You don't need to be afraid of China to realize that outsourcing a very large fraction of all manufacturing for half the world to a single non-democratic country doesn't serve our interests in the long run.
Centralization promotes efficiency, until a problem happens.
I can't seem to find anything in news headlines, probably because the event I remember hearing about likely happened before Google's founding (I think it was the 1990s or 1980s?); but at a point in time the plastic used for either all or a lot of ICs was manufactured in one single facility. That plant happened to catch fire and it was a major supply issue. Even if that event was really a hypothetical recounted by a professor years later just to educate the class, it does serve as a good example.
Markets are more stable with more than one single manufacturing site, more than one supplier. Economics will still push towards as much consolidation as possible, so for the good of countries and consumers, regulators must press on the scales and ensure _competition_ remains. Ideally every big country can at least pivot manufacturing centers to be entirely self sufficient if they need. Maybe superpowers have multiple facilities even for small items. Maybe groups of countries (E.G. the EU, NATO, etc) pool their resources and distribute manufacturing accordingly.
Shipping also isn't free and externalities like pollution should not be allowed; they should be part of the cost to ensure that smart decisions about production happen.
Today's low personal computer prices, particularly those on machines made by smaller companies, are likely soon to shoot up more than $100 per machine because of a panic in the world memory-chip market.
Prices already have doubled for computer owners who want to expand the capacity of their machines to handle memory-hungry new programs based on Macintosh System 7 or on Microsoft Windows or the OS/2 operating system for IBM compatibles, industry officials said.
That's close enough that it's probably the event. It might have been slightly oversimplified or 2 decades of neuron decay since I heard about it Nth hand yielding the same effect.
> regulators must press on the scales and ensure _competition_ remains
An expectation of surge pricing may also work here. Figuring out some standard contract wording that quickly pushes the price spike all the way down the supply chain to the consumer and publishing it might help.
> Shipping also isn't free and externalities like pollution should not be allowed
Just because a country is a democracy does not mean it will be a reliable trading partner. Democracies can easily swing from free market to protectionist trade policies -- and back. Outsourcing a very large fraction of all manufacturing for half the world to any single country is an incredibly risky idea.
A non democratic country has fewer checks and balances on these things than the ones that do. But you are right, that's not a guarantee at all. Just a matter of degree.
In the US both tariffs and sanctions can be (and are) unilaterally imposed by the president.
Sanctions are crystal clear thanks to the IEEPA [1]. The president needs only declare an emergency, which is typically done in the exact same executive order imposing the sanctions. We're currently under at least 42 different national "emergencies", of which 34 are to impose sanctions. [2] The legal basis for tariffs is less clear, but in effect no different. Trump's tariffs [3] were all passed unilaterally, appealing to all sorts of acts that grant the president conditional tariff powers, but where the condition is framed in a broad enough way to include nearly any rationale.
But also consider that an act of Congress could modify IEEPA or repeal a specific tariff or sanction that the US president enacts. Perhaps that's a rare event, but those checks and balances are in place.
In China, Xi can decide to impose tariffs or sanctions, and there's nothing anyone can do about it.
I think this issue is what really cuts to the matter. China, on paper, has a similar system in place. Their system is based on tiered elections. You elect a local representative (who has significant power), who then elects (alongside other elected representatives) their representative. And this continues on up to the top where you have the ~3000 members of the National People's Congress who ultimately elect the president. The... NPC.
The NPC has immense power. They can override anything Xi Jinping does, and even have the power to completely recall him, or amend the constitution. But of course this won't happen. They have a one-party system with relatively minimal internal conflict. So even though the NPC is genuinely powerful and has every check and balance imaginable, they will not be using them.
Democracies aren’t beholden to the ego of an authoritarian. Free trade for free countries, and a tyrant tax for authoritarian regimes should be the norm if we want human centered capitalism. https://freedomhouse.org/explore-the-map?type=fiw&year=2023
Free Trade for Free Countries is a decent slogan! I’ve long been disappointed that this isn’t the mainstream position. Anything else feels very hypocritical (for the US).
Eh, economic engagement with unfree countries got us south korea, Taiwan, probably more in eastern Europe: Albania comes to mind. Afaict disengagement only worked with south Africa.
1. Democratic countries that mostly abide by international law and the rules-based order.
2. Non-democratic countries that also mostly abide by international law and the rules-based order, because they benefit from it more than not doing so.
3. Non-democratic countries that reject international law and the rules-based order.
The US trades with #1 and #2, and was hoping to make China into #2. But unfortunately it doesn’t look like that’s going to happen, China is in the grey area between #2 and #3 and probably trending toward #3.
