Lol 118 bannable apps versus Tagore poetry and yoga is... an interesting sort of cultural trade deficit. India basically exports no cultural goods worth canceling to China. The US otoh has Hollywood exports as a pain point.
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China is becoming increasingly vulnerable based on strengths. They import nothing they can’t do without that’s not raw materials, where they’re extra vulnerable. So tit-for-tat trade penalties don’t work.
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Post-Covid reconstruction, if there’s a lot of dematerialization and localization of consumption, so world’s export markets mainly consume industrial intermediates over finished goods, China will be significantly weakened.
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Margins on PLA filament will be much worse than on a million little plastic SKUs.
This is why I have renewed interest in things like 3D printing. Low-energy last-mile decentralized finishing processes are separating from energy-intensive first-mile centralized scaled processes.
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Software platform monopolies unlike industrial base monopolies are much easier to replicate locally once the first instance is done.
Industrial base goods have margins loaded on finished goods end where expensive markets intelligence matters most.
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Old data from Ghemawat’s World 3.0 (2011): For the iPod, Apple kept $163 of $297, or 54% purely for design IP. All the atoms are assembled by China. I imagine picture is similar for most finished goods.
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Round tripping is a weakness for China. Think of manufacturing as a multi-loop thing that makes several passes through China. It means if you pull the last 1-2 loops out of China and into market last-mile economy, you pull most of the margins, but very little of the energy input.
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This is s/w logic in disguise. Chinese leverage gets weaker with more s/w-centric “turns”. Which is why they’ll lose on tiktok and other soft-IP. Too easy to copy, too easy to flout international IP laws (their own big trick), and not vulnerable to, for eg. mineral supplies.
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This doesn’t mean they lose overall (they can still hold rare earths ransom etc) or that this is the right front to squeeze them on. It would be shitty of the rest of the world to saddle China with most of the emissions and pollution bill while taking all the soft, easy margins.
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I’ve been thinking a lot about these dynamics for the last couple of years due to gigs where it’s been salient. Manufacturing needs to be refactored along lines of energetic raw-materials-transformation vs info-intensive intermediates transformation and reoptimized for min-GHG
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I think the economic solution is for the world to pay China for the cost of hosting the dirtiest bits of the supply chain. Ie China should impose an environment tax on its exports or something. Internalize those externalities.
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Risk to them is, if it’s too high, they’ll lose those industries to other countries. But the “capital rigidity” is huge. You can’t build up basic industrial capacities overnight, and most countries have neither the appetite nor the capacity.
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The one stupid scenario which is not inconceivable is if China decides to go back to isolationism. Secure it’s own raw materials needs, cede export markets where they don’t like being strong-armed by last mile, and simply let the rest of the world suffer a transient collapse.
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I don’t think they’d do this. The allure of being a global superpower rather than a kingdom in retreat preserving its quality of life during a dark age is rather weak. Also, some raw materials equations may not balance.
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Still there’s no doubt that the rest of the world has been significantly techno-pastoralized by China’s dominance of process industries. It’s 95% farmers markets and trad larping and 5% 10x-engineer wizard work for the developed world right now, and squalor for developing world.
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The solution is robots for everyone, easy player-piano work for most, wizard work for a few.
And mansions for some. Including me.
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