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Wednesday, March 07, 2018

US tariffs and trade war

As I mentioned yesterday, I was asked to pinch-hit for Steve Keen on a Chinese English-language business show this morning. They arranged for a trip up to the studio, which frankly struck me as more than a little overkill considering that they only asked me four questions. But it was a real learning experience, although unfortunately I was on a bit of an audio delay. Please keep in mind that I had no idea what the host was going to ask me, except that it would have something to do with China and President Trump's recent comments about tariffs, because I wasn't tuned in until about 10 seconds before the host addressed me.

The transcript follows. The sections in italics are the graphics that the producers popped up while we were talking.
YANG RUI: Let me cross over to Mr Vox Day, author of On the Question of Free Trade: An Economic Discourse, for his comments on the latest. What do you make of the impact on the European Union.

VOX DAY: Well, I think the threats from the European Union are essentially toothless. There is very, very little that the European Union can do when it comes to US trade policy. I think it's a lot of political threat, but ultimately there is nothing they can do about it.

YANG: You mean there won't be any reprisals from the European Union? Let's look at such statistics. The exports as a percentage of each economy: Germany is 46 percent, South Korea 42 percent, Mexico 38 percent, and Canada 31 percent. China is just 20 percent, but we are still very much exposed compared to 12 percent (for the USA). So, all would suffer in a trade war if there would be a trade war. What do you think of the collective repercussions.

VOX: First of all, I think it's important to understand that not everyone will suffer equally in a trade war, and some parties will benefit from it. For example, if you simply look at the United States alone and we take it to the most extreme, absurd example and suppose that the United States were to stop all imports and exports, that would immediately translate into a 3 percent annual boost to the US economy. If you look at how the GDP is calculated, it's very simple. And so the fact that it might have a negative outcome on Europe, the fact that it would have a strong negative impact on South Korea, says nothing about what the impact on the United States is. And, of course, President Trump has made it very clear that with his America First policy, he is not as concerned about the economic state of the rest of the world.

US TARIFFS A PRELUDE TO A TRADE WAR
US has high domestic demand

YANG RUI: Vox, what do you think of the Chinese response? What would be the most likely response from China, which was accused by the US government of only paying lip service instead of turning to actions, to reciprocate in terms of deals that are not quite in favor of the US. According to President Donald Trump, the US suffers $800 billion of trade deficit, that's quite a lot.

US TARIFFS A PRELUDE TO A TRADE WAR
How will China respond in a trade war?

VOX: I think China's response is going to be very calm and measured. I don't think there is any advantage to China in trying to engage in reprisals, simply because, you know, by definition, the reduction of imports into the US is going to boost their manufacturing and boost their GDP. And so the best thing for China to do is to simply play a long game, play a waiting game. It's something they're very good at. This main steel and aluminum tariff is not directed primarily at China and so there is no reason for China to overreact. Trump will do what he says he's going to do; he's pretty good about that.

YANG: But last year we enjoyed a trade surplus of $300 billion with the United States and John, the guest speaker here in the studio, says that China is likely to open up our capital market and to lay the groundwork for more American services to be provided here in the Chinese market. What do you think of the prospects?

US TARIFFS A PRELUDE TO A TRADE WAR
US "has an $800 billion yearly trade deficit"

VOX: I don't think that is going to be effective because Trump is not that concerned about Wall Street. He's not that concerned about what you call the services market. He's much more concerned about the industrial base, he's much more concerned about the working class who have lost so many jobs over the last few decades. I think the most important aspect of that development you're talking about is that it indicates that China is not disposed to respond to Trump's harsh rhetoric with harsh rhetoric or ill-considered actions of their own.
I'll share some of my thoughts on the experience later. And somewhat to my surprise, I was informed that they liked my answers and would like to have me back again sometime.

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70 Comments:

Blogger 罗臻 March 07, 2018 10:58 AM  

You did a very good job Vox. I thought your answers were perfect for the setting.

China is opening its financial sector because it's used to dealing with Wall Street controlling Washington, they think that's what the U.S. wants. They keep out-negotiating the U.S. because Wall Street and economists run the policy and Wall Street only thinks in the short-term. They want free flow of capital, they don't care about labor. Also, trade negotiators don't set national economic policy. They can't revive manufacturing by making a trade deal with China, deregulation and other laws are needed at home. That's why Trump is such a break with the past, this is a totally new negotiating position from the U.S.

Blogger Nate March 07, 2018 11:05 AM  

you likely didn't make them very happy mate. You're supposed to talk about how it is all The End of the World!!!

Blogger VD March 07, 2018 11:09 AM  

Yeah, I think this definitely confirms that my decision to not pursue a career as a talking head was the correct one. Even before it became apparent that I would not have TV hair.

