I am sure Petits contradicts himself then explains the contradictions away but there is wisdom in there anyway. Enjoyed listening and will give it a second listen soon.
Probably the best conversation I have heard on the topic. You know its going to be good with Michael Pettis.I wish he would become an advisor to a future administration.
A number of things: 1.) I’d like to see Prof. Pettis make a board game on trade which would educate the world on these matters, somewhat like Monopoly. 2.) I’m not sure the correct wording is “Free Trade”. It should be Fair Trade. (Balanced trade) 3.) Global trade is like a balancing scale that shouldn’t be with too much weight on one side, BUT, the growth and size of government, with respect to its cost of capital, skews the ability to adjust economies easily. It seems the only solution there is to reduce the size and effect it has on economic factors - and that is exceedingly difficult to do.
I have been following Pettis's videos for a while. He gets the realities of international trade and currency flow right but he gets the reasons wrong. He is an academic trying to understand and teach a very complex concept to a bunch of uninitiated pupils. He does it by simplifying and reducing the complexity. I will only mention what he missed in his simplification that makes his diagnosis incorrect. Fundamentally, countries trade because they want to trade something they have, to get what they don't have. But it doesn't stop there. In a free market or complex economy, this trade is done by private companies. Governments mostly only sets the rules to incentivize or discourage. But private companies also have a mandate to grow and profit. Their products are priced to cover cost plus profit, that means the more expensive it is, the smaller is their market. In a local economy, increasing personal income does not translate to a bigger market because their cost increases proportionally. They can expand their market by acquiring cheaper immigrant workers or they can produce their product in another country with cheaper labor. They can further expand their market by creating overseas ones. In order to do this, they convince their government to relax immigration rules or allow unrestricted international trade and movement of capital. The US does both. Surplus trade country does not connived to beggar the US economy but US companies do it to expand their markets and grow. These US companies hires more people but not everyone gets hired at home. Surplus countries also have companies who need to expand their market. This not sinister or subsidy but open international free market economics.
That doesn't contradict what Pettis says. He talks only from economic perspective and not political one. Now, the main reason why US private companies invested heavy in China was because China heavy subsidized manufacturing.
@@JamaikaIS And this is where he is been political. When I say governments incentivise, should I say subsidize. And all governments incentivise, the US and EU was giving incentive/subsidies on EV and green energy long before China came into the picture. The EU subsidize its agriculture heavily and gives out grants and contracts to company that often end up producing nothing. When the fed push down interest rate and gave away money to either keep companies alive or incentivise hiring, is this not subsidy. The IR and Chips act not only subsidise but block open trade. From a developing world point of view, all countries subsidise but only western countries selectively block/sanction others. And this is China's WTO complaint.
@@JamaikaIS I am comparing an economy with another minus the virtue signaling. The rest of world don't care. And do you understand what is an open or closed economy? China is a far more open economy than the US.
@@olderchin1558 Yes, China is an open economy. Except for capital control. Except for fair competition in most industries between chinese companies and foreign companies. Except for subsidies. Beggar-thy-neighbor was not invented by China and is not new.
Seems the Gold Standard would be a solution to a big part of this problem, since the exchange rate would be fixed. Doesn't mean a country couldn't subsidize their industry with other means ofc, but a gold standard + a heavy focus in trade agreements on disallowing subsidies, seems like a more natural way forward imo than trying to convince exporting countries to equalize their imports with their exports. Fantastic talk as usual from Pettis.
Clearly a gold standard could be difficult to achieve as well, and if too difficult, then perhaps Keynes' bancor plan that Pettis refers to, is another alternative. But I don't ever see countries like China, Vietnam, Germany etc, agreeing to equalize imports with exports.
@@michaels4255 I don’t think that’s optimal, it’s micromanaging to a point that undermines the entire conception of trade. Like injecting your own new version of heavy-handed intervention, to try and solve the imbalances of the current interventions.
