Is The US Copying China?

When the Biden administration passed the Inflation Reduction Act and the Chips and Science Act for clean energy and tech last year, Americas trade allies in Europe and Asia were surprised. Now they are scrambling for ways to catch up. Are western economies in a war of subsidies with each other and China over technology and green infrastructure?

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[MrNicoJac]

Milton Freedman forgot there are different kinds of capital.
From a financial point of view, he's sorta right that Japanese steel subsidies equate to foreign aid to the US.
However, human capital and infrastructure investments are important too.
If all your steel mills get torn down, you cannot _just_ restart them a decade later. If all the specialist steel workers retire or move on, you lose an insane amount of knowledge and best practices. These are things that take a lot of time to relearn. Even to the point where you're no longer competitive at the same price point a few decades later (adjusted for inflation and exchange rate).

So all in all, there are very solid reasons for at least _some_ protectionism of most industries.
Maybe not to the point to make them globally competitive, but at least to prevent your knowledge base from withering away over time.

[sciagurrato]

The decline of manufacturing in America was not a result of the financial crisis of 2007. The hollowing out of American industry has been going on for decades.

[chrisdiboll]

‘The inflation reduction act has no spending limit’

What a sentence 😂

[slbtz]

What Milton forgot to say is that export countries (such as Japan back in the day, or China today) can use the dollars they obtained in exchange for their exports to buy up assets - for example, real-estate, gov bonds, stocks, etc. - rather than consumer goods. No new employment opportunities are created, instead asset prices go through the roof which leads to inequality which leads to extremist political views.

This is exactly what's been happening since the late 70s:
- wages are flat
- financial assets have increased exponentially
- politics has become more and more extreme

See the work of Michael Pettis - Trade Wars Are Class Wars

[Karearearea]

If this were purely an economic issue, everything Milton Friedman says would apply. However, I’ve often thought that arguments for free trade should come with an asterisk saying that these arguments only apply among trusted parties.

Economists readily admit that protectionist policies can and should be implemented in matters of national security - where potential security risks outweigh the benefits of free trade.

The real question is, has relations and trade with China reached the point where it can legitimately be considered a national security issue? If that is the case, then any arguments for or against subsidies involving China cannot be argued from a purely economic perspective - they need to include a national security perspective as well. I believe we have reached this point, and purely economic arguments involving China are no longer persuasive.

[jankool]

When dollars go abroad, they don't come back as payment for goods and services but as demand for US treasuries.

[peterranney]

The thing that is always very frustrating about these conversations about economic policy is that there has to be a weighting between what is most beneficial economically and what is necessary for the preservation of the state. Between the supply problems that occurred during covid and the realization that war is still a very real part of the calculation in the world because of Russia invading Ukraine it makes a more nationally focused industrial policy necessary. It is not economically efficient to onshore all of these industries, at least not in the short term, but the cost of being dependent on a hostile foreign country to fulfill parts of our supply chain that are of vital national security are far far worse.

[Daniel-tmfg]

For an ex-English teacher, Trudeau showed appallingly unfortunate and reckless choice of words :))

[lilytea]

0:41: 🌍 The United States has shifted its stance on free trade and embraced industrial policy, causing concern among other advanced economies.
5:36: 🌍 China's dominance in green technology supply chains and critical minerals poses challenges for Western economies.
10:40: 🚗 Chinese auto manufacturers face trade barriers in the US, but have found success in the EU due to cheaper prices and advanced EV production.
15:16: 💰 The Inflation Reduction Act and the Energy Department have unlimited spending potential for renewable energy, but some politicians want to support more industries.
19:36: 📜 The speaker explains the benefits of trade and how it can benefit the American consumer.
Recap by Tammy AI

[stephenlight]

I am a fan of Friedman, but he did wildly discount the hollowing out of the American working class, with devastating social consequences that may yet upend the country. I imagine that if there had been equal trade in university economists and DC think tanks, the reaction of the chattering classes would have been quite different.

[JoeBlow-fpng]

18:50 Steel is a key input in the national defense industry (so we can't rely on foreign countries for it) and bananas are not. Some industries must be maintained and domestic production protected at all costs. Have we not found that out with medicines and rare earths the past few years?