Blogger Brick Hardslab March 07, 2018 11:10 AM  

It's long past time we imposed tariffs and brought jobs back. Combine that with shipping every illegal home and wages might rise again.

I know the money manager's bottom line might suffer but I'm sure they're willing to make the same sacrifices that Joe Average did while the money managers raked in the dough.

What did they advise? Oh yes, get a new job move thousands of miles away if that's what it takes.

Blogger DonReynolds March 07, 2018 11:10 AM  

Patience was invented in China.
Four years of Trump policies must seem like a cool shower.
Nothing about the USA is permanent, but China is eternal.

Blogger Dave March 07, 2018 11:11 AM  

Where was the studio? Nice background.

I posted these intervals in the other thread for people to watch:

Vox intervals on Dialogue
8:30-10:55
18:05-20:45
24:40-26:40

https://www.cgtn.com/channel/en.do

(click on Dialogue with Yang Rui @ 6:30)

Very cool if they have you back. I think the host could've done much better with the delay. Don't just say "Hi" and wait for a response; pose the question at the same time, etc.

Blogger Brick Hardslab March 07, 2018 11:13 AM  

You'll never have Milo or Elvis' hair but you could shave it all maybe cultivate a Sam Elliott mustache. That would be distinctive.

Along with various pieces of dark lord armor it could start a trend. It's no more silly than a coat and tie.

Blogger Nate March 07, 2018 11:14 AM  

"Yeah, I think this definitely confirms that my decision to not pursue a career as a talking head was the correct one. Even before it became apparent that I would not have TV hair."

ARE YOU SURE CARTER PAGE ISN'T INVOLVED IN THIS???

Blogger Robert Browning March 07, 2018 11:19 AM  

Congratulations

Blogger pyrrhus March 07, 2018 11:20 AM  

Great interview, and a perfect example of how nuanced the Chinese (and Japanese for that matter) are with respect to the great issues.Good point about Wall street. If Tariffs diminish WS influence, that would be a huge plus for America, and Trump...Now, I only hope Trump does what we expect with respect to trade.

OpenID notebuyer March 07, 2018 11:26 AM  

Nicely done, especially the point that "no imports because of tariffs mean an increase in GDP". I quoted you on that yesterday to a friend, who appreciated the exercise. Thanks.

Blogger Jay March 07, 2018 11:28 AM  

Quite telling Chinese state television is ok with Vox while US media is not.

Would that (((our journos))) were as based & nationalistic as Yang Rui is https://infogalactic.com/info/Yang_Rui

"We should shut up those who demonize China and send them packing"

"The media and the republic go up and down together. The US has done this to the extreme, but Wall Street's greed was not exposed because Jews control both the financial and media worlds. Why do the US media not dare to support the call for the establishment of a Palestinian state? It's because they're afraid of getting fired by their Jewish bosses. When I interviewed the chairman of the US Jewish Association, I questioned him on this. He snarled at me ferociously and said that in America, no one would dare to speak to him this way. He was like a mafia chief. So please stop saying how beautiful American press freedom is."

Blogger Looking Glass March 07, 2018 11:33 AM  

@1 罗臻

China got f***ed by the Finance Class a lot harder than you realize. Joining the SDR means they'll be pillaging China for the next 4-5 decades.

Blogger VD March 07, 2018 11:41 AM  

China got f***ed by the Finance Class a lot harder than you realize. Joining the SDR means they'll be pillaging China for the next 4-5 decades.

I doubt it. China won't put up with it once they realize what is happening. They are still very innocent in that particular regard, as Yang's reaction to the chairman demonstrates. He was clearly shocked by the man's behavior.

Blogger Emmett Fitz-Hume March 07, 2018 11:53 AM  

The tariff talk over at Instapundit got flooded with Anti-tariff, Pro-Union trolls.

Trump must be over the target again.

Blogger Loraen Moon March 07, 2018 11:59 AM  

Unfortunately, Vox, you have fallen victim to one of the classic blunders. Sure, the most common is "don't get involved in a land war in asia". But only slightly less well known is extrapolating from a macroeconomic equation with many degrees of freedom.


GDP = C+I+G+(x-m) has 6 variables and 5 degrees of freedom. The (x-m) term in the equation simply reflects that we are not producing as much as we are consuming. If international trade were cut off, either consumption would go down (standard of living goes down) or GDP would go up (we all work harder for the same standard of living). A trade deficit means that other countries give you real things in exchange for paper debt. Since there have traditionally been no consequences to US deficit spending due to central bank action and exorbitant privilege, this means we are essentially getting free stuff.

I think there are strong arguments for tariffs, but this 'GDP would magically increase by 3%' is not one of them, and I'm kind of amazed no one has pointed this out.

