Tag Archives: economy

Not the Country We Once Were 2.

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            Why are bond-holders retreating from U.S. Treasury bonds now?  The huge deficits and growing national debt have been around for a while.  The willingness and ability of the United States government to pay the interest on the debt is no different now than it was a year ago or—in all likelihood—a year from now.  How is the sell-off to be explained? 

            Peter Goodman of the New York Times,[1] has raked up a variety of explanations.  They require some interrogation.[2]  Goodman doesn’t necessarily connect the explanations, but they can be read to point in one direction. 

“An erosion of faith in the governance of the world’s largest economy appears at least in part responsible for the sharp sell-off in the bond market in recent days.”  President Trump’s tariffs, he reports, have “shaken faith in that basic proposition [that the US will properly manage the global environment and maintain its creditworthiness], challenging the previously unimpeachable solidity of U.S. government debt.”  Goodman quotes Professor Mark Blyth of Brown University for support.  “The whole world has decided that the U.S. government has no idea what it is doing.”  He adds that “[o]ne reason [for the bond sell-off] appears to be an effective downgrading of the American place in global finance, from a safe haven to a source of volatility and danger.”  Purportedly, the tariff war with China, in particular, creates the danger of a global recession and undermines the role of the U.S. as the manager of the world’s “peace and prosperity.” 

I can believe the first half of this, but the second half is less credible.  Nothing fiscal is threatening the creditworthiness of the United States right now.  Why do tariffs disturb the bond market?  Similarly, bonds are commonly regarded as a hedge against stock fluctuations and in recession.  So, fear of a recession is making people sell bonds, rather than buy them? 

Goodman mentions other possible factors:

“Hedge funds and other financial players have sold holdings as they exit a complex trade that seeks to profit from the gap between existing prices and bets on their future value.”  This sounds very much like “financial players” are dumping bonds now to force the government to raise the yield on bonds.[3]  Today’s sellers will then buy back the bonds at a higher rate tomorrow.  Similarly, “[s]ome fear that China’s central bank [which holds $761 billion] in U.S. Treasury debt, could be selling as a form of retaliation for American tariffs.” 

What are the effects of investors selling bonds now?  In early April 2025, “the yield on the closely watched 10-year Treasury bond soared to 4.5 percent from below 4 percent—the most pronounced spike in nearly a quarter century.”  Raising interest rates to attract borrowers “tends to push up interest rates throughout the economy, increasing payments for mortgages, car loans and credit card balances.”  This will hurt ordinary Americans.  They will howl. 

            Are Wall Street and China pressuring President Trump to lay off his incoherent tariff policy?  If so, is that who we want to surrender to?  It won’t be the last time. 

[1] Peter Goodman, “Trump Tariffs Shake Faith In the Safety of U.S. Bonds,” NYT, 14 April 2015.

[2] Pin on The Far Side 

[3] “Speculators have been unloading bonds in response to losses from plunging stock markets, seeking to amass cash to stave off insolvency.”  Does this mean that other “financial players” are in danger of getting gored as collateral damage? 

Not the Country We Once Were 1.

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For quite some time now, United States government bonds were a global safe-haven when conditions got rocky somewhere else in the world.  This rested upon the belief that the US government could and would pay its IOUs.[1]  It has been easy for the United States to find lenders willing to buy Treasury bonds at lower rates of interest than might otherwise have applied. 

The consequences have been good or bad depending on how you look at it.  Various benefits for the United States flowed from the belief in the reliability of American public credit.  For one thing, the willingness to lend has eased the cost of the big deficits and growing national debt.  Americans have not had to strike a balance between taxes and spending. 

Furthermore, for those individuals who rely upon credit purchases, buying a car, or a house, or a lot of stuff at Walmart has been cheaper.  The reverse of the medal here is that all those foreigners who wanted dollar-denominated bonds raised the value of the dollar relative to the currencies of those other countries.  These “strong” dollars made imports cheapish.  This, too, eased the cost of consumption.[2]  OK, where did these foreigners get the dollars to buy Treasury bonds?  They got them by selling cheap goods to Americans.  Then they buy US Treasury bonds, which raises the value of the dollar, which makes their goods cheaper for Americans and American goods more expensive for everyone. 

