Globalisation is Dying and Trump Isn’t to Blame
Chinese telecom Huawei is back in the news.
This time the US is not holding back on accusations.
13 counts of indictment in New York…10 counts of indictment in Seattle.
American officials believe the company committed bank fraud. They conspired to evade the US sanctions on Iran. They believe executives encouraged employees to steal trade secrets from US telecom T-Mobile.
You might remember last month, the US requested Canada to arrest Huawei CFO Meng Wanzhou and the founder’s daughter Ren Zhengfei.
As a side note, China has since detained several Canadians in China…
Arresting Huawei executives was Trump’s second move in this technology war he’s playing with Chinese President Xi Jinping.
The first was billions worth of tariffs across a wide range of Chinese goods. Now he wants to make those individuals suffer, who’ve wronged the United States.
If we’re going to pick sides in all this, historian Niall Ferguson says it should be a no brainer for Aussies.
Pick the Americans!
The end of Chimerica…
From the Australian Financial Review (AFR):
‘Professor Ferguson warned that even though many Australians “would love not to have to choose” between the country’s biggest trade and security partners, a decision was unavoidable in the long run.
‘“Whatever the economics, the politics is pretty clear,” he said.
‘“If the choice is between a democratic system of rule of law and constraint on the executive on the one side and an authoritarian one-party state with no constraints on the executive – Australia and other democracies in the southern hemisphere would be mad to choose the second.”
‘Speaking as tensions ramp up over issues such as Huawei and trade, Professor Ferguson said: “What we’re witnessing is the death of Chimerica”, replaced by a growing technology war over artificial intelligence, 5G networks and quantum computing.’
Ferguson went on to say that Trump’s tariffs were a ‘very blunt instrument to check the rise of China.’
He’s also a believer in the Chimerica relationship. Most paint it as a double-edged sword type deal.
On the one hand, American consumers benefit from cheap Chinese imports. On the other hand, this put a whole lot of US dollars in the hands of Chinese. And with this foreign currency they buy billions worth of US debt (treasury bonds).
Some might argue that it’s China’s huge stockpile of foreign currency reserves that explains why US bond yields have been so low for so long. These massive Chinese bond buyers, along with others, add to the buying pressure, pushing bond prices up and yields down.
But that’s a whole other story…
‘Whatever benefits there were to consumers were substantially offset by the offshoring of manufacturing jobs and the impact of globalisation on inequality,’ Ferguson added.
I’m sure Trump saw it the same way.
Price is the only reason US businesses purchase so much from China. The tariffs effectively cut off China’s huge advantage: cheap labour.
The hope is (for Trump) China will tread water, unable to advance their technology industries.
But here’s the problem with all this…
Globalisation is dying
Globalisation and trade have done wonderful things for the world. Trade encourages specialisation, and with that efficiency goes up and costs come down.
I remember back in university globalisation was the hot topic. We had a class about how different cultures and management styles might work together in the corporate world.
Even though it seems like we’ve had trade forever, globalisation is still a pretty new thing. For most of our existence we produced everything we consumed. Trade was with other villages, not countries.
But this old world might be coming back. Everyone thinks globalisation is a constant.
Fact is, globalisation is dying. And Trump’s trade war has nothing to do with it. It’s just a natural progression of productivity.
Everyone is getting more efficient each year. These efficiency gains, through automation and robotics, add up. We’re pumping out so much stuff, there’s just not enough demand to soak it all up.
It’s why you see China, Japan and Germany all having problems. They’re all manufacturing economies. They rely on international demand to soak up all of their excess supply.
China would be having problems sooner or later if Trump had put tariffs on them or not. And it’s because they are naturally losing their advantage (cheap labour) to automated processes and robotics.
Soon the process of manufacturing will be so efficient that there will be little to no need for factory workers at all. Manufacturers will come out of low wage countries and set up shop domestically.
They’ll be producing customised goods for local tastes. And while Trump might get his manufacturing industry back, none of those jobs are coming with it.
Ferguson says within a 100 years, it will be hard to see China as having the same political system as they do today. I agree. I also think it will be hard not to see a more localised world over that time as productivity continues to outstrip demand.
Editor, Money Morning
Free report: Aussie stock picker, Sam Volkering (with gains as high as 1,431% in the last 18 months) reveals what he believes are his next four big potential winners. Download the free report.