@@Cotswolds1913 Nonsense. It's just a damn tax, with effects no worse than any other tax. The US relied heavily on tariffs for most of our history. Other countries have used tariffs too, for both revenue and as part of industrial policy. Indeed, tariffs (import taxes) are one of the LEAST heavy handed interventions that government can make. And you already conceded that major exporters to the US are unlikely to voluntarily balance their trade. So what's your plan? Just keep importing unemployment and declining real wages (even when per capita GDP/GDI goes up and all gets skimmed off by the upper percentiles) until voters get desperate and elect socialists?
@@michaels4255 using tariffs =/= an explicit attempt to equalize imports with exports, on a globalized basis. That will require extreme levels of hand puppetry.
Professor Pettis' explanation of current-account imbalances - with depressive effects on the residual country in the adjustment process - is not compatible with the US over-performance and low unemployment rates. The latter does not sound like excess (total) savings available to the country
He means GDP outperformance and low (official) unemployment numbers. Never mind that much of the job growth is primarily to immigrants, many of whom are illegal. Pettis wants the US to enact capital controls to reduce US imports, but much of that production would go to imported labor.
@Sokrabiades not just to reduce imports, or even primarily to reduce imports. It is to reduce UNNEEDED CAPITAL INFLOWS for an economy that is not CAPITAL CONSTRAINED and doesnt need foreign inflows where all needed investment can come from deep capital markets domestically. So he wants to reduce these as then the US doesnt have to deal with the negative externalities associated with others dumping unneeded capital. The aside is that imports would reduce. Pettis is fine with imports as long as they are not occuring because of capital flow issues. Like it is fine to drink while you eat, but it is bad to wash down your food with a drink while eating, eating more than is necessary. So no Pettis is not saying what you said.
their logic problem starting around 28min, Oren actually asking "is that oversimplified?" . yes, it is . Michael's argument that manufacture will create higher wage is completely wrong and lack of analytical steps to reach such conclusion at the least. Matter of fact, US has high wage and high employment now with the benefit of dollar reserve currency status. The only way to have true higher wage ( higher purchasing power) with manufacture back is you have to have high productivity efficiency. That is not a given and most likely cannot be achieved without fundamental change to US social structure. The conclusion that china is benefit mostly from subside ( not the common conception of subside but mostly from government spending and policy ) but not really more efficient is also wrong. Those two actually come hand by hand. The result of highly developed infrastructure also bring in highly efficient manufacture scale and high coordinated supply chain. Any of those are hard to achieve in US based on current political views from both sides. On the other hand, as long as US has this incentive to encourage risk taking, US will and only need to maintain high level of technology domination to rip the benefit of reserve currency
another bad conclusion is at 37:30, when Michael arguer the dollar status is good for big business but not regular individuals . This is very bad logic and not factual at all. All people in US benefit from dollar status. In a very simple term, most US citizens don't deserve the life they are having. WHat they complain is actually the income gap. But if you look at other countries with much small income gap, such as european countries and Japan, the difference is the lower income of high skilled worker not high income of low skilled workers. In France, a highly skilled IT professional probably have income 2-3 time of low skilled workers; while in US the gap is 5-10 times. This is actually a good thing and the reason why US firms dominating the high tech industries. In conclusion, all US people benefit from dollar dominance but some take it for granted.
@@Sokrabiades they benefit from low cost of goods. The recent inflation dominate people's mind but in a long time price of goods just stagnant before the inflated purchasing power of us dollar. People can afford all the latest non luxury goods and take it for granted. If jobs truly move back to us, you will soon realize what it truly cost.
That is why the title of lecture is “Trade wars are class wars.” Americans make more money than everyone else, yet they have to spend more than anyone to maintain similar lifestyles. Nominally the US can pay its fast-food workers $20/hr-it would be a lot of money, even comparable to college graduates in some countries, but it would barely be a living wage in the States.