Along the way, all those cheap imports first undercut, then destroyed, much of America’s manufacturing base.  If all it had done was wreck the American production of teddy-bears, we could live with that.  However, many of the goods now produced abroad are things like pharmaceuticals, computers, information/communications technology, and automobiles.  Since joining the World Trade Organization in 2000, China has been the main predator stripping the bones of the non-financial and non-entertainment sectors of the American economy.[3] 

As the national borrowing has increased, the size of the debt has grown to very high levels.  The debt can be regarded as solid so long as the United States has the will and the means to pay the interest, at least, on it.  The share of the interest payments in government spending has grown in recent years.  Partly, this reflects the sheer volume of the debt; partly, it reflects the higher interest rates charged to control the inflation. 

However, what if the debt or the interest rate on the debt grow so large, that the interest payment exceeds what Americans are willing and able to pay?  This has been a continual and growing theoretical concern among economists and investors for many years.  People will lend so long as they believe that they will be paid back.[4]  If they lose confidence, then they will try to get rid of their government I.O.U.s.[5]  (I don’t recall hearing any of this discussed in presidential debates.)  It is possible that the recent “retreat” from bonds is the first tremor of an earthquake.    

Or perhaps not.  A large share of the small group controlling global business and financial resources (countries, companies, banks) really dislike the current American economic policies.  So is also possible that this is just a warning shot.  Will people attend to the warning? 

[1] Peter Goodman, “Trump Tariffs Shake Faith In the Safety of U.S. Bonds,” NYT, 14 April 2015. 

[2] Just for fun, go through all your stuff, from underwear to lap-tops and make a list of where everything comes from. 

[3] How do you fight a war with fictional “super heroes” dressed in Spandex and piles of money? 

[4] They will lend even when they suspect that they will not be paid back in full.  Under these conditions, they charge a “risk premium’ in the form of higher interest rates still.  Argentina, a notorious bad bet, pays high rates. 

[5] Maybe something like this.  Fire sale – Margin Call (2011) 

Diary of the Second Addams Administration 14.

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            History lessons.  The United States was a high tariff nation for a long time.[1]  By 1929, the average tariff on imported goods was 36 percent.  The Smoot-Hawley Tariff of 1930 raised the tariff by 6 percent.[2]  In comparison, the average American tariff under recent administrations has been 2 percent.  Trump’s tariffs elevate that to 23 percent.  So, for the moment, the Trump tariffs have a greater impact than did the Smoot-Hawley tariff.  (Give it a few years and maybe we’ll be living with still-higher Vance tariffs.)  

In 1971, President Richard Nixon wanted foreign countries to revalue the dollar.  To nudge them toward speedy agreement, he imposed a 10 percent surcharge on imports.  He got speedy agreement and the surcharge went away. 

Today.  How serious a blow to the American economy are the Trump tariffs?  Never mind the stock market and the headlines in the New York Times.[3]  The American tariffs (at least the current high rates) aren’t likely to topple a row of dominos.   Most countries aren’t eager to launch a trade war with anyone just because the United States has launched one with everyone.  Most countries remain committed to “globalization” and comparatively free trade. 

What is true of Europeans and non-Chinese Asians is also true of many Americans.  One recent poll reported that 54 percent of respondents opposed the tariffs, while 42 percent supported them.  Pressure from constituents may bring Republican members of Congress off the sidelines, at least on this issue. 

Then what about retaliatory tariffs on American goods?  This sounds a little odd when Americans are being told that tariffs on foreign imports is really a tax on ordinary Americans.  Same goes for tariffs on American goods in foreign countries.  Do democracies abroad suddenly want to impose possibly long-term “tax” increases on their own constituents? 