2 works for small countries, if countries are large enough they can afford themselves to be a 3, which otherwise is reserved for failed states and outright dictatorships.
What good is free trade is China's navy gets to countrol shipping routes? That's one card they are playing. The other one is controlling Russia in exchange for Taiwan.
They understood that building cheap and in great numbers is the key to success. They did this with the J-7 and now the J-10.
The USA also got rid of Trump peacefully.
The Belarussians tried to get rid of Lukashenko and failed. And now their territory is being used to commit war crimes against Ukrainian civilians.
In democracies voters can fix their mistakes without risking their life and freedom.
Obviously you haven't lived in a dictatorship. Spend a few years in Russia or China or Turkey or Iran and then come back with your hypothesis about the raw truth.
Have you? Honestly, pompous "democracies" aren't fundamentally different to the rest of the world, when you start actually experiencing the day to day living.
There are lots of "dictatorships" where living is better then in lots of other "democracies", but this is not something you'll figure out from your internet feed, you really have to actually travel.
Exactly. The answer is not so clear cut black and white. Centralized governments tend to be more efficient but lack the checks and balances of a democracy. Singapore, for example, is a good showcase for centralized government.
There are other, more recent and more fitting examples you could choose if you want to use a specific politician.
You could also have used research that shows that people in general support or reject policies based on what party they think came up with them and not based on the (sometimes quite obvious ahead of time) consequences of those policies.
Except this isn't true. Trump was voted into power by the lower middle class simply for having rhetoric that was different from the status quo. He was "real" and his style largely resonated with an america who was tired of politicians acting fake and tired of digging through all the complexity of the economy and politics to figure out what was wrong with the country that caused them to work two jobs just to support themselves.
Trump instead lowered taxes for the rich. He was one of the rich, and he served himself. It was his rhetoric and dramatic conversational style that essentially caused people to unknowingly vote against their self interest.
I apologize for using the word "stupid" here. People and voters aren't stupid. Trump, however, was indeed an example of people not using the best strategy in the name of their self interest.
> outsourcing a very large fraction of all manufacturing for half the world to a single non-democratic country doesn't serve our interests in the long run
You do realise that a sizeable chunk of the world's oil and gas are sourced from "non-democratic" countries in the Middle East, yet somehow we leave them alone to openly torture, abuse and murder their citizens? And on top of that they're left alone to operate a cartel (OPEC) that holds the world to ransom when they decide one day to cut production and push up prices. Feels like there's a whole load of double standards on display here.
Fracking and nuclear are here-and-now options. Wind/solar/batteries are long-term options... especially with lots of HVDC.
We are causing a lot of trouble by shoveling money at bad countries run by bad people -- the Ukraine war wouldn't have happened if large (and important) parts of Europe 1) hadn't bought so much Russian gas and 2) made itself so dependent on the ability to keep buying it. This provided Putin with 1) the ability to wage war and 2) the feeling, bordering on certainty, that it was safe to do so.
yet somehow we leave them alone to openly torture, abuse and murder their citizens
Huh, like maybe "a sizeable chunk of the world's oil and gas are sourced from "non-democratic" countries in the Middle East" is the problem, and the reason those countries get a pass? So like we shouldn't be outsourcing manufacturing, we shouldn't be outsourcing energy production to terrible countries.
If by we you mean the US then we don’t. The US has effectively zero direct dependence on middle eastern oil due to domestic production and transportation costs. Canada is much closer and has a lot of oil.
Where it matters is they can impact the global prices and thus what people pay at the pump. Though the actual profits from such spikes in American gas prices end up going to suppliers in America or Canada.
> The US has effectively zero direct dependence on middle eastern oil due to domestic production and transportation costs
For now and whilst those extraction costs are cheaper domestically. The US needs the Saudis as a backstop and for infill of the types of crude oils the North American continent doesn't have access to or is in limited supply.
They're also a handy client state to do the US's dirty work in the Middle East, see Yemen for example. The US also needs the Saudi's and their non-democratic allies to keep buying weapon systems to prop up Lockheed, Boeing et al. You need to look at the bigger picture.
The USA needs the Saudis to supply Europe and Asia, otherwise demand goes up and pumps up prices in the states. But as we and our allies move to EVs, we really won’t need as much oil anymore, so the end of the dependence is near.
Imagine you created a new currency in the US: FidoBucks. Not even a crypto but a regular currency you can print at your whim. Obviously nobody's really going to want your currency and it will have zero value. But now imagine, after some backdoor deals, you make it such that FidoBucks are literally the only currency accepted at gas stations. And not only that both those gas stations agree to spend any extra profits they make buying in FidoBuck denominated treasuries. Now not only are people going to want your currency, but they will literally need it.