Great conversation to be honest but … a lot of wrong assumptions or speculations. For example, the idea that anglosphere is the law and order and asset freedom is a bogus (hello sanctions) … so that’s why with all that talk of saving absorption the foreigners also run from American assets. 2- with manufacturing back to the United States do you think that cost of products (compete) with Chinese manufacturing will be in which direction? … again if the Chinese subsidizes their business how about infrastructure bills and anti inflation bill and Ukraine bills which generate money to give to American business from tax payer dollars! … actually United States cannot get manufacturing back home unless labour unions vanishes !!!
Minute 48 How does the capital inflow by foreign nations into the US economy cause the DECREASE of investment in the US ? Isn't the problem the unwillingness of US companies to invest because they don't make things that the consumers need?
When Chinese savings come to the USA it would have been put to productive investment. But there is not enough demand to make businesses invest productively so those savings reduce the savings of Americans further because they have to use their own savings to buy chinese products. This further reduces overall demand.
So hypothetically, a creditor nation in the future could demand that we tear up our railways cut down our forest and send massive amounts of food and oil to satisfy our debt?
Simply a brilliant conversation and a master class on facets of world trade. Thank you so much for sharing.
I love listeming to Michael Pettis he has so much knowledge.
Excellent education. A complex and important topic explained in a way that non-economists can understand it. Many thanks to you both.
I am sure Petits contradicts himself then explains the contradictions away but there is wisdom in there anyway. Enjoyed listening and will give it a second listen soon.
Not at all, his logics are pure, you should state what the contradiction is. Make sure it isn't of suppositions and false premises that you hold.
Probably the best conversation I have heard on the topic. You know its going to be good with Michael Pettis.I wish he would become an advisor to a future administration.
A number of things:
1.) I’d like to see Prof. Pettis make a board game on trade which would educate the world on these matters, somewhat like Monopoly.
2.) I’m not sure the correct wording is “Free Trade”. It should be Fair Trade. (Balanced trade)
3.) Global trade is like a balancing scale that shouldn’t be with too much weight on one side, BUT, the growth and size of government, with respect to its cost of capital, skews the ability to adjust economies easily. It seems the only solution there is to reduce the size and effect it has on economic factors - and that is exceedingly difficult to do.
More like law of energy conservation
Agree about the board game, something like "World Trade" with reserve currencies, banks & factories etc.
@@user_375a82 : Thanks … and I’d settle for a 3% royalty. 😁
@@sandymilne224 It sounds quite educational, but I would not count on it turning a profit.
@@michaels4255 : Monopoly did okay.
Precious interview 🤝. Thank you
Michael Pettis is a Treasure!
awesome conversation. thank you for sharing. Always learn a lot from Michael.
I have been following Pettis's videos for a while. He gets the realities of international trade and currency flow right but he gets the reasons wrong. He is an academic trying to understand and teach a very complex concept to a bunch of uninitiated pupils. He does it by simplifying and reducing the complexity. I will only mention what he missed in his simplification that makes his diagnosis incorrect.
Fundamentally, countries trade because they want to trade something they have, to get what they don't have. But it doesn't stop there. In a free market or complex economy, this trade is done by private companies. Governments mostly only sets the rules to incentivize or discourage.
But private companies also have a mandate to grow and profit. Their products are priced to cover cost plus profit, that means the more expensive it is, the smaller is their market. In a local economy, increasing personal income does not translate to a bigger market because their cost increases proportionally. They can expand their market by acquiring cheaper immigrant workers or they can produce their product in another country with cheaper labor. They can further expand their market by creating overseas ones. In order to do this, they convince their government to relax immigration rules or allow unrestricted international trade and movement of capital. The US does both. Surplus trade country does not connived to beggar the US economy but US companies do it to expand their markets and grow. These US companies hires more people but not everyone gets hired at home. Surplus countries also have companies who need to expand their market. This not sinister or subsidy but open international free market economics.
That doesn't contradict what Pettis says. He talks only from economic perspective and not political one. Now, the main reason why US private companies invested heavy in China was because China heavy subsidized manufacturing.
