Recently, a Chinese official warned that they don’t want a Trade War but, if there is one, then the United States would lose. I think this shows a lot of confusion about what is meant by “trade war,” because there isn’t a winner or loser in a trade war. Well, at least not in the sense that the Chinese government can win a trade war and the American corporations can lose one. In fact, the winners of a trade war are consumers, and the losers are producers. A trade war would be a good thing for the American People.
People talk about a possible trade war, and I get excited–fuck. Yes. Bring it on, please. There’s not a better way to save our economy than a trade war. As long as it doesn’t escalate into an actual war, there is absolutely nothing to fear from a trade war–in fact, they happen all the time, and they’re to be desired, because competition is the key element that drives down the cost of production by encouraging companies and nations to increase efficiency, cut waste, and lower prices.
But let’s get to a real example to explain what I mean.
Consider the Foxconn hardware, which has its various devices used in all sorts of consumer items from iPhones to Acer laptops. There are also Foxconn network cards–though they’re increasingly uncommon, and I think Realtek usurped them and Foxconn became just the chip manufacturer… It’s complicated and not really important to the point at hand–so consumers in the United States can buy Foxconn directly.
In real terms, a trade war with China would mean that they intentionally drove down the price of Foxconn hardware in order to drive American manufacturers of out of business. It’s similar to how Wal-Mart has a history of lowering prices to drive other companies out of business. It’s the same principle here: take a loss now to annihilate the competition, and then enjoy a monopoly.
But oops! We’ve already seen the problem, haven’t we? Indeed, there is no American manufacturer that competes with Foxconn. America doesn’t make network cards, are you kidding me? We may nor may not have research teams that devise new chipsets that are leased to other companies, like NVidia does, but I don’t think we even have that. So the grand effect from China driving down the cost of the devices manufactured by Foxconn would simply be to lower Apple’s and Acer’s costs in producing new iPhones and laptops. If it costs less money for Apple and Acer to make laptops, then that benefits consumers, even if it’s not at a 1:1 ratio. I mean, if Apple saves 3%, we wouldn’t see a 3% drop in iPhone prices, but we would see some drop–possibly 0.5% or even 1%.
We know this to be true, because it was only about a month ago that I finally replaced the television that broke down last year. The one that broke down last year was an off-brand I’d purchased from RadioShack for $200. It was a 27 inch television that didn’t handle 1920×1080 especially well, though it did do it. I replaced it with a 32 inch Sanyo television that cost $128 after taxes. Regrettably, the universe conspired to throw that television from my wall, where its screen smashed rather unceremoniously on my hardwood floor, but I can still buy another 32 inch Sanyo–not imminently, though in a few months, when things have calmed down–and will effectively have bought two larger televisions for a price only slightly higher than what I paid for one smaller television a number of years ago.
We lose sight of how much progress we have made in the United States, and how high our standard of living is, because we enjoy all the luxuries of modern society. Fifteen years ago, a 70 inch television would have been unheard of, and would have been either an imaginary item or a pipe dream for the majority of Americans. Today, you can get one for about $1,000. I remember one Black Friday sale around 2004 that Wal-Mart put 27 inch televisions on sale for under $100. But they weren’t flat screens, lol. They were enormous, about the size of a mini-fridge, and maybe had a single composite and coax input. Fast forward to last year, and Black Friday saw sales of 27 inch flatscreens capable of 1080p with 3 HDMI inputs, 2 composite inputs, 1 component input, 1 USB input, and 1 VGA input for the same price.
This is the hidden progress that Americans generally haven’t noticed. We complain about the American poor not making any progress, completely glossing over the fact that in less than 2 decades the American poor went from buying the gigantic CRT-type televisions while only the wealthy could afford LCD screens to having multiple LCD screen televisions, most of them ranging from “very large” to “uselessly large.”
