Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 4 of 88

Why China Is Wise Not To Sanction The West

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On March 27, 2024

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The West has sanctioned China repeatedly, most notably in chip production technologies, but not just in those.

It has backfired, with China quickly building its own chip manufacturing capacity, though they still have a ways to go to entirely catch up. Huawei has also created their own phone OS, cutting the Google/Apple duopoly, and Apple sales are crashing, while the government is telling all government departments not to use Intel or AMD chips.

But China has largely not replied with its own sanctions. The reason is obvious: as long as they don’t, the US remains dependent on China for a vast swathe of goods. The reason chips were sanctioned is that it was one of the only areas where the West was ahead of China (the others are biotech and arguably aviation, though given Boeing’s problems, that’s an arguably.)

If China sanctioned the West, the West would have to re-shore a vast swathe of manufacturing: if not back to Europe and the US, at least to reliable allies. It would become stronger, as Russia did under sanctions.

It would also be in a far better position to wage war. Right now, in a US/China war, the US would be swiftly be crippled by its need for manufactured goods it can only get from China.

To put it simply, the US is far more dependent on China than vice-versa, and China wants to keep it that way.

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In A Crisis We Can Only Afford What We Can Already Do

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On March 26, 2024

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I’ve written, prescriptively, that money shouldn’t buy anything that matters: not healthcare or education, for example.

Anything we can do, we can afford

But at the top level money can’t buy anything you couldn’t do anyway. Anything we can’t do, we can only buy from others. The Britian of the thirties was still, despite all its problems, a great industrial power. They could do most things, and it was ridiculous to pretend they didn’t have the money. They could build ships and buildings and refine medicines and so on.

There we some things they couldn’t do: they couldn’t produce as much food as they wanted: they bad to buy that from others. But since other people wanted what they could do, they would accept British pounds.

And there were things no one could do, and money wouldn’t buy those things: go to the moon, for example.

Today, for all our money and science, we still can’t just buy an end to cancer.

There’s a little, largely bullshit “law” in economics called the “law of comparative advantage.” If we all do what we’re best at, we’ll produce the most stuff, including services and we’ll all be best off. There’s a certain technical truth to this law.

But if you can’t produce something yourself, you can only buy/do it if those who produce it are willing to sell to you, and if you must have it, they can charge very high prices if they sell at all.

Britain couldn’t produce enough Destroyers in WWII, so they had to go begging to America to get them, and the price the Americans charged was extremely, extremely high. (The book “That Man” by Justice Jackson goes into this.)

Ukraine wants a lot more missiles and artillery shells, but Europe and America don’t make enough or won’t sell large chunks of their reserves.

When you don’t have or, or lose the ability to produce something yourself you lose the ability to buy it with your own currency without other countries having a veto. Produce can mean many things, for the Japanese and Germans in WWII, it meant not having enough oil production of their own.

When America and the West in general shipped their productive capacity overseas they assumed that it didn’t matter: that in the world of free trade, they’d always be able to buy what they needed, and that they’d have effectively infinite money.

It doesn’t work like that. If we produce less, in time our standards of living will decline and in times of crisis, others will keep what matters for themselves first. (Covid vaccines illustrated this, and even if you think they didn’t work, well, at the time the vast majority didn’t believe that.)

As climate change, ecological collapse and civilization collapse continue, we will also find our ability to buy what we need constrained: not enough water in large areas. Not enough fertile farmland. It isn’t that there is nothing we can do: we can try varieties of indoor farming and we can de-salinize water and so on, but we won’t be able to buy enough of what we need. We won’t be able to easily buy insects or bees, or fish in the ocean or low CO2 in the air.

Anything we can do, we can buy. But if we can’t do it, we can’t buy it.

People forget this, both ways. Both in learned helplessness, as if we couldn’t easily house everyone and feed everyone (the absolute food shortages are in the future): we have massive food subsidies and enough ability to build homes, after all.

Anyone saying ‘we can’t afford’ is either a fool, or feeding you bullshit.

But there are some things we can’t afford, and the number of those things will increase over time.

 

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Principles Of The Green Age After The Collapse: #1

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On March 7, 2024

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Do as thou will, so long as you increase biodiversity and biomass, reduce pollution and heat, and replace any resources used.

Want to live in the howling wilderness? OK. But only if you can increase the number and amount of lifeforms, and reduce pollution by being there. If you can’t do all three, you don’t get to live in the wilderness.