@@JamaikaIS And this is where he is been political. When I say governments incentivise, should I say subsidize. And all governments incentivise, the US and EU was giving incentive/subsidies on EV and green energy long before China came into the picture. The EU subsidize its agriculture heavily and gives out grants and contracts to company that often end up producing nothing.
When the fed push down interest rate and gave away money to either keep companies alive or incentivise hiring, is this not subsidy. The IR and Chips act not only subsidise but block open trade.
From a developing world point of view, all countries subsidise but only western countries selectively block/sanction others. And this is China's WTO complaint.
@@olderchin1558 You are comparing free economies (US, EU) with a closed economy (China).
It's just a waste of time ...
@@JamaikaIS I am comparing an economy with another minus the virtue signaling. The rest of world don't care. And do you understand what is an open or closed economy? China is a far more open economy than the US.
@@olderchin1558 Yes, China is an open economy. Except for capital control. Except for fair competition in most industries between chinese companies and foreign companies. Except for subsidies. Beggar-thy-neighbor was not invented by China and is not new.
Seems the Gold Standard would be a solution to a big part of this problem, since the exchange rate would be fixed. Doesn't mean a country couldn't subsidize their industry with other means ofc, but a gold standard + a heavy focus in trade agreements on disallowing subsidies, seems like a more natural way forward imo than trying to convince exporting countries to equalize their imports with their exports. Fantastic talk as usual from Pettis.
Clearly a gold standard could be difficult to achieve as well, and if too difficult, then perhaps Keynes' bancor plan that Pettis refers to, is another alternative. But I don't ever see countries like China, Vietnam, Germany etc, agreeing to equalize imports with exports.
If they don't equalize voluntarily, you can create equalization with tariffs high enough to reduce the imports.
@@michaels4255 I don’t think that’s optimal, it’s micromanaging to a point that undermines the entire conception of trade. Like injecting your own new version of heavy-handed intervention, to try and solve the imbalances of the current interventions.
@@Cotswolds1913 Nonsense. It's just a damn tax, with effects no worse than any other tax. The US relied heavily on tariffs for most of our history. Other countries have used tariffs too, for both revenue and as part of industrial policy. Indeed, tariffs (import taxes) are one of the LEAST heavy handed interventions that government can make. And you already conceded that major exporters to the US are unlikely to voluntarily balance their trade. So what's your plan? Just keep importing unemployment and declining real wages (even when per capita GDP/GDI goes up and all gets skimmed off by the upper percentiles) until voters get desperate and elect socialists?
@@michaels4255 using tariffs =/= an explicit attempt to equalize imports with exports, on a globalized basis. That will require extreme levels of hand puppetry.
Michael Pettis is now in Cambodia as Visiting Professor at "CamEd Business School"
Professor Pettis' explanation of current-account imbalances - with depressive effects on the residual country in the adjustment process - is not compatible with the US over-performance and low unemployment rates. The latter does not sound like excess (total) savings available to the country
Why? Need to explain why can't coexist.
Then also need explain what you imagine to be overperformance and State what is low unemployment.
He means GDP outperformance and low (official) unemployment numbers. Never mind that much of the job growth is primarily to immigrants, many of whom are illegal.
Pettis wants the US to enact capital controls to reduce US imports, but much of that production would go to imported labor.
@Sokrabiades not just to reduce imports, or even primarily to reduce imports. It is to reduce UNNEEDED CAPITAL INFLOWS for an economy that is not CAPITAL CONSTRAINED and doesnt need foreign inflows where all needed investment can come from deep capital markets domestically. So he wants to reduce these as then the US doesnt have to deal with the negative externalities associated with others dumping unneeded capital. The aside is that imports would reduce. Pettis is fine with imports as long as they are not occuring because of capital flow issues. Like it is fine to drink while you eat, but it is bad to wash down your food with a drink while eating, eating more than is necessary. So no Pettis is not saying what you said.
It is as for the trade deficit nation to maintain a low unemployment rate requires high debt
The claim of loss of employment in America is VERY STRANGE when the unemployment rate of the nation is near hosorical low.