Blogger Ominous Cowherd March 07, 2018 12:07 PM  

Loraen Moon wrote:GDP = C+I+G+(x-m) has 6 variables and 5 degrees of freedom.

Notice that there is no time variable in there. Think about that.

Blogger 罗臻 March 07, 2018 12:08 PM  

Since there have traditionally been no consequences to US deficit spending due to central bank action and exorbitant privilege, this means we are essentially getting free stuff.

I think there are strong arguments for tariffs, but this 'GDP would magically increase by 3%' is not one of them, and I'm kind of amazed no one has pointed this out.
We don't get free stuff. Banks create the money, they get it first, that's why they get rich and flyover gets poorer under the currency economic structure. Eventually, the bill comes due though, either the currency collapses in value or the trade deficit reverses. Either you reform and slowly produce more at home, or one day the bottom drops out, you've lost crucial network effects and you end up at a permanently lower standard of living.

GDP does magically increase because it is a junk statistic. It's possible for a trade war to cause a recession, but the long-term impact for trade deficit nations is they produce more at home. Go back to the 1930s depression and look who exited first: countries that devalued currency and who were trade deficit. The U.S. had an overvalued currency because it was helping the UK and was a creditor nation, and it was the export powerhouse. It was in depression the longest.

Blogger Peaceful Poster March 07, 2018 12:11 PM  

VD has rapidly become the world's leading opponent of free trade, next to the God Emperor, of course.

How does it feel, Vox?

Blogger 罗臻 March 07, 2018 12:13 PM  

China got f***ed by the Finance Class a lot harder than you realize. Joining the SDR means they'll be pillaging China for the next 4-5 decades.

China doesn't care about SDR today except as a something the leadership can crow about to the people. They were allowed in SDR because they're supposed to let their currency float. Within months of entering, they slapped on strict capital controls. It's exactly as with the WTO, idiot Western negotiators think they're making China open up, China breaks the rules and does what it wants.

Longer-term, the SDR is the next step of multinationalism (assuming there's cooperation). It gives China what they want: freedom from U.S. control. It gives the U.S. what it wants under Trump: a way out from having to run huge trade deficits because the global financial system needs reserve currency. Under the SDR, everyone can print money against the SDR basket, especially if they put gold in there. If you think really long-term, if you start with any amount of gold, eventually the SDR becomes gold.

Blogger Stg58/Animal Mother March 07, 2018 12:13 PM  

FLUGZEUGABWEHRKANONEN

Blogger Stg58/Animal Mother March 07, 2018 12:14 PM  

WINNING:

https://www.instagram.com/p/BgB38EpBj4d/

Blogger 罗臻 March 07, 2018 12:22 PM  

The case for nationalist economic policy is building.

Kyle Bass on CNBC making the case for tariffs.

Blogger VD March 07, 2018 12:25 PM  

I think there are strong arguments for tariffs, but this 'GDP would magically increase by 3%' is not one of them, and I'm kind of amazed no one has pointed this out.

Because no one else has been dumb enough to do so. You are absolutely and utterly wrong. You have no idea what you're talking about. No imports means no subtraction from GDP. That is an absolute fact. It's literally how the equation adds up.

The amusing thing is that your "yeah, but" hypothetical would completely eviscerate the pro-free trade argument and you don't realize that either.

Blogger VD March 07, 2018 12:26 PM  

VD has rapidly become the world's leading opponent of free trade, next to the God Emperor, of course.

Oh, I think Ian Fletcher and Pat Buchanan are much more significant figures in that regard. But I have formulated the most formidable anti-free trade argument. That much I will accept.

Blogger Peaceful Poster March 07, 2018 12:34 PM  

I have formulated the most formidable anti-free trade argument. That much I will accept.

Could be because of your right/libertarian background. Pretty sure most anti-free traders are leftists.

Blogger Stg58/Animal Mother March 07, 2018 12:36 PM  

When someone leads off with the classic blunder line as their opening comment, you know what's coming.

Blogger Some Guy March 07, 2018 12:43 PM  

VD,

I'm not really up on this part of the conversation, but exactly how do the elites make their money using free trade? I'm assuming that they do because they protect it so fiercely. Sorry if this seems like a stupid question, but figured why not.

Blogger Bodo Staron March 07, 2018 12:43 PM  

This was very entertaining, what a contrast to the suits in the studio. "YANG RUI: Let me cross over to Mr Vox Day"

Blogger TM Lutas March 07, 2018 12:46 PM  

Let's take the case of a marginally profitable business transaction that depends on an imported good. Nobody other than the originating company (for illustration's sake, a tool company in Berlin) can make this particular good and because of patent rights, nobody's going to be making it domestically for another decade.

A tariff is placed affecting the good and the extra cost throws the entire business line from profitable to loss making. You would expect that at that point, the whole idea gets dropped and GDP goes down by some small amount.

