China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle

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Jul 18, 2024

Michael Pettis, financial expert, discusses China's investment-driven growth model, challenges in increasing consumption, comparisons to Japan's economic decline, impact of trade surpluses on deficit countries, and the fallacy of 'trade is always good' mindset among economists.

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INSIGHT

Shifting Economic Orthodoxy

The decline in US manufacturing and rise of global trade are connected.
The shift in economic orthodoxy regarding trade is a key factor.

INSIGHT

Rethinking Tariffs

Tariffs' impact on trade depends on the underlying economic conditions.
They can be beneficial or detrimental, challenging the traditional view of tariffs as always bad.

INSIGHT

US Industrial Policy

U.S. industrial policy is inevitably influenced by other countries' policies in a globalized world.
The U.S. must choose between accepting foreign-designed policy or reclaiming control.

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Recent writings by Michael Pettis:

“Which Country Should Design U.S. Industrial Policy?”: https://carnegieendowment.org/china-financial-markets/2024/07/which-country-should-design-us-industrial-policy?lang=en

“Trade and the Manufacturing Share”: https://www.phenomenalworld.org/analysis/trade-and-the-manufacturing-share/

“Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace”: https://www.amazon.com/Trade-Wars-Are-Class-International/dp/0300244177

Timestamps:

(00:00) Introduction

(01:18) The Problem With China's Investment-Driven Growth Model

(09:52) Why Increasing China's Consumption Is So Hard

(17:36) China's Plan To Reignite Economic Growth In China

(20:43) Why China Will Follow Similar Path To Japan In Its Economic Decline In 1990s

(24:03) Impact That Trade Surplus Countries (China, Germany, etc.) Have on Trade Deficit Countries (U.S., U.K., etc.)

(28:06) VanEck Ad

(28:46) Interview Continues

(36:59) The Fall of The "Trade Is Always Good" Consensus Among Economists

(49:58) Permissionless Ad

(50:57) Is China "Cheating At Trade"?

(57:19) The Three Things The U.S. Can Do To Respond To Its Role As "Global Consumer Of Last Resort"

(01:01:53) Why U.S. Capital Controls Are Necessary To Truly Fix The American Trade Deficit

(01:06:35) Both Trump and Biden Factions Are Determined To Resolve U.S.' Trade Imbalances

(01:08:36) China's Move From Real Estate To Manufacturing Is Exacerbating Its Trade Surplus With The Rest Of The World

(01:14:53) Chinese Real Estate Crisis Unlikely To Imperil The Chinese Banking System, Argues Pettis (Because The Government Is In Control)

(01:18:58) What About The Chinese Shadow Banking System?

(01:21:13) How Pettis Sees This All Playing Out

(01:25:09) How Falling Real Estate Prices (And Stock Markets) Impact Sentiment In China

Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.