            So, it is not clear if American tariffs and foreign retaliation are a done deal for the long haul.  Many of the target countries want to cut a deal with the United States.  China is an exception.[4]  It’s fair to say that people are not entirely sure what President Donald Trump wants.  Does he want tariff equality with most of America’s trading partners, while battering the daylights out of China?  Does he want a “fortress America,” as many people believe or hope or fear?  If he does want a “fortress America,” would that system survive the end of his term? 

            In 1932, the British created a system called “Imperial Preference”: low to no tariffs around the members, combined with a high external tariff directed against the Americans.  Could Trump use tariff negotiations to create something similar?  Tariff equality within the bloc and high tariffs by directed against China.   

[1] Greg Ip, “An Unpopular and Survivable Trade War,” WSJ, 8 April 2025. 

[2] However, it denominated tariffs in dollar terms, not in percent of price terms.  As prices fell all around the world in the early Thirties, the absolute cost of the imports increased by much more than 6 percent.  They rose as high as an additional 19 percent above the 36 percent level. 

[3] Wait.  Wall Street and the NYT are on the same side?  The problems of the Democrats in a nutshell.  “We are the people our parents warned us about.” 

[4] It may turn out that Canada is also an exception.  Canadians are the nicest people in the world.  Until they’re not.  In Normandy in Summer 1944, an attacking Waffen SS unit over-ran a Canadian Army field hospital.  They killed everyone.  Then the Canadians counter-attacked and recaptured the hospital.  The Canadians never “captured” any more Waffen SS troops. 

JMO 1.

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            Both the Wall Street Journal and the New York Times have been squalling for years about how China controls most of the “rare earth” metals that are vital for much modern technology.[1]  Also, they are hard to find and difficult to develop in the United States.  That is “We’re doomed!”  Then, turns out that there are important “rare earth” sources in…wait for it…Greenland and Ukraine.  President Donald Trump has made plain his determination to get a tight grip on both.  “Oh what an awful man he is, trying to insure the well-being of the United States in such a rude fashion!” 

            The same religious-fanatic dictator has been ruling Iran for 35 years.  The elections are rigged to keep out any representative of “liberal” opinion; there’s a big political prison into which prisoners disappear and from which they rarely emerge; the morality police can get away with murdering girls who don’t wear the hijab properly; corruption is rife and the upper ranks of society live well; living standards low for most people, in large part because the country spends a lot of its oil wealth on weapons systems and on the Revolutionary Guards Corps; the regime built a “ring of fire” around Israel not as a defense against the “Zionist entity,” but as the front line in Iran’s drive to revolutionize the Middle East on its own model; and the regime is close to producing nuclear weapons.[2]  Iran also is allied with Russia, China, and North Korea.  Lots of Iranians are unhappy with their masters.  Help them pressure the regime for meaningful change. 

            America built its economic power behind a high tariff wall in the later 19th and early 20th Century.  Yes, that kept prices for consumers high.  It also created a huge number of blue collar and white collar jobs; vast national wealth, and the industrial base that decided the outcomes of both World Wars and the Cold War.  After the Second World War, the United States adopted a free trade policy as a way to restore prosperity to a war-ravaged world.  Part of this plan involved accepting higher tariffs on American imports than the Americans imposed on their trading partners.[3]  The US was big, rich, and easy, while everywhere else was a pile of rubble. 

By the end of the Cold War (c. 1990), these conditions no longer applied.  It might have been a good time to renegotiate trade relations with many countries.  “But you didn’t do that, did you?”[4]  Instead, we doubled down by admitting China to the World Trade Organization (WTO).  Cheap consumer goods flooded the country, wrecking many industrial areas of the United States.  In the first Trump administration, the president wall-papered China with tariffs and harassed Huawei, allegedly because it posed a security threat.  First, enlightened opinion deprecated this departure from “norms.”  Then Biden continued them.  Now President Trump is hammering everyone with tariffs.  People say “well the tariffs on China are OK, but he’s also hitting our friends and allies.”  Give it a couple of years and everybody will be on-board, just like before. 

