpower…

  42. de stijl says:

    China will become the predominant superpower economically. This is certain and inescapable.

    Culturally, they will make major inroads just because of population and money. Hollywood swims in waves of Chinese money.

    America became big and great and culturally dominant because a confluence of factors. Factors not permanent.

    This is no longer the 20th century. We now have a competent rival capable of outproducing us and matching or exceeding us technologically. If not today, very soon.

    Hegemony is not permanent.

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  43. Michael Reynolds says:

    @Mu Yixiao:
    1) Yep.
    2) Somewhat irrelevant – they’re foreign-owned only as long as the CCP agrees they’re foreign-owned.
    3) Yes, of course, assembly line work moves down the food chain, always seeking the lowest costs. As China becomes more prosperous (in parts) costs go up, and manufacturers look for people willing to survive on even less.

    Homo sapiens is struggling to work for less than the cost of automation. Homo sapiens will lose when the cost of sustaining life in even the poorest of countries is higher than the cost of developing a robot.

    Covid adds a new factor. It will accelerate automation as it begins to occur to capitalists that robots don’t get sick and automated factories can keep running. Which is why Schuler’s fantasy is absurd. Manufacturing coming back to the US means the 100 jobs we lost off-shoring will come back as two human jobs. And those two will be on thin ice.

    What we have that China does not yet have, and robots cannot yet challenge, are all those ‘creatives’ in Silicon Valley, Hollywood, Seattle and New York City.

  44. de stijl says:

    @Michael Reynolds:

    China has creatives too now and is making many more. It is not just offshored manufacturing anymore.

    As Britain is to the the US now, we will be to China tomorrow, if we avoid the war.

    Spunky, punches above its weight cultural powerhouse little brother.