Are we on the same planet?
their logic problem starting around 28min, Oren actually asking "is that oversimplified?" . yes, it is . Michael's argument that manufacture will create higher wage is completely wrong and lack of analytical steps to reach such conclusion at the least. Matter of fact, US has high wage and high employment now with the benefit of dollar reserve currency status. The only way to have true higher wage ( higher purchasing power) with manufacture back is you have to have high productivity efficiency. That is not a given and most likely cannot be achieved without fundamental change to US social structure.
The conclusion that china is benefit mostly from subside ( not the common conception of subside but mostly from government spending and policy ) but not really more efficient is also wrong. Those two actually come hand by hand. The result of highly developed infrastructure also bring in highly efficient manufacture scale and high coordinated supply chain. Any of those are hard to achieve in US based on current political views from both sides.
On the other hand, as long as US has this incentive to encourage risk taking, US will and only need to maintain high level of technology domination to rip the benefit of reserve currency
Could you explain what you mean about productivity requiring a fundamental change to US social structure?
another bad conclusion is at 37:30, when Michael arguer the dollar status is good for big business but not regular individuals . This is very bad logic and not factual at all. All people in US benefit from dollar status. In a very simple term, most US citizens don't deserve the life they are having. WHat they complain is actually the income gap. But if you look at other countries with much small income gap, such as european countries and Japan, the difference is the lower income of high skilled worker not high income of low skilled workers. In France, a highly skilled IT professional probably have income 2-3 time of low skilled workers; while in US the gap is 5-10 times. This is actually a good thing and the reason why US firms dominating the high tech industries.
In conclusion, all US people benefit from dollar dominance but some take it for granted.
How do low skill workers in the US benefit?
@@Sokrabiades they benefit from low cost of goods. The recent inflation dominate people's mind but in a long time price of goods just stagnant before the inflated purchasing power of us dollar. People can afford all the latest non luxury goods and take it for granted. If jobs truly move back to us, you will soon realize what it truly cost.
That is why the title of lecture is “Trade wars are class wars.” Americans make more money than everyone else, yet they have to spend more than anyone to maintain similar lifestyles. Nominally the US can pay its fast-food workers $20/hr-it would be a lot of money, even comparable to college graduates in some countries, but it would barely be a living wage in the States.
US workers may benefit from low cost of goods but they have high debt levels
Another most recent interview by Prof. Pettis is here: ruclips.net/video/KyYJ1isVj3I/видео.html
🔥
Great conversation to be honest but … a lot of wrong assumptions or speculations. For example, the idea that anglosphere is the law and order and asset freedom is a bogus (hello sanctions) … so that’s why with all that talk of saving absorption the foreigners also run from American assets. 2- with manufacturing back to the United States do you think that cost of products (compete) with Chinese manufacturing will be in which direction? … again if the Chinese subsidizes their business how about infrastructure bills and anti inflation bill and Ukraine bills which generate money to give to American business from tax payer dollars! … actually United States cannot get manufacturing back home unless labour unions vanishes !!!
Minute 48
How does the capital inflow by foreign nations into the US economy cause the DECREASE of investment in the US ?
Isn't the problem the unwillingness of US companies to invest because they don't make things that the consumers need?
When Chinese savings come to the USA it would have been put to productive investment. But there is not enough demand to make businesses invest productively so those savings reduce the savings of Americans further because they have to use their own savings to buy chinese products. This further reduces overall demand.
why can't the WTO do its job in keeping trade fair?
There is lot of way to make trade unfair such that WTO cannot find what is the issue because they dont have full access to data. So WTO is toothless
So hypothetically, a creditor nation in the future could demand that we tear up our railways cut down our forest and send massive amounts of food and oil to satisfy our debt?
Obtuse and poorly simplified, work on your terrible communication and communication skills. Better yet find something you have better value.
The JD Vance fanboys for tariffs should listen to this.