Trump’s cabinet is mostly made up of clowns.  The president is pursuing real policies along with the rest of his nonsense.  This is what you get when the Establishment abdicates on solving big problems for decades. 

[1] Take a gander at Rare Earths – The New York Times 

[2] Now big chunks of Iran’s client states are reeling from hard blows struck by Israel. 

[3] The US also accepted Canada adjusting the exchange rate to make American goods expensive in Canada and Canadian goods cheap in the US. 

[4] Looking at you, William Jefferson Clinton.  We should have re-elected George H. W. Bush. 

Diary of the Second Addams Administration 13.

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            President Donald Trump sees great virtues in building a tariff wall around America.  Is that good or bad?  It depends. 

Trump’s argument is that tariffs are good for America over the long run, even if they have short-term costs.  “Other countries have used tariffs against us for decades, and now it’s our turn.”  Trump has claimed that tariffs will make the American economy “even more self-sufficient, producing more of its energy, lumber, steel, and computer chips than ever before.”[1]  If those hopes come true, there will many jobs—white collar as well as blue collar—created.  The American economy’s supply-chain will become much more secure in a time of rising international tensions.  Trump has conceded that America would experience a “period of transition,” which might include a recession.[2]  

Critics argue that tariffs are bad for America and for everyone else.  First, tariffs raise prices for consumer countries, not for producer countries.[3]  Second, if one country raises tariffs, the other country or countries will raise tariffs on the first country’s goods.  This will reduce exports in what becomes a” trade war.”  Slowing down the domestic economy by raising consumer prices and reducing employment in sectors tied to exports could bring on a recession. 

President Donald Trump has followed a very erratic course on actually imposing tariffs.  Is that good or bad?  It’s bad. 

In early March 2025, Trump imposed a 20 percent tariff on goods imported from China[4] and 25 percent tariffs on goods from Mexico and Canada.[5]  China responded with 10-15 percent tariffs on American corn and wheat.  The stock market tumbled and Trump quickly announced a month-long pause on tariffs on imported cars and parts.  The Wall Street Journal wondered “which side of the tariff bed Trump will wake up on” in days to come?  They got a quick answer.  In mid-March 2025, Trump imposed a 25 percent tariff on all steel and aluminum (both unprocessed and turned into something else—look at your soda can) imported into the United States. 

No one seemed to care about the tariff hike for China, but critics insisted that Canada and Mexico take about a third of America’s exports and send the US valuable commodities. 

Is this what got Trump elected?  Journalists posit that Trump won election on the promise of a vibrant economy, low inflation and unemployment, and controlled immigration.  That’s not all they’re getting.  One recent poll reported that 56 percent of respondents disapproved of Trump’s management of the economy.  He tariff-bombed China in his first administration and talked about tariffs in the campaign for his second.  Apparently, no one took him seriously.  Now he is acting like a real lame-duck president: doing what he thinks is right regardless of the polls or the pols—or the stock market.  Albeit in an erratic, bloviating, Trump-like fashion. 

[1] Quoted in “The Trump economy: Adrift in a sea of tariffs,” The Week, 28 March 2025, p. 34. 

[2] “Trump tariffs cause stock market whiplash,” The Week, 21 March 2025, p. 4. 

[3] Which is exactly the purpose of tariffs.  More expensive imports create a market for cheaper domestic producers. 

[4] Previously 10 percent.  The key question becomes whether the American producers can deliver equal goods at a lower cost. 

[5] Even though all three countries are members of the United States-Mexico-Canada Agreement (USMCA) that replaced the North American Free Trade Agreement (NAFTA).  “U.S. tariffs spark North American trade war,” The Week, 14 March 2025, p. 5. 

Diary of the Second Addams Administration 12.

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            For a long time, the United States has imposed lower tariffs on the goods of its trading partners than those trading partners have imposed on American goods.  The US did this because the national strategy was to foster a world of openish markets in pursuit of “peace, prosperity, and American exports around the world.”[1]  A month into office, President Donald Trump is announcing the end of the Age of America as the “benevolent hegemon.”  Now it is “pursuing its own interests first.”[2]  Trump’s actions began wreaking havoc in the international economy.  He doubled the tariff on Chinese goods, announced a looming 25 percent tariff on imported steel and aluminum, and raised the possibility of tariffs on semi-conductors, drugs (and not the fentanyl kind either), and cars. 