Moderate free traders think that this scenario happens frequently, moderate pro-tariff people think it happens infrequently. Extremists in both camps think it happens always and never respectively.

VD, so far as I can tell, you seem to be saying that this scenario of economic activity destruction never happens. Am I misreading you? If I am, how often do you think it happens in the real world?

Blogger Looking Glass March 07, 2018 12:55 PM  

@14 VD

I hope so, but I don't think anyone has yet to avoid the siren song of a well devised economic warfare approach.


@20 罗臻

The topic goes far deeper than I want to get into at the moment, but the SDR was the final step needed to lock China into a very nasty trajectory. The "game plan" from here is pretty simple. Financial Extraction will enrich the local elites at the cost of the middle and lower chunks of the economy.

China is a Net importer of Food, Oil, Coal, LNG and Water, then they joined the SDR at far too high of a valuation. China does manipulate its currency, but they keep it higher than it'd be naturally. That's the point of all of the capital controls. Everyone wants to get their money out while it is massively overvalued. So the plays will be a version of trading Raw Materials for Chinese currency, and gaining control, in phases, of all of the key aspects of their markets. Then the standard 1-3% skimming, year over year, of the central building blocks of economic growth: right from the middle class.

In theory, the leadership would stop this after 5-10 years, but they're going to make too much money in graft in the mean time. They'll be fat, happy & insulated, right as the population grows more and more frustrated because they aren't getting anywhere & don't know why. It's part of why Usury is a sin and used to be banned in Christian lands. It's brutally evil, but seems so benign.

Blogger VD March 07, 2018 1:00 PM  

VD, so far as I can tell, you seem to be saying that this scenario of economic activity destruction never happens. Am I misreading you? If I am, how often do you think it happens in the real world?

No, you're just totally ignorant of how GDP is calculated. Look, the very moment that you start constructing real-world examples, you have not only lost the argument, you have demonstrated that you don't even understand it.

On what planet do you think that the actual "case of a marginally profitable business transaction that depends on an imported good" has anything to do with how an economic statistic is produced? Why do you think that real-world micro has ANYTHING to do with macroeconomics and macroeconomic policy?

Read RGD, specifically, the chapter entitled "No One Knows Anything". FFS, I dealt with this stuff in detail 10 years ago, so I'm not particularly fond of being "corrected" by the ignorant. Which, I note, you did not do, you did the right thing and asked for an explanation.

Blogger Snidely Whiplash March 07, 2018 1:04 PM  

Peaceful Poster wrote:Pretty sure most anti-free traders are leftists.
You call Pat Buchanan a leftie again and I will hunt you down, you filthy narcissistic pig.

@TM Lutas, thought experiments, the besetting sin of Libertarians, are never experiments and rarely involve much thought.

Blogger RobertT March 07, 2018 1:04 PM  

I'm sure you took them by surprise with your erudite responses.

Blogger Dirk Manly March 07, 2018 1:11 PM  

@16

Or m goes to zero.

Blogger Felix March 07, 2018 1:29 PM  

Us isnt advocating for any of these either despite every one having a much larger casualty count and far more square miles occupied.
Moroccan occupied western sahara
Turkish occupied cyprus and kurdistan
Russian occupied chechnya and dagestan
Nigerian occupied biafra
Chinese occupied tibet
Indonesia occupied papua
Sudanese occupied darfur
Etc
&c......

Blogger Stg58/Animal Mother March 07, 2018 1:44 PM  

Tariffs hurt John Brennan's fee fees.

Now he's whining. I love winning. Not even tired of it !

Blogger Loraen Moon March 07, 2018 2:06 PM  

@24 No imports means no subtraction from GDP. That is an absolute fact. It's literally how the equation adds up.

This part is simply wrong. No imports means no subtraction from GDP . . . . IF C/I/G STAY THE SAME. In other words, if we immediately begin producing everything that we were previously importing then our GDP will go up, because we are producing things that before we were getting via debt. But of course this is impossible, because it takes time to rebuild factories, train workers, and mine natural resources. Therefore C/I/G will drop in the short term and GDP will remain the same. Now over the long term? Who knows. It's hard to make predictions, especially about the future.

Blogger Stg58/Animal Mother March 07, 2018 2:26 PM  

The greater the drop in the short term, the greater the need is felt for domestic capacity to ramp up.

Heroin is also a bitch to quit, but well worth it.

Blogger 罗臻 March 07, 2018 2:29 PM  

But of course this is impossible, because it takes time to rebuild factories, train workers, and mine natural resources.

Capacity utilization is in the low 70% range.

Blogger Ominous Cowherd March 07, 2018 3:09 PM  

Loraen Moon wrote:No imports means no subtraction from GDP . . . . IF C/I/G STAY THE SAME.