[amirsadikov]

In some sense every tax/subsidy is a "market distortion". In this case, I think the market distortion is necessary to ensure the national defense and the stability/territorial integrity of NATO countries worldwide. Ideally the Chips Act would have a better carve out for European and Asian allies and hopefully it will be amended. Your analysis assumes that every country will act in "good faith" which is simply not true. Japan in the 1980s was not hostile in any way towards the US or the West and was not trying to takeover local countries. Unfortunately, I think the US/West and China/Russia are headed to a cold war that is unavoidable and the best we can do is to prevent it from heating up.

[kndrdfndindngoudng]

It may be more efficient globally for the governments to ignore the decline or rise in one industry or another, but a country which specializes in one industry will end up with a different outcome than a country that specializes in another. The country with large tech companies will see better long term growth than the one with banana companies, even if the country which exports bananas can get tech for cheaper, and the country with tech can get bananas for cheaper.

It seems that what happena when you follow Friedman is that a few people get much richer and a lot of people get poorer, creating less security and well-being in a country. Maybe the country has increased average wealth (because the rich grt so much richer) but on average people are also worse off.

[DavidE-vcgy]

The only issue I have with Milton Friedmann’s argument about tariffs is that certain industrial plants require a huge initial investment. If they can be driven out of business by a temporary subsidy of a foreign competitor, the cost of the subsidy may thereafter be recovered by making monopoly (or reduced competition) profits, and the domestic producer that was driven out of business won’t come back as long as the profiteering of the foreign competitor is not too extreme. What investor would invest in a new domestic plant, if he knew his investment would be targeted for extinction by a foreign subsidy?

Can anyone suggest a counter argument to the above?

[fatgrubman]

The problem of course with Strategic Industries is that you then can be squeezed in tariff-based trade wars and lose out overall in resulting settlements. The arguments for free-trade are there from an economics point of view but the political/diplomatic angles are critical.

[InfoSopher]

​Milton's argument at the end does not make entire sense. Because industrial policy is always also security policy.

For this reason, the US did support industries related to fighting wars in the past, even in peacetime, because it takes decades to build them up.

This is the main issue here. Either side, US or China, is capable of cutting the cord between them. But if they do, they will have to live without what comes from the other side as well.
So preparing for a conflict implicitly means making sure that when the cord gets cut, one has everything that one needs in order to keep both one's economy going as well as one's military production as well.

Or to put it differently: If both sides are completely dependent upon one another, they will probably not want to cut the cord.
But if one side achieves independance, while the other does not, it can much more easily win a conflict. Because it just needs to cut the cord, live with the hardships but stay afloat, while the other side crashes due to a lack of inputs into its system.

So its all about making sure that one controls all important inputs into one's own system.

For example, China used to be very dependent on energy coming in via sea routes that are however easily attackable, hard to defend and thus would probably get disconnected if the cord gets cut.
So now China has put in a massive effort into all kinds of energy production methods that make it independent from these routes. Including many new coal power plants (of which it has a lot on its own territory), new pipelines coming in from Iran, nuclear and renewable energy projects on its own territory.
The US on the other side has recently focused more on certain materials as well as chips.

There are a number of other such examples. It is disconcerting to observe how these major societies are preparing for being in a good position in a possible conflict.

[Dienion]

I wonder how central the polution/regulation aspect is to all of this. The entire reason countries like China can produce some goods so cheaply, beyond cheap labor, is that they can offload so many expenses by bypassing health, safety, and pollution regulations.

[philipberthiaume]

Because of a strong lobby in Washington, the US government adds $18, 000 to the cost of every single home built in the entire US because it adds large tarrifs on Canadian softwood lumber. Canada is a forested nation that is very efficient in managing its forestry sector but is discouraged in the US market. And regular Americans pay through the nose to protect an industry that can't compete as well. There is a cost for protectionism.

[jasonbirchoff]

While I can appreciate the perspective offered in this video. It misses an important perspective. Which is geo political power. When we lived in a world were we thought that term was dead. What you described was the optimal play. Now geo politics has returned from the dead and the idea that you can have critical industries solely sourced in nations that you view as a rival is brain dead. So some amount of reshoring of manufacturing is required for the country to retain political flexibility when dealing with geo poltiical issues. If it attempts to keep moving like it used to then it will be impossible for any western nation to secure what is in its best interest when those interests collide with the interests of its suppliers.