            Take the example of cars.  About 8 million of the 16 million new cars sold in the United States each year are manufactured abroad, chiefly in Germany, Japan, and South Korea.  Many more “foreign” cars are manufactured in American plants.  In late February 2025, President Donald Trump raised the idea of imposing a 25 percent tariff on car imports.[3]  One solution might be for foreign car-makers to increase production in their American facilities, while reducing exports to the United States.  Fine, except that a) it takes along time to build a car plant and recruit a work force, and Trump might be out of office before the plants are ready, taking his tariffs with him back to Mar-a-Lago; and b) if they cut manufacturing in their home country, they will have to lay off many workers there, as well as taking the political heat that comes with the lay-offs. 

            Then there’s steel.[4]  Many foreign countries subsidize their own steel industries at the expense of American producers.  Eighty percent of America’s steel imports come from “friendly” countries (Europe, Japan), rather than from China.[5]  Trump wants to privilege American steel-producers over those foreign competitors.  American steel-consumers—car companies for example, and their American customers—will have to bear the transitional costs. 

            The push-back came swift and hard.  Basically, “He did this in his first term and the results were BAD!”  Prices rose, American companies saw their sales fall, and car companies came under a lot of financial stress.[6]  Moreover, bullying our friends gains us nothing.  Canada—the country that invented hockey—dropped the gloves, at least rhetorically for the moment.[7]

On the other hand, some observers thought that the threat of tariffs could serve a useful purpose.  It could bring foreign trading partners to renegotiate existing trade deals.[8]  In short, Trump isn’t serious about actually imposing the tariffs. 

But what if he is serious?  And what if he insists on including the reduction of Non-Tariff Barriers (NTB) to trade?  This would include things like currency manipulation, and the taxation and regulation of American businesses abroad.  Eeeek! 

[1] “Trump’s tariffs: A new era of protectionism,” The Week, 28 February 2025, p. 34.    

[2] See Oren Cass, quoted in “Tariffs: Does Trump know what he is doing?” The Week, 14 February 2025, p. 6. 

[3] “Trade: Tariffs may hike foreign car prices,” The Week, 28 February 2025, p. 32. 

[4] “Trum brings back steel tariffs,” The Week, 21 February 2025, p. 32. 

[5] That is, our “friends” have been harming us for decades in the service of domestic interest groups. 

[6] “Trump’s tariffs: A new era of protectionism,” The Week, 28 February 2025, p. 34. 

[7] “Canada: Proudly resisting Trump’s bullying,” The Week, 14 February 2025, p. 14. 

[8] “Tariffs: Does Trump know what he is doing?” The Week, 14 February 2025, p. 6. 

Diary of the Second Addams Administration 11.

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            The year began with a menacing fact about Sino- American trade.  In the course of the last year of the interminable Biden presidency, China’s global trade surplus hit $992 billion, the highest ever.  China’s surplus in trade with the United States reached almost $525 billion.[1]  That’s over half of the total trade surplus for the year.  This news came as a grim confirmation of fears to people who think that trade deficits represent job losses in the deficit country, represent a victory for the chief rival of the United States, and that China is trying to export its way out of grave domestic economic problems. 

            This fact provides important background to President-elect Donald Trump’s tariff policy.  Trump had promised to impose tariffs “on Day 1.”  He didn’t quite do that.  No sooner was he inaugurated than Trump said that he was considering a 10 percent increase on the existing tariffs on imports from China and a 25 percent tariff on imports from Canada and Mexico.[2]  The tariffs would go into effect on 1 February 2025. 