There is no time variable in the equation. I suggest, again, that you think on that.

Blogger tz March 07, 2018 3:10 PM  

China open to services? They just demanded Apple use a local cloud service provider. They don't let Facebook or Twitter have access.

For financial services, they will probably demand they bailout, I mean partner with local banks.

We had Toyota dealerships, but it mattered if the cars were built here.

Also, I think Trump is slowly and subtly devaluing the USD - I don't think it will break "reserve currency", but that is what Mexico did before the ink was dry on NAFTA. An exchange rate change gives an export subsidy and import tariff, but we refuse to recognize and call it that.

Blogger Loraen Moon March 07, 2018 3:23 PM  

@39 So maybe the US is more capable of rising to the challenge than I have thought! On the other hand, I would guess that the unused capacity is the marginal capacity and therefore costs would rise, that our excess capacity isn't producing exactly the things we need, that America's millenial workforce is just not that great, and above all that this kind of major reorganization takes time. So I still believe it's far more likely that in the short term (say 6-12 months) it's the C/I/G that will drop rather than GDP exploding.

But, I'm willing to admit that my economic crystal ball is not that great. So let me amend my position a bit: I don't think anyone can really predict exactly how the other variables in that equation will change in response to a decrease in imports, and it's very unlikely that C/I/G remain constant while GDP instantly goes up to match the lack of imports.

Blogger Looking Glass March 07, 2018 3:29 PM  

@41 tz

Feds are in an interest rate raising cycle. (By their own rules they were supposed to normalize in 2011, but that'd have cost Barry reelection.) The Trump Admin will favor a very flat USD, and it's not like we aren't near the 2010-2014 range as it stands.

Blogger Cluebat Vanexodar March 07, 2018 3:29 PM  

Looking at the transcript, I think that you did very well.

Kudos.

Blogger Dirk Manly March 07, 2018 3:39 PM  

@42

"So maybe the US is more capable of rising to the challenge than I have thought! On the other hand, I would guess that the unused capacity is the marginal capacity and therefore costs would rise,"

Costs would rise ONLY for a particular plant if it is running at the minimal per-unit cost point on capacity vs production curve. For example, running a plant for 3 shifts, 7 days/week for years on end is NOT maximally efficient -- you don't have time to do scheduled maintenance on machinery, which results in breakages (downtime, expensive) and repairs (oops, that downtime just got longer....and repair is more expensive than maintenance).

Running 2 shifts, 5 days/week equals 10 shifts/week out of a potential (3 x 7 =) 21 shifts/week, which, in fact, is only 48% capacity. A lot of plants only run 1 shift/week (5/21 = 24%).

Most automakers only run 3 shifts right at the very end of a model year (to catch up with orders before shutting down for model year changeover). Typically that's a max of 4 weeks, running Saturday shifts, too ( 18/21 = 86%). That still leaves a 24-hour maintenance window each week. Typically in such high production situations, machine operators are told to do some basic calibration checking at the start of their shift, or other tests which show something is about to get out of wack... that way the supplies can be on hand before the machinery breaks, and the repairs will be scheduled with others at the least costly time (lunch break, or shift change).

Blogger VD March 07, 2018 4:05 PM  

This part is simply wrong. No imports means no subtraction from GDP . . . . IF C/I/G STAY THE SAME. In other words, if we immediately begin producing everything that we were previously importing then our GDP will go up, because we are producing things that before we were getting via debt. But of course this is impossible, because it takes time to rebuild factories, train workers, and mine natural resources. Therefore C/I/G will drop in the short term and GDP will remain the same.

No. You clearly do not understand macroeconomic statistics at all. Money that is not spent on an import will either be spent on a domestic product or service, in which case C will rise, or it will be saved, in which case I will increase. In EITHER case, GDP increases. Which is what I correctly pointed out in the first place. Prof. Keen himself described my starting point as "a right hook to the chin."

Are you going to try to argue that he doesn't understand GDP too? Now, you can certainly throw up your hands and say that GDP is nonsense. That would be true. But your logic here is totally wrong because it does not apply to GDP. You are confusing the territory for the map.

Stop digging yourself in deeper. And do not attempt to correct me on this subject again, because you do not understand it.

Blogger VD March 07, 2018 4:09 PM  

But, I'm willing to admit that my economic crystal ball is not that great. So let me amend my position a bit: I don't think anyone can really predict exactly how the other variables in that equation will change in response to a decrease in imports, and it's very unlikely that C/I/G remain constant while GDP instantly goes up to match the lack of imports.

Again, you don't understand this AT ALL. You are so naive and ignorant that you actually think GDP measures anything real. That's not even remotely possible. It is an abstract statistical construct, and as such, it is not subject to the real-world logic you keep trying to apply to it.