Freedom today is based on money. If you have enough money, you can do what you want, if you obey the law. The more money you have, the fewer laws apply to you: either they are laws which if violated are punished with fines, which you don’t care about, or they are laws which are effectively not enforced against the rich.

The Green Age, instead of having a zero tolerance policy for minor infractions, will have no tolerance for people who damage the ecosphere or the climate.

Likewise, you will need to replace the resources you’re using if you’re using them beyond any natural replacement rate. If you’re taking water from a river or an aquifer, you’ll have an amount you can use that is equal to natural replenishment. If you use any more, you’ll need to replace it. Chop trees, plant them, and since you also need to maintain biomass and biodiversity, that won’t mean tree farms and will require you to keep doing it and, most likely, to have done it in the past. (This will make clear-cutting very rare.)

This also means that you don’t get to do what you want if you use non-renewable resources. Mining and other forms of permanent extraction will be something that society has a strict limit on. Much will be assigned by government, and much will likely be divided and given to each member of society and when they buy something which uses a non-renewable resource, that account will be debited, with no credit except in life-saving emergencies.

The principle is simple: replace what you use if it can be replaced, make the ecology and the environment better because of your existence and use limited amounts of non-renewable resources. This is how we fix the environment and make an environment is healthier and far more enjoyable to live in. (Just as almost everyone wants to live on a street with lots of trees.)

Long term, if you want to use a lot of non-renewable resources, we will have to go into space, but taking masses from Earth will be verboeten.

These rules will apply to individuals and groups, including whatever replaces corporations as our primary private economic vehicle and to households. This will lead to the end of suburbs and exurbs as we know them. Most people will either be rural (working on food production and environmental projects) or will live in dense cities. If we want the privilege of living in low population density areas, we will have to earn it by figuring out how to do so in a way that doesn’t decrease biodiversity, biomass or renewable resources, and instead of those who make more money being allowed to do more, those who will be allowed to do more will be those who increase those environmental variables the most.

This is only the first of the Green Age articles, we’ll dive into the rest of the principles and some of the details of how such a society must be run as the series continues.

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More Statistical Manipulation In Real Time (Top 1% Wealth)

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On February 20, 2024

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Rudy Haverstein noticed this one. It used to be that the top 1% wealth exceeded the wealth of the 50-90th percent (the middle class) about ten years ago. Here’s that old chart:

Then some statistical changes were made:

“The Fed attributes the changes to “Distributional Financial Accounts models updated for the 2023Q3 release.” I’ll note that – as with CPI – I’ve never seen data revisions that made the situation look worse, always better. ”

Now the top 1% only recently surpassed the middle class:

I bring this up because too many people believe that economic stats aren’t fiddled. They’re heavily, heavily fiddled. I consider CPI essentially worthless.

This has turned into a massive debate: most Americans think the economy sucks, but if you look at economic stats Biden is the greatest economic president since FDR. But that’s based on CPI being what the BLS says it is. And the CPI, after decades of manipulation, is garbage.

So, let’s skip the bullshit. Every once in a while a study (not a regularly collected statistic) slips and lets some truth thru:

A Federal Reserve study on household finances found that Americans outside the wealthiest quintile have depleted the extra savings generated early in the pandemic and now have less cash on hand than they did when the pandemic began.

If manipulating a statistic is useful to those in power, it is manipulated. When I first started blogging, I used to cover Bureau of Labour Statistic releases every month. I had spreadsheets full of stats. Now I don’t, because Garbage In, Garbage Out. (GIGO.) In truth, even back in the early 2000s the stats were terrible, but it took me some time to figure out how divorced they were from reality, and that divorce has widened since.

Instead I try and look at real numbers: reported retail prices and wholesale prices and actual rents and so on. There’s some unavoidable use of official statistics, but they’re only really useful comparatively, and even then one has to be careful, due to constant revisions, including backwards revisions.

One recent stat is that Russia has been growing faster than the G7. Is this true? Well, I think so, for a variety of reasons, but it’s only a probability. China definitely is, because I see vastly expanding industries all over the place, enough to make up for the deliberately engineered real-estate collapse.

Don’t believe internal numbers. Cross check your personal experience with the experience of other people and believe that. Even if you get it wrong, in a sense you’ll get it right: are prices much higher for you and those you know than they were pre-pandemic, or not? Has your income and those you know risen faster than those prices?

That’s your personal economy.