Do you remember when a “big screen tv” meant this gigantic thing that took up an entire living room wall and was two feet deep? Do you remember when that “big screen tv” was a big deal, when it was a point of pride to own one? Again, just compare that to today, when it’s a rarity for someone to not have a widescreen, LCD television pushing at least 720p. The cost of televisions has steadily gone down over the decades, as a result of competition and things like the Foxconn example I gave above. It probably wouldn’t be instant, but the price of phones and laptops would steadily lower as the savings get passed onto consumers, who don’t stop to realize that they’re buying the iPhone 7S today for the same price that they’d have bought the iPhone 6S only a year before, only now the 7S is the latest and greatest and the 6S is a model or two behind. We haven’t stopped to notice that we’re routinely buying and discarding televisions that would have cost three children, half an arm, and one testicle twenty years ago for a half of week of minimum wage labor today.
The other direction that China could go is to increase prices. This also only benefits the United States. It’s a simple matter of supply and demand, and the relationship between them setting the price. Just as selling something for less than it’s actually worth will create a shortage of that item, so will selling something for more than it’s worth create a surplus of that item. One hundred people may be willing to license a Foxconn chipset for $0.50, but if only fifty people are willing to license the chipset for $0.75, then Foxconn has lost money, and that’s how economics works, and why economics always uses curves.
Demand and supply lines are only straight in simplistic economic exercises. In the real world, things never work that way. If I can make one hundred televisions for $50 each, that doesn’t mean I can double production and make two hundred televisions for $50 each. Average laws tell us that I would expect doubling the production to increase costs to about $60 per television. It works in terms of selling things, too, and is the reason that everyone in the world is used to things being cheaper when bought in bulk. One roll of toilet paper may be sold for fifty cents, but four rolls of toilet paper will be sold for $1.50, not $2. This is mathematically a curve, of course, because it’s obviously not a linear progression.
It’s obvious when we stop to think about it, and it’s the reason that a trade war–artificial changing of prices–benefits consumers and ultimately hurts producers. The consumer benefits from buying 4 rolls of toilet paper for $1.50 instead of buying four individual rolls for fifty cents apiece. The consumer has benefit from all the technological innovations and pricing wars over the last twenty years, and now a widescreen, flatscreen LCD television is as much a staple in American homes as the microwave. Oh, there’s another, of course. Microwave ovens were once the property of the rich and wealthy. Today, they’re so cheap and abundant that entire YouTube channels exist of people microwaving random things in order to destroy them. Ditto for refrigerators, washing machines, driers, hair blow driers, and just about any-damn-thing else you can think of.
It wouldn’t be all sunshine and daisies if China foolishly took this route, but it would, in the longrun, help the United States. There is a demand for Foxconn devices, after all. If I can produce bananas so cheaply that I can sell them at a cost that no one can compete with, then the bar of entry is so high that new companies won’t be able to enter the banana production industry. They won’t have the resources or knowledge necessary to compete with me, the very same reason that we see companies like Microsoft dominating industries with inferior products and shady business practices. There’s really nothing that can be done about this except wait until their monopoly destroys itself, because monopolies are self-destructing in the market.
As a monopoly dominates, it grows larger. This increases waste, inefficiency, and loss, not just because production costs and profits don’t scale linearly, but also because competition is the driving force that minimizes waste, inefficiency, and loss. Without someone to compete with in the OS market, Microsoft can release one terrible Operating System after the other, and practically force an “upgrade” onto everyone, while also losing money and absorbing losses due to bad ideas, waste, and inefficiency. They continue to grow, of course, because they’re the only option, and this only generates more waste, inefficiency, and bad ideas. With more and more money being lost to these things, Microsoft has to raise prices to continue making money, so Microsoft Office 2016 goes from $199 to $249. At first, this is bad for consumers, but it also means that a new company making an Office competitor has an extra bit of padding they can work with to improve their software. Maybe they couldn’t afford to implement this feature, because it would have increased the price of their software from $180 to $210, and selling their software for $210 would have made it more expensive than Office. Office, being the champion already and being cheaper, would win that contest. But if Microsoft has to mitigate its increased waste and inefficiency by increasing prices to $249, then the new competitor can implement that feature and still be cheaper than Microsoft Office.