For crying out loud, the BEA statistically massaged the 2001 recession out of existence. And you still think GDP measures anything real?

Blogger Josh (the sexiest thing here) March 07, 2018 4:32 PM  

And you still think GDP measures anything real?

Every time you say that, a fairy dies.

Blogger kurt9 March 07, 2018 4:41 PM  

I understand your guys' skepticism of free trade. However, there are times when protectionism inhibits innovation. Here is an article about how this happened with the U.S. steel industry.

https://www.bloomberg.com/view/articles/2018-03-05/steel-history-shows-how-america-lost-ground-to-europe

I would say the same thing was true with the "big Three" automakers. They lost market share in the 1970's primarily due to corporate arrogance, when they manufactured lousy cars. I remember many people in the late 70's buying Japanese cars for no other reason than simply that they lasted longer on the road. This is why my first car (in the late 80's) was a Toyota. I later sold it to a friend and that car ended up driving more than 250K miles. Try doing that with a 1980's American made car.

Blogger Duke Norfolk March 07, 2018 5:11 PM  

pyrrhus wrote:If Tariffs diminish WS influence, that would be a huge plus for America, and Trump...

Indeed. Shrinking the financial sector and it's influence would be YUGE.

Blogger 罗臻 March 07, 2018 5:33 PM  

However, there are times when protectionism inhibits innovation.

American car makers had no competition until the 1970s because Germany and Japan were rebuilding. That article makes a similar argument about steel. Economies new to the game start with the latest technology.

Keeping producers from become lazy is an issue, but I suspect it's a cyclical one. Tariffs will rise and fall over time as they did in the past (look at a history of the average US tariff). Once your productive capacity is at its peak, there will be wage pressures and workers will have a large share of national wealth, there will be a push for imports to ease inflation and raise living standards.

Blogger Snidely Whiplash March 07, 2018 5:58 PM  

Josh (the sexiest thing here) wrote:Every time you say that, a fairy dies.
Not your turn yet, Josh? Well, some day.


kurt9 wrote:They lost market share in the 1970's primarily due to corporate arrogance, when they manufactured lousy cars. I remember many people in the late 70's buying Japanese cars for no other reason than simply that they lasted longer on the road. This is why my first car (in the late 80's) was a Toyota. I later sold it to a friend and that car ended up driving more than 250K miles. Try doing that with a 1980's American made car.
This is bullshit. Speaking as a person who was forced by circumstance to own several of them, Japanese cars of the 1970s were crap.
The most important factor in car design in the late 1970s was the Arab oil embargo of the early 70s. The government demanded unrealistic fuel economy, and design changes that should have spent years in the lab were rolled out in months. Outstanding examples? The Chrysler "Lean Burn" Engine, and the GM Diesel. The changes demanded by Congress after the embargo did more to destroy the US car industry than even UAW.
I used to own a 1972 Torino station wagon that I sold in 1984 with 300,000 miles on it, despite my habitual speeding. (I couldn't help it, it had a supercharged 420 Interceptor engine in it) My mother had a 1968 Ford Deluxe that had 500,000 miles on it when she wrecked it in the late 80s. Hell, my Dad had a 1946 Buick sedan that died in 1964 with at least 200,000 miles on the clock.

Blogger kurt9 March 07, 2018 6:51 PM  

The most important factor in car design in the late 1970s was the Arab oil embargo of the early 70s. The government demanded unrealistic fuel economy, and design changes that should have spent years in the lab were rolled out in months. Outstanding examples? The Chrysler "Lean Burn" Engine, and the GM Diesel. The changes demanded by Congress after the embargo did more to destroy the US car industry than even UAW.

This is all true and was a huge part of the problem. However, corporate arrogance and bloat was still a problem. At the time, Ford had 14 layers of management, more than any branch of the U.S. military. Talk about corporate bloat.

In any case, the Japanese were quicker to develop fuel efficient reliable cars than the "Big 3" were. Your experiences with pre-1973 U.S. cars does not reflect the experiences of those my parents had. My father had a 1970 Delta 88 (yes, it was a totally cool car!). however, it did not last longer than about 80K miles. Same for my mother's '65 T-bird (Yes, another cool car). My parents' experiences are typical of other people I've talked to about this issue.

I think tariffs are necessary for cases of outright dumping as well as other forms of anti-competitive behavior on the part of foreign parties. This is why I think Trump's use of tariffs on steel and aluminum is justified. I think Trump also needs to take the Chinese to task over their currency manipulation. This is a fight Trump can win since the Chinese leadership is in a much more precarious situation than ours.