I have often thought that if I were suddenly in charge of any major country, practically the first thing I’d do would be to form my own corp of auditors, reporting only to me, and the first thing they’d do is savagely audit the statistical agencies, followed by mass firings and re-formation.

Because if your statistics are bullshit, it means you can’t really know what’s happening. And if you don’t know that, well, you can’t make good decisions.

Under our current regime that isn’t a problem: they don’t want to make good decisions, they just want statistical support for pre-determined neo-liberal decisions.

And that’s why they’ve spent 50 years running the economies off the West into the ground.

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US Sanctions On China’s Chip Industry Have Completely Backfired

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On February 16, 2024

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The highlight:

According to SEMI’s market research group, China isn’t slowing down. SEMI is forecasting China’s capacity to keep growing at a significant rate over the next few years. For 300mm, SEMI expects China to have 29% of the worldwide capacity in 2026, increasing from 21% in 2022 (Figure 2). The 200mm capacity is expected to grow from 16% to 24%. And foundry capacity is expected to reach 42% in 2026 up from 27% in 2022, outpacing the Taiwan foundry capacity expansions.

China has its goal set on being more chip-independent and spending less than $300 billion a year on importing semiconductors. To accomplish these goals, they are spending a lot of money on fabs and equipment, and in some cases forming JVs to get the right chips for their industries. So, will the European and US CHIPS Acts help to increase Europe’s and the US’s capacity? A little, but as Peter Wennink recently commented, the EU chip goal is unrealistic. I’ll add in as is the CHIPS Act in the US. China has a significant head start and it will take significant investment by the EU and US to catch up, and it is unlikely politicians and shareholders will continue to fund the exercise to reach the desired goal of 20%. (my bold)

The chart:

As for the fabricators which chips are manufactured with, well, China bought tons overseas just before the sanctions hit, BUT:

The bad news for equipment companies outside of China is that due to sanctions against foreign companies selling certain types of equipment, as well as China trying to create an independent chip market, Chinese semiconductor equipment companies are seeing above-market growth. Naura Technology, AMEC, and ACM Research at mid-year of 2023 are seeing 68%, 27%, and 47% growth respectively over 2022.  Most of this is driven by the China market.

The Chinese, pre-sanctions, were not pushing indigenous chip capacity. Chinese companies preferred American, Taiwanese and US chips, seeing them as more reliable than domestic alternatives.

A chip act might have made sense IF the US was genuinely going to re-shore production, far beyond chips or IF it was going to go to war within the next two to three years.

As it is, all it will accomplish in the end is losing the Western absolute advantage in chips and transferring the market leading position to China.

Which brings us to this beautiful, semi-related bit of news:

The effect of anti-Russia sanctions was to make Russia into the world’s fifth largest economy while massively ramping up their weapons production and overall growth rate. Germany has slipped to sixth and Russia is now a firm Chinese ally. It is true that America is making more money by supplying Europe with expensive fossil fuels, but by any rational assessment, anti-Russia sanctions strengthened America’s self-declared enemies, and weakened its allies.

In other words, the policy that Daleep was the architect of was a disaster. Yet he is lauded as capable rather than as a complete fuckup. To be fair, I suppose, he was undoubtedly following orders, but he owns the orders he follows unless he objected to them and predicted their failure.

All of this applies, times ten, to anyone involved in the anti-China sanctions, which have backfired catastrophically.

America, land of the highly paid incompetent fuck up.

 

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Out Of Control Anglo Immigration

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On February 7, 2024

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It takes some deep work to make me anti-immigration. I figure people should have the ability to change countries: my mother did and so did all my ancestors, often multiple times.

But Canada’s managed it, and if I lived in Australia or Britain I’d feel the same way.

Let’s start with Canada

Yowsa! Something happened there, didn’t it?

A lot of people died during Covid. A lot of people were disabled due to Covid. That put upward pressure on wages and in a neoliberal economy, we can’t have that.

So Canada’s government decided to let in a flood of immigrants.

Result? Well, lower wages than otherwise, and…

Yeeha! One of Canada’s dirty secrets is that we have more homeless people per capita than California, with a lot worse climate.

And it isn’t just immigration:

Temporary workers, because we sure wouldn’t want to use Canadians or train them.

And hey, let’s pile on the pain with even more international students, who compete for housing too!

This is, obviously, deliberate policy. It’s bad for people who are already here, and immigrants are less thrilled than you might think, leading to record numbers of reverse immigration (immigrants going back home after finding out Canada isn’t the promised land.)

