By David Frum
The Trump administration last week escalated its trade war upon China. China will retaliate. As in any war, there will be casualties. As Catherine Rampell reported in The Washington Post last week, the price of dishwashers has risen 17 percent since the January 2018 round of tariff increases. Soon, Chinese consumers will pay more for food.
Can this mutual self-harm possibly lead to good? Almost certainly not—because the Trump administration, like most of us, is viewing the problem upside down.
They focus on one aspect of the United States-China relationship, the balance of trade. That shows a huge surplus for China, $366 billion in 2017. To simplify the story a lot, that $366 billion imbalance translates into an incremental increase in U.S. indebtedness to China, which tallied $1.17 trillion at the end of 2017.
These figures are usually described as a huge vulnerability for the United States. They are also often told as a morality tale of American self-indulgence or (alternatively) American naivety. Either because Americans do not work hard enough or because they have been sold out by globalist elites, America is losing and China is winning.
Or so the story goes.
Here’s another way to think about it. In about 1890, the U.K.-U.S. relationship looked a lot like the U.S.-China relationship today. In 1890, Britain held the world’s largest pool of investible wealth, as the United States does today. In 1890, the U.S. economy was growing much faster than the U.K. economy, much as China’s economy grows faster than America’s today.
Now comes the difference. In 1890, investment capital flowed from Britain (the more mature economy) to the United States—and on a huge scale. In those days, Britain invested something like 6–8 percent of its national income overseas, with the U.S. as the single largest destination.
Instead of attracting capital, however, China …read more
Via:: The Atlantic