I actually think manufacturing will return to the U.S. even without any trade protectionism. The fracking revolution is making the U.S. into the number one oil and gas producer in the world (we could join OPEC!) and is giving us the lowest cost energy for any industrialized and even industrializing country in the world. This fracking revolution will be supplimented by advanced Fission (MSR, Thorium, etc.) as well as fusion power (Tri-alpha, General Fusion, etc.). So the low-cost energy revolution is permanent. Second is the automation revolution, which actually creates jobs for more skilled people (electricians, maintenance, technician types) of whom American white tend to do better than anyone else. Third is Trump's replication of the "Reagan" economic revolution in the form of deregulation and tax reform. Forth, China's population is both aging and have sufficiently high wage rates that the labor arbitrage advantage is rapidly declining.

I believe all four of these factors can and will make the U.S. a leading manufacturer once again, even on the basis of open free trade (lets just say there are HBD reasons why China's rise is not going to be replicated anywhere else in the forseeable future). Aside from issues of anti-competitive behavior such as dumping and the like, the reason why I am generally (not in all cases obviously) in favor of free trade is because I really do believe that the aforementioned four factors will make the U.S. competitive in manufacturing world-wide and I want us to have access to all of those foreign markets.

Blogger James Dixon March 07, 2018 6:53 PM  

> Speaking as a person who was forced by circumstance to own several of them, Japanese cars of the 1970s were crap.

Yes, but they were cheap crap. There's a reason the class was called econoboxes.

Blogger Snidely Whiplash March 07, 2018 7:18 PM  

The Japanese were not quicker to develop fuel-efficient cars. They developed them in the 1950s, because Japan was a poor country in the 1950s. A very poor country. Add the extremely crowded cities, sky-high land prices, high fuel prices and medieval road network, and anything beyond tiny, tiny cars was simply impractical there.
It wasn't until the 1980s that they developed a reputation for reliability.

And I'm sorry that your family couldn't maintain their cars. It must suck to be descended from such useless people.

Blogger Pale Male March 07, 2018 7:34 PM  

TM Lutas wrote:because of patent rights, nobody's going to be making it domestically for another decade.

A tariff is placed affecting the good and the extra cost throws the entire business line from profitable to loss making.

The patent holder looks at the P/L of licensing the patent to a US firm vs. doing nothing, and if it can profit, it does so.

Blogger Pale Male March 07, 2018 7:53 PM  

James Dixon wrote:There's a reason the class was called econoboxes.
Said class included the Chevy Chevette, Vega and Ford Pinto (of exploding gas tank fame).  The Japanese cars were known for vastly superior fuel economy.  Toyota in particular became a devotee of Deming long before anyone in the US did.  Without a big dealer and service network, high reliability was the only way of keeping its warranty costs down.  That paid off in reputation and customer loyalty.

The GM diesel wasn't helped at all by the circumstances when it hit the market.  Fuel supplies were short and the inadequately-tested powerplant was hit with things like wet and waxy fuel that it wasn't capable of handling under extreme conditions (no water separator in the fuel system).  Mercedes had long sold diesels in the US, but GM apparently didn't think to copy the designs of the losers of the last big war.

Snidely Whiplash wrote:It wasn't until the 1980s that they developed a reputation for reliability.
The effect on warranty costs was immediate.  It took a little longer for word to get around.

Blogger Snidely Whiplash March 07, 2018 8:08 PM  

The bigger problem with the GM diesels was the use of grade 5 bolts for the cylinder heads. I knew a guy who made a living in the 1980s buying those cars dirt cheap, replacing the bolts, and reselling them.
The grade 5 bolts would stretch at diesel engine cylinder pressures.

Blogger Jack Amok March 07, 2018 11:08 PM  

Toyota in particular became a devotee of Deming long before anyone in the US did.

FedGov could have saved the US auto makers by simply holding the UAW to the same anti-trust standards they held the car makers to. One big reason Deming wasn't adopted by US auto makers was they unions didn't want it and, thanks to dumbass labor laws, the same union was allowed to represent all three big auto makers. And that union was run by dumbass crooks.

No, it didn't help that management had a bunch of dumbass Ivy League idiots. There's a lot of ruin in a dominant industry...

Blogger The Kurgan March 08, 2018 5:40 AM  

Bwahahahhaah

Blogger Dirk Manly March 08, 2018 5:48 AM  

@57

"Toyota in particular became a devotee of Deming long before anyone in the US did."

Smithsonian magazine published an article on Deming back around 1982. Deming was the father of time-studies. The charicature of him was a man who perpetually held a stop-watch and clip-board, recording how long it took anyone to do any task.

Initially, American management ignored him. The Japs and the Germans quickly adopted Demingism (there's even a reference to it in the movie Schindler's List, when some army officer is questioning the output of an old Jewish man working for Schindler. He immediately pulls out a stopwatch, and orders the man to perform his task.)