“He’s a fake!” chortled Never-Trump pundits in early January 2025.[3]  He campaigned on levying tariffs of 10-20 percent on all imports from everywhere.  Now the President-elect is talking about focused tariffs on a few things.  Others took a more nuanced view.  This is his second term, so people have become accustomed to his “bluster.”  More than likely, he talks about tariffs in order to “squeez[e] out some concessions.”[4]

            In the eyes of critics, there are two different issues here.  The first is economic warfare against China.  America’s aggressive rival[5] has some serious weak spots.  Most noticeably, these include “a spiraling property market, perilous local government finances, a shrinking labor force, and brittle consumer confidence.”[6]  Since the first Trump administration, many American companies have been pulling back from China.  The country is vulnerable to pressure. 

            China hawks felt ambivalent about tariffs.  The very smart Aaron Friedberg,[7] took a hopeful view.  To resist “Chinese mercantilism,” tariffs “in a more targeted, tailored form” can be useful.  Tariffs on everyone else, however, would impede formation of an anti-China alliance.[8]  Meanwhile, China is exploiting every opportunity to build an anti-American alliance.  Why increase the number of volunteers? 

            The second is the tariffs on everyone else.  The tariffs on Mexico and Cananda “could throw American diplomatic relationships and global supply chains into disarray.”[9] 

            What does China do with all the dollars it earns from selling to America? 

[1] “The bottom line,” The Week 24 January 2025, p. 32. 

[2] “Trade: Trump readies tariffs on rivals and allies,” The Week, 31 January 2025, p. 32. 

[3] No, he’s all too real. 

[4] Gabriel Rubin in Reuters, quoted in “Trade: Trump readies tariffs on rivals and allies,” The Week, 31 January 2025, p. 32.

[5] “A toughish lot, but very go ahead, rather like we were in the old days.”—Sam Collins to George Smiley in John LeCarre, Smiley’s People. 

[6] Eswar Prasad in NYT, quoted in “China: Does Trump really want a trade war?” The Week, 17 January 2025, p. 34.

[7] See: Aaron Friedberg – Wikipedia 

[8] Friedberg’s blog at Foreign Policy, quoted in “China: Does Trump really want a trade war?” The Week, 17 January 2025, p. 34. 

[9] Ana Swanson in NYT, quoted in “Trade: Trump readies tariffs on rivals and allies,” The Week, 31 January 2025, p. 32. 

Why did Britain hesitate to rearm in the Thirties?

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            Adolf Hitler came to power in Germany at a particularly difficult time for Britain.  The decision to re-arm, to prepare for another great war—even if could be limited to a merely “European War”[1]—proved agonizing and divisive. 

On the one hand, Britain faced the Great Depression which drove up unemployment, forced Britain off the Gold Standard (21 September 1931), and began the process of converting Britain from a policy of free trade to a system of protective tariffs.[2]  The tariffs went into effect in February 1932.  They encouraged import-substitute re-industrialization.  By one later estimate, the tariffs led to a rise of real annual GDP by 4 percent (1932-37), on a par with Nazi Germany.  These events marked a dramatic turning point in Britain’s national policies. 

The ship’s pilot guiding this turn was Neville Chamberlain.[3]  Having devoted his political career to domestic reform, he foresaw the GDP growth serving to revitalize the British economy through industrial modernization and a social policy that eased old divisions, rather than preparation for another world war.[4]  Threatened by Japan in the Far East, the Cabinet formally abandoned the “Ten Year Rule” (March 1932).  Even so, the government remained preoccupied by the “very serious financial and economic situation.”  It was determined to resist big increases in military spending. 

On the other hand, the forces opposed to war and the preparation for war occupied a strong position in political.  These forces coalesced around the League of Nations.  Although the League had been the brain-child of American President Woodrow Wilson, it found its strongest popular support in Britain.  Britain’s League of Nations Union acted as a powerful pressure-group.[5]  Its goals were to promote international justice and human rights; disarmament and the settlement of international conflicts by peaceful means; and reliance upon collective security, rather than alliances.[6]  Membership rose from about 250,000 in the mid-Twenties to over 400,000 in 1931. 

