When you look at international business history, it is clear that symmetric tit-for-tat is a dumb way to operate. Even if China is doing everything from currency manipulation to protecting its markets and stealing IP (not news) it is dumb for the *US* to retaliate in kind
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The tools China is using are economic weapons of the weak. The US used those tools when it was weaker than Europe in the 19th century. The US stole textiles IP. It put up trade barriers. It protected fledgling industry and got European expertise to the US by any means necessary.
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How dumb is this? As dumb as responding to military weapons of the weak by giving up your own advanced weaponry. Imagine if the US had responded to crude IEDs etc in wars like Vietnam, Afghanistan, Iraq by declaring, “hah, we can do that too” and grounding its high tech military?
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The US is the most advanced economy in the world.
- Drawing the best immigrant talent *including from “enemies” like China* is like having fighter jets instead of IEDs
- Having a laissez faire economy that runs itself instead of state-run shitcorps is like drones over mortars
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- Being able to *predictably* invent the next global economy with boring regularity every 25-30 years and dump the mature commoditizing sectors on the non-innovative laggard countries is like having a space program with spy satellites where the competition is using balloons
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I generally take hawkish military-inspired postures seriously where they are actually appropriate. Where even serious thinkers go wrong is not realizing they’re doing the economic equivalent of “honor-based” strategy.
Something no modern military would ever do on battlefield.
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Sometime between the US Civil War and WW2, military conflict evolved from honor-based to calculated, industrially efficient total war. Honor-based militaries were routinely wiped out against this model.
Neoliberalism was “total war” doctrine in economics *and it works*
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Going back to 19th century honor-based, symmetric protectionist bilateral trade duels is going to go down as the most spectacular economic own-goal in history if it is pursued to the bitter end. It will eclipse the previous most spectacular own-goal: China’s pre-modern one.
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This is one area where Trump’s thinking is transparent, the logic clear, and origin obvious. He’s thinking like a real estate slumlord with a huge insecurity around his own awful record as an “entrepreneur”, built primarily on a core competency of working the courts and tax laws.
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He genuinely thinks “winning” in business is about scamming unsuspecting marks, getting away with it in courts, and generating personal income by gaming taxes and debt rather than creating wealth through innovation.
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Subconsciously he realizes he’s missing something. Hence the Bezos Derangement Syndrome.
Unlike Bezos, he has no clue how to play in a world shaped by a developing China (a good thing for the world) and actually win.
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Why Nations Fail is still probably the best read on how global economic leadership is actually won, by creating win-win where you win more than others. The US is increasingly starting to look like the failed state examples in that book.
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When I travel in India, I can always tell when shopkeepers are trying to scam me, since I grew up there and have an idea of what things should cost. But because I earn in USD, I often just pay rather than bargain. It’s not worth the trouble for me to beat the “unfair” scam.
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For me, getting clever and taking 15 minutes to bargain a $10 item down to the local “fair” price of $5, when it costs $50 in the US, feels like a waste of time. For the vendor, it’s a successful 2x scam. For me, it’s an 80% off bargain that I don’t feel like driving up to 90%
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Foolish to negotiate for the “principle”when you have the power of vast economic superiority. You can let counterparty think they got away with something. You have to be really insecure to waste time to get the locally fair price and show the counterparty you’re not a sucker.
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But it’s really really dumb to actually fritter away the advantage that allows you to ignore the two-big shenanigans by much weaker players.
Of course, you have to keep an eye on them as they strengthen, and the deltas start to go past your indifference threshold.
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But the relative and growing “strength” of China is, IMO vastly overstated due to lots of factors. Ranging from population effects to fake state numbers to deep fragility swept under the rug. Being treated as bigger than they are is a big win for them. That’s taking it to make it
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For the record, I’m rooting for China to win big economically because I don’t think US needs to lose economically for that to happen, so it’s a net win for humanity. It would be even better if 1/5 of the world’s brainpower came online and took the lead on key tech.
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What’s better than a superpower that knows how to actually create wealth? TWO superpowers that know how to do it. Even better if it’s with two distinct playbooks. Hedge bets.
There are problems with the rise of China, but they’re climate/environmental, not zero-sum political.
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China is probably iterating and learning faster than the US in a few key areas, like batteries and solar or something. Maybe semiconductors in the future. But so long as the rest of the world can benefit from cheap Chinese innovation spillover, it’s good.
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Vast wealth was created around the world via cheap spillover of a century of US innovation. It’d be nice to have a twin-engined global innovation economy.
It’s certainly needed to beat climate change, drive development in Africa, beat aging population problem with robots, etc.
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Even with its fatal ideological flaws and a flawed economic doctrine, the USSR did a ton of wealth-creating innovation. So did Japan. Whether Chinese playbook works or not politically/ideologically, we’ll probably end up with some good rewards from the grand Chinese experiment
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