While American MANAGEMENT ignored Deming for decades, the UAW immediately became acolytes for Demingism, because they wanted to slow down production lines. Assembly line workers were blamed for shoddy construction -- the UAW's response was -- you're running the line too fast for the job to be done properly. Their argument, per Deming, was that if you want us to make quality products, then you either have to slow down the production line so that each person can perform his tasks properly, OR you have to hire more people, so that you can split up the work of those men whose tasks take the longest to complete. GM, etc. didn't like that conclusion, but it was forced on them.

GM did what they could to ignore Deming until the mid-1990's. I was working in the GM Warren Tech Center when all GM management and engineers had stop their work for a couple hours one/day per week, to attend in-house classes on Deming's theories and methodologies.

A few years after, GM introduced the Northstar engine, the first engine with a 100,000 mile warranty. I don't know if there's a connection between the two or not.

Blogger Loraen Moon March 08, 2018 10:11 AM  

> GDP is an abstract statistical construct, and as such, it is not subject to the real-world logic you keep trying to apply to it.

No, it is your abstract logic that is incorrect. C, G, I, X, and M are all measurements of economic activity, and it should be obvious that they are all highly interdependent in a complex and chaotic way: Joe is consuming donuts because Bob invested in his company and a butterfly flapped its wings in New York and so on. This means you have an equation with 6 variables and five degrees of freedom. If you randomly pick two, you have no idea what the other ones will do. I really shouldn't have to say anything more, but I think life is easier to understand with examples.

> Money that is not spent on an import will either be spent on a domestic product or service, in which case C will rise, or it will be saved, in which case I will increase. In EITHER case, GDP increases.

This is incomplete because you are forgetting the V in MV = PQ. For example, Japan is actually a net importer as of Jan 2018. Imagine they put 1000% tariffs on all foreign goods in the expectation of increasing nominal GDP. Well, Wikipedia claims that Japan imports 85% of their energy. So the gas stations are empty and no one can get to work. Economic activity crashes, money velocity crashes, and even nominal GDP goes down as the Japanese resort to cannibalism.

> Are you going to try to argue that Prof. Keen doesn't understand GDP too?

If you were correct you would not need to resort to appeals to authority. Or ad hominem attacks.

Blogger Ray March 08, 2018 10:30 AM  

Deming was into statistical quality control. His idea was by looking at defects, you could tweak the manufacturing process to eliminate the defect rate by finding the root cause. He was brought to Japan to work on their census, and then lectured on statistical quality control.

You could use his methods for time studies, but what a waste / wrong focus,

https://infogalactic.com/info/W._Edwards_Deming

Frederick Taylor was the father of time studies,

Blogger James Dixon March 08, 2018 11:00 AM  

> If you were correct you would not need to resort to appeals to authority.

He is correct. You're not. Yes, he relationship between the elements of GDP is complex and chaotic. But that has nothing to do with an static analysis of a single or even multiple changes. Vox doesn't say the GDP will *remain* up by 3% indefinitely, only that it will immediately rise by 3%. The long term consequences are a completely separate matter.

Blogger Ominous Cowherd March 08, 2018 11:32 AM  

James Dixon wrote:Yes, he relationship between the elements of GDP is complex and chaotic. But that has nothing to do with an static analysis of a single or even multiple changes. ... The long term consequences are a completely separate matter.

Static analysis. No time variable in the equation. The Moonie doesn't seem to get it at all.

Blogger James Dixon March 08, 2018 3:43 PM  

> Static analysis. No time variable in the equation. The Moonie doesn't seem to get it at all.

Yes. And deliberately so. The GDP was intended to be a snapshot in time, not a predictive device.

Blogger Dirk Manly March 08, 2018 5:29 PM  

@63

Ooops, you are right. It's been too long since I read the article in the (then just-published) issue of Smithsonian. It was about Taylor and "Taylorism", not Deming.

Thanks for the correction.

Blogger Dirk Manly March 08, 2018 5:34 PM  

@Moonie


Importing what you neither have nor can make makes sense.

Pissing your wealth away importing what you have both the resources, capacity, and idle personnel to make is just plain STUPID.

By the way, GDP includes government salaries. It doesn't measure the size of the economy, it measures how many dollars are spent, and doesn't distinguish in the slightest dollars which are spent wisely, and dollars which are just pissed away keeping moronic government bureaucrats in a high standard of living while they actively interfere with the productive members of society.

AS such, GDP is worse than useless as an indicator of economic health.

Blogger kurt9 March 09, 2018 12:54 PM  

You guys talk about the U.S/ auto industry and no mention of the pernicious effects of Robert McNamara? McNamara was the guy who did all kinds of damage at Ford starting in 1967. He is the cause of quality decline that started at this time at Ford. The others, GM and Chrysler, followed suit starting around 1972.

The corporate arrogance of the Big 3 started with Robert McNamara.

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