And since FidoBucks are now directly tied to access of a critical commodity, it will have also have a guaranteed minimum "value" that's tied to the cost of oil. So people can feel pretty comfortable holding and trading Fidobucks. In fact the new stability of your currency means you'd likely see people starting to trade it for far more than oil, to the point that gas becomes just a fraction of its trade.
This is essentially what the petrodollar did, but it of course started from a far higher point than zero of course. Once we ended the fixed convertibility of the USD to gold in 1971 [1], demand in the dollar started rapidly declining, and its relative value began decreasing. After the petrodollar this all reversed, hard. It's to assign a specific value to any of these changes, because it's all dynamic - just like in our simplified FidoBucks example so much would depend on the dynamic scarcity of gas, how many FidoBucks you print, the total value of outside trade, and a million other variables. What is safe to say is that it dramatically strengthened the position of the currency, and is a large reason that until extremely recently, if China and Russia were trading - they'd settle that trade in USD. Now they're trying to create the next FidoBuck backed by a combination of land, gold, and other finite resources.
Total worldwide production of oil is only ~90 million barrels/day and middle eastern production is a fraction of that. That’s not very significant compared to the total value of all USD in circulation. All FidoBucks in circulation might only be worth ~50 Billion in your example and depending on the velocity of money could actually be significantly less. People might start using it for other things, but it’s just as likely to be an odd quark of the oil market.
What actually props up the USD is the US taxes being paid in USD. Even transactions like selling burgers for Bitcoins suddenly force someone to not only get dollars to pay their taxes on that sale but set it aside for significant periods. This is the basic mechanism which forces all fiat money to have value, which then causes it to be used for loans and whatnot which further increases value.
First, the vast majority of all oil is traded in USD, not just the Mideast. As one example of the impact, take Canada. Their exchange rate against the USD is driven almost entirely by crude oil prices (of which they are a large exporter). The reason for this is that when oil prices are high they end up with a large supply of USD. And so the price of the Canadian dollar increases because, compared to the dollar, it's now in relatively lower supply. You can see how extreme this correlation is here. [1]
Beyond that, this is all about international issues. Those gas stations are oil producing countries, and the people buying from them are countries. Being the person who can "print" the world reserve currency gives you immense geopolitical power, and an inability to economically fail regardless of how hard you try. When foreign currencies are no longer so closely tied to the USD, and demand for the USD declines, its international value will likely start to sharply decline, exactly as it did in 1971. But this time I don't really see anything we'll be able to cling onto.
Even if you assuming 100% of all oil is traded in USD that’s still only ~8 billion dollars a day.
As to US Canada currency that relationship would be mathematically identical if oil was traded in Canadian dollars rather than USD with the exact same changes to each currency as oil’s value spiked. It’s a result of the balance of trade not the specific commodity being exchanged let alone the currency the transaction was valued in.
Oil happens to have high price volatility and significant value, but wood or maple syrup has similar effects though on a smaller individual scale.
The average gross trade of just raw oil products is somewhere in the $1 trillion ballpark, total trade overall several times that. It doesn't really matter much either way, as it's the "value" of oil that matters, not the price. When you are able to lock a door that everybody wants in, your key is priceless. The value of oil doesn't spike, its price does - primarily due to OPEC manipulation or yet another US Mideast invasion.
You're absolutely right that balance of trade plays a part in this, but not in the assumption that the currency is irrelevant. If countries were paying Canada in CAD instead of USD, then Canada's reserves of CAD would be constantly increasing while the rest of the world's would be decreasing. The CAD would become extremely strong, extremely quickly. The realistic scenario is that countries would simply stop buying oil from Canada because of this, but if they couldn't (for instance if Canada somehow convinced oil seller's to sell only in CAD...) then the result would be a never-ending and effectively uncapped appreciation of the CAD, subject only to the discretion of Canada itself.
This is literally exactly what happened with the ruble. Russia used to sell their oil in the USD. After we did our sanctions stuff trying to tank their economy, they started selling oil only in the ruble. And the value of their currency not only immediately reversed all of the sanctions inflected weakening, but rapidly became even stronger than before they invaded. It led them to the bizarre scenario of having to actually have to try to weaken their currency, while facing 'nuclear' sanctions, to make sure they didn't (as above) price themselves out of the oil market, by having too strong a currency.
Annual numbers are irrelevant due to the concept of velocity of money.