Anti-militarism became a public fixture in the early Thirties.  Examples include the Oxford “King and Country” debate (February 1933); the East Fulham by-election, in which the peace candidate thrashed the rearmament candidate (October 1933); the “Peace Ballot,” (results June 1935), which strongly endorsed League membership, universal disarmament, abolition of air forces and the arms industry, and collective security against aggression; and the ferocious opposition to the Hoare-Laval Pact (December 1935).  This only worked if everyone played.    

            Hitler’s withdrawal from the Disarmament Conference (October 1933) ended real hope. 

[1] John Lukacs, The Last European War: September 1939-December 1941 (1976). 

[2] See: Import Duties Act 1932 – Wikipedia  This Act formed a first step in a much larger plan.  In Summer 1932, representatives of Britain and the Dominions met in Ottawa.  They agreed upon a policy of high tariffs around the Empire; low tariffs within the Empire; and Keynesian ideas about demand management (low interest rates, increased government spending).  See: British Empire Economic Conference – Wikipedia for an under-developed sketch. 

[3] Neville Chamberlain – Wikipedia 

[4] For some of the National government’s social reforms, see: Unemployment Act 1934 – Wikipedia;

 Special Areas (Development and Improvement) Act 1934 – Wikipedia; Special Areas (Amendment) Act 1937 – Wikipedia; Factory Acts – Wikipedia; Coal Act 1938 – Wikipedia; Holidays with Pay Act 1938 – Wikipedia;

[5] Members of the Liberal Party provided much of the leadership for the group, but important Conservatives also joined.  At the same time, many Conservative politicians and voters saw the League as ridiculous.

[6] See: Collective security – Wikipedia, and Disarmament – Wikipedia.  Both have useful bibliographies.   

“The System Is Blinking Red” 3.

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            In 1989-1990, the Soviet Union collapsed.  With it went the credibility of autarkic, centrally-planned economies.  Determined to maintain its monopoly on power, the Communist Party of the Peoples’ Republic of China hastened to adopt a new course.  It opened China to the global market and capitalist methods.  Essentially, use foreign-supplied capital and technology to become the workshop of the world.  Start by making cheap simple stuff, then climb up the ladder.  Pull its people out of impoverished rural life into urban prosperity.  Pull China out of Developing Country status into global power. 

American business and political leaders took an optimistic view of these developments.  China would be a cheap producers of consumer goods for Western markets, raising living standards for Western peoples by lowering costs.  China would become a consumer of high-end  Western products and expertise.  An economic revolution in China would create a growing—and increasingly assertive—middle class.  This would nudge China toward political democracy.[1]  Naturally, there would be some job losses suffered in the West.  Experience with the rise of Japan in the 1970s and 1980s showed that displaced workers would shuffle into new jobs. 

In 2001, China won admission to the World Trade Organization.  Many restrictions on Chinese exports were removed.  Things did not work out as planned.  China moved much faster than expected and on a much larger scale than had been expected.  “Many U.S. manufacturing towns couldn’t compete.”[2]  Factories downsized.  Manufacturing shrank as a source of employment in many towns.  Some workers were laid off, but most were attritted through retirement.  They were not replaced.  Most of the displaced workers were White and Black men without a college education. 

Then, it seemed, the hard-hit areas bounced back.  They didn’t return to the original state.  Instead, “affected areas recover[ed] primarily by adding workers to non-manufacturing who were below working age when the shock occurred.  Entrants are disproportionately native-born Hispanics, foreign-born immigrants, women, and the college-educated, who find employment in relatively low-wage service sectors such as medical services, education, retail, and hospitality.”[3] 

Readers may question the argument that “towns” came back, while “workers” did not.  “Those communities experienced higher unemployment, lower wages, higher use of food stamps, higher disability payments, higher rates of single parenthood and child poverty, and elevated mortality.”[4]  Would make a good movie if John Sayles was still working.[5] 

The natural response is to connect all this distress to the rejection of globalism and—eventually—to the rise of Donald Trump.  What stands out, though, is the failed hopes of the people who set China policy and their failed sense of social solidarity when the choices they made had a harmful impact on ordinary people.  Now US AID is on the block. 