Maybe the company American Network Chip Manufacturers would like to make its own chips, but can’t afford to because Foxconn’s chips are so much cheaper. Foxconn raising the cost of its chips just might mean that ANCM can finally afford to hire American manufacturers and still produce a chip that is cheaper than Foxconn’s. Oh, no, what a disaster! Hiring Americans and creating American manufacturing jobs?! Woe is me, how awful!
Although such a thing would still result in higher prices for consumers, which is the problem with protectionism and tariffs. If we put a 20% tariff on Mexican bananas and Jose starts selling his previous $1 ea bananas for $1.20 to cover the tariff, then obviously it’s the people buying bananas who are paying for the tariff, not Jose. But it’s a bit of a double-edged sword, because it also means that American Banana Producer can now charge up to $1.19 per banana and still beat out Jose in the market. Maybe American Banana Producer was about to go out of business because its banana costs can’t be lowered beyond $1.10. This is bad for consumers, who now pay ten cents more to buy an American banana picked by an American worker, but it also means there is now another American manufacturer with a job. And though banana farming isn’t the most lucrative industry, I would guess, industrial manufacturing jobs generally are.
It’s true that we’ve become a society of service people. Very, very little is manufactured in the United States, and that is a problem in the grand scheme of things. The only reason it works now is because much of the world hasn’t noticed that we’re giving them sheets of paper in exchange for actual goods they manufacture, but that gravy train is inevitably going to crash. I make a living fixing, installing, and configuring computers and networks, almost none of the components of which are manufactured in the United States. What happens to my job, when the USD collapses and China, Japan, and South Korea stop accepting the USD as payment? I’ll have nothing to service if Americans can’t buy the things I service. The very existence of our service-centric economy–from auto mechanics to gas station employees to I.T. people to fast food workers–is dependent upon the USD and the willingness of manufacturers to accept it. The moment–and I mean the very moment–that they stop, the United States will enter a depression that makes the Great Depression look like Disneyland. And that’s not hyperbole; the entire American economy will collapse, virtually overnight. The only reason it persists today is that we’ve managed to keep the world using a dollar standard–often by invading nations who want to stop accepting it. That can’t last forever.
Even so, the way out of that is obvious. It would take a while and would be tremendously unpleasant, but the solution would be to re-open all the American factories that have since been exported to China, Indonesia, Japan, and South Korea. A trade war with China would allow this to happen slowly, as opposed to all at once with the collapse of the USD, but it’s inevitable. The chips will fall eventually, and the gravy train will be derailed. We can count on it with as close to absolute certainty as a person can get. Having it happen slowly and over a years-long trade war with China would drastically reduce the hardship, starvation, and interim poverty. Having it happen suddenly at some unknown point in the future will result in widespread starvation. And that’s just a fucking fact.
So yeah. Bring on the trade war. Let’s do it. Let’s get it over with. The longer we kick the can down the road, the more devastating it’s going to be when it finally happens–like the requests to raise the Minimum Wage that are the most blatant examples of kicking the can down the road that we can look to. The Minimum Wage is a Price Floor on the price of labor, of course, and is only “necessary” because the market price of some labor is lower than the Minimum Wage. There’s a disparity between what a job is worth to an employer and what an employer has to pay, so any non-critical task results in a fired employee, because the employer isn’t going to pay someone $7.25 an hour to clean windows when the market price of a window cleaner is $2.50 an hour. So increasing the Minimum Wage just causes a greater overlap between “non-critical tasks” and “not worth it to pay someone to do,” the result of which is unemployment.
Economic law tells us that reckoning is going to happen sooner or later. The market will come to equilibrium one way or another, and it won’t be pretty when it happens. We should be reducing the Minimum Wage–or abolishing it altogether, I’d prefer–incrementally until such time as we can abolish it, not increasing it. Making the disparity greater is the dumbest thing we could do. Let’s get it over with. Let’s crash the train.
Let’s have a war.
As long as force, violence, and coercion are forbidden and it remains a market matter solved by non-violent competition, of course.