You can use the same physical 20$ dollar bill to buy a soda several times over a year. You hand it to the 7-11 on Monday, they take it to the bank on Tuesday, the bank puts it into their ATM on Wednesday, you get out of the ATM on Thursday, and then take it back to that same 7-11 on Friday.
Digital currency can cycle the same way just faster. Mexico Joe trades peso’s for OilBucks from Dubai Bank at 9:00AM, use them to buy oil from someone in Bolivia at 9:01. At 9:02 Frank in France trades Euros to Bolivia Co at 9:02 to get those same Oil Bucks for a trade at 9:03 with someone in Saudi Arabia…
PS: The nonsense included in the second half ignores the feedback loops from the balance of trade.
Anytime your pet economic theory results in some asset spiraling to infinite value it’s inevitably wrong. There’s always a point where people say no and do something else because they simply can’t spend infinite money on anything. Instead there’s always some factor not included in your model that moderates the impact you simply aren’t including it.
No, it doesn't. I'll stop being subtle to make this more clear. When I spoke of the issue being up to "Canada's discretion" what I mean is that Canada, in our hypothetical scenario, obviously cannot let their currency appreciate endlessly. They would take actions to prevent that, because it's obviously self defeating otherwise. This is precisely what has happened in the US. The artificial power the petrodollar granted our currency gave us not only the power but the necessity to start doing things like endlessly printing money, sending much of it abroad, spending trillions of dollars on pointless wars, and more.
Until recent times, keeping inflation up was difficult in spite of all of this - which is why we've had 0 interest rates desperately trying to devalue the currency. The big inflection point was 1971. That was the end of the USD being 'hard backed' (fixed exchange rate) by gold. The 'soft backing' (unfixed exchange rate) of oil would begin in 1974, organized by no less than Kissinger. You can see many of the measures we took here [1]. A critical table [2] that site is missing is the trade deficit.
Ultimately the test for all of this will come imminently. BRICS has been developing a new backed (presumably 'hard backed') currency, set to be announced as early as August of this year. And IMO, BRICS as a whole is making their move at this exact moment precisely because the USD is in a situation where this will have maximum impact. Something to keep your eyes on if you're at all genuinely interested in these things!
We get ~12% of our oil from the middle east which is consequential but not what I meant.
You'll note that after Biden called Saudi Arabia a Pariah state, he was forced to reverse course and head over, hat in hand, and beg for more production. Not because of the 12% (or 10% or 8%), we directly consume, but because of the impact on inflation and the world economy.
So yes, we are beholden to middle east oil, not because we directly consume it, but because of the impact on energy prices and inflation. If we were maximizing our own energy production, not just for domestic consumption but for export, we could lessen that impact and the influence they have.
“About 9% of U.S. total petroleum imports and 9% of U.S. crude oil imports were from Persian Gulf countries in 2021.” However the US produces 20 Billion barrels of oil vs 8 Billion barrels of imports. So that 9% is really 9% * (8B / (8B + 20B)) = 2.6% of the US’s total oil supply.
Further that 8 Billion barrels of imports almost exactly equals our 8 Billion barrels of exports. There are many reasons to imports and export oil over the course of a year for example seasonal demand varies, but if it goes to 0 we can also stop our exports.
If only there were a country in North America that had vast oil reserves, larger than Saudi Arabia’s, just there for the taking if politics and lawfare got out of the way…
Do you mean the us or canada? The oil tar sands in Canada are supposed to be expensive to convert to usable petroleum, also use a lot of water, and are supposed to be worse for co2 production. The us has lots of oil, we can get it out if we need it, more frakking, etc. Mexico is happy to sell us all their oil.
Yes. The long peace in my view was more so caused by the invention of nuclear weapons which drastically lowered the incentive for war, forward-thinking decision makers who constructed a reasonably stable alliance between great powers, and mass communications technologies allowing for greater control and integration of populations.
This sums it up nicely. Many wars have been fought that might have been avoided with better communication.
Nuclear weapons created an era with highly concentrated destruction. Major wars are much less frequent, but the next world war will be cataclysmic. Up until the next world war one should expect unprecedented peace and prosperity. Hopefully we can avoid undoing all of those gains and more in the blink of an eye.
Unfortunately the US consumer simply cannot afford to pay more for products no produced in non-democratic nations with impossibly cheap labor. They are already being pushed to the brink.
As long as many companies continue to make year-on-year record profits, I reject that prices are a product solely of non-Democratic countries' impossibly cheap labor.
In addition to that, a large portion of necessary spending is unaffected by outsourcing. A person can their spending on clothes or electronics quite low if needed; but housing, food, and energy costs are largely driven by domestic circumstances.