[1] That’s how it had worked in Western Europe in the 18th and 19th Centuries.  Why wouldn’t it be the same with China? 

[2] Justin Lahart, “How ‘China Shock’ Upended U.S. Workers,” WSJ, 5 February 2025.  Lahart is reporting on a National Bureau of Economic Research working paper by David Autor, et al. 

[3] Places versus People: The Ins and Outs of Labor Market Adjustment to Globalization | NBER 

[4] Justin Lahart, “How ‘China Shock’ Upended U.S. Workers,” WSJ, 5 February 2025. 

[5] See: “Sunshine State” (2002) and “Casa de los babys” (2003).   

Ruthless.

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            Here’s the rot at the heart of the Republic: American voters of both parties have come to love “free stuff.”[1]  In a Democracy, politicians and political parties see the road to their own success running through giving voters what they want.  For Democrats, it means Tax-Spend-Elect; for Republicans it means Tax Cut-Spend-Elect. 

            As a result, in 2023, federal spending hit $6.75 trillion, with the federal deficit (not debt, just one year’s worth of spending above revenue) hitting $1.8 trillion.[2]  That deficit is 6.4 percent of Gross Domestic Product (GDP).  That isn’t a record.  It has been surpassed before.  However, those other peaks occurred during some kind of emergency: wars, recessions, etc.  Those conditions don’t apply at the moment. 

“Goo-goos” hate this trait.[3]  In the present day, all sorts of experts and commissions offer warnings of coming catastrophe and plans to avoid same.  The trouble is that this is like trying to talk a drunk into giving sobriety a spin.  It isn’t going to happen until they “hit bottom” or have a “moment of clarity.”[4]  What might bring on such a change? 

            Can you cut federal spending by shrinking the federal government?  YES!  And this idea is supported by a majority of Americans.[5]  Can you cut a LOT of federal spending simply by shrinking the number of civil service employees?  NO! 

First, the cost of salaries for all civil servants runs in the area of $200-$250 billion a year.  You will recall (from just above) that this year’s deficit is $1.8 trillion.  So, $200-$250 billion is about one-eighth of the deficit. 

Second, there’s interest on the debt at $882 billion.  An actual default, not just cuts to existing spending, may be coming.  We’re not there yet and we may be able to fend it off. 

Then there’s “discretionary” spending.  This includes the defense budget and everything else.  This comes in at around $2 trillion.  You can cut the defense budget a bunch.  You just have to believe that we are entering an era of peace and tranquility in which no other country will seek to challenge American interests. 

            Third, there’s the elephant in the room: “mandatory” spending on Social Security, Medicare/Medicaid, and related programs.  This amounts to $4.1 trillion, more than double “discretionary” spending.  “So taming mandatory spending means reining in benefits.”  Ouch! 

            It seems impossible for either Congress or the American people in their present state of desiring “free stuff” from the government to address this issue.  Nor will they raise taxes. 

However, there is scope for executive action.  For example, one “Goo-goo” estimate suggests that as much as $1.4 trillion could be saved by reversing Biden administration executive actions.  All we need is a ruthless lame-duck president who doesn’t care about established traditions or Beltway verities or even what he may have promised to get elected. 

[1] This has become a cultural force.  How and why this has happened is worth exploring. 

[2] Greg Ip, “Cutting Deficits Is Easy—Just Unpopular,” WSJ, 27 December 2024. 

[3] See: Goo-goos – Wikipedia 

[4] You might think that the recent unpleasantness with inflation fueled by deficits would have awakened ordinary Americans to this issue.  It doesn’t seem to have done the trick.  Or perhaps the pre-existing interest groups and political habits were just too strong for a not-yet-crystalized change of attitude.   

[5] According to an Ipsos poll, 57 percent of Americans favor downsizing the federal government.  “Poll Watch,” The Week, 6 December 2024, p. 17.