Australia’s the same:

Same student issues:

And yeah, same effect on the housing market, though it’s in a better place than Canada, which has probably the world’s worst housing bubble.

So then, Britain:

And, though it hasn’t had the same effect on housing in the US:

The difference in the US, which probably leaps out, is that it’s just a trend not a spike. it isn’t a clear deliberate policy choice, despite the squeals of Republicans. But it contributes to some of the same problems:

According to a Jan. 25 report from Harvard’s Joint Center for Housing Studies, roughly 653,000 people reported experiencing homelessness in January of 2023, up roughly 12% from the same time a year prior and 48% from 2015. That marks the largest single-year increase in the country’s unhoused population on record, Harvard researchers said…

…That alarming jump in people struggling to keep a roof over their head came amid blistering inflation in 2021 and 2022 and as surging rental prices across the U.S. outpaced worker wage gains.

Now there’s nothing wrong with immigrants, per se and no one who isn’t a native has any leg to stand on when screaming about immigrants to North America, Australia or New Zealand as intrinsically bad.

But when you have a homeless crisis and very tight and expensive rental and housing markets, obviously bringing in lots of new people is going to hurt the people who are already there who aren’t real-estate speculators and so on, and it’s obviously going to hit the poor, the working class and the middle class where it hurts, both on rent, housing prices and wages.

That means you’re going to increase racism, because people who can’t get an affordable place (and I can tell you that in Toronto, say, every low-end place has multiple applicants, and what is low end costs hundreds of dollars more than it did a few years ago) start blaming immigrants instead of hating their own ruling class, which is where the real blame belongs.

If you want racism, increase immigration without increasing housing. And that’s what Canada, the UK and Australia are doing.

And, of course, massive immigration’s primary purpose is to hold down wages, and you can’t expect people to be happy about making less than they would have otherwise. People know, because they see how many people apply for jobs they apply for,  they hear stories from their friends, and when immigrants are from visible groups, they can see it and hear it in the accents.

When all boats are rising, only true bigots mind immigration. But when people are struggling to find good jobs and a place to live, spiking immigration is an evil act.

Politically, its a hard place. In Canada, for example, immigration is up under the Liberal party. The Conservatives talk about cutting it back but look at that UK chart: that’s under a Conservative government. Will Canada be any different?

This is a ruling class issue: they aren’t hurt by a rising housing market and the more potential workers there are, the lower wages they have to pay. Older folks who own houses win, as housing prices go up. Immigration is good for elites and people who made it into asset markets. It’s good for insiders, that is, and bad for anyone out in the cold.

Since the people with power are insulated from the pain their decisions cause, my guess is that these policies will continue until there’s enough pain inflicted on elites to change their calculus.

A few riots where the mansions are might help with that, but Brits, Australians and Canadians aren’t the type.

Yet

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The Anti-China Chip Jeremiad Is The Stupidest Policy Imaginable

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On January 4, 2024

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So, if at first, or second, or third, or tenth you don’t succeed, try try again. The Netherlands, under heavy pressure, has canceled already approved sales of ASML lithography machines to China.

The leadership of ASML had resisted these sanctions because they said it wouldn’t work: what would happen is that China would learn how to make the machines themselves.

What he didn’t say, but it is true, is that ASML would not just lose the Chinese market, they would eventually lose the world market anywhere that didn’t put high tariffs on China or ban Chinese ASML machines, because when China learns how to make their own they will inevitably be cheaper, and the quality will catch up at some point.

Sanctions work on weak nations. They do not work on strong nations, or on nations which have strong friends. Russia sanctions might have worked if China and India and most of the South had gone along, but since China was never going to let Russia be destroyed, and since Russia produces all the fuel and food and most of the minerals it needs, plus still has a fair bit of advanced and heavy industry, especially arms manufacturing, it was never going to happen.

Sanctions against China are insanity. All they do is accelerate local production.

The thing is that before the sanctions most Chinese majors preferred US or South Korean designed chips. They were considered better and more reliable. Executives would not buy Chinese chips, even when they were available.

But when the US first launched its chip sanctions they were clearly trying to take out Huawei, one of China’s largest companies.

Being reliant on western chips went from the safe choice to the insanely risky choice and China, both private and public, spent vast sums and made huge efforts to build their own chip industry (including lithography machines are alternatives.)

There was a small window to turn this around when Biden was elected, but he doubled down on sanctions.

This needs, I think, some unpacking.

I don’t like to reach for arguments are about racism, but there’s a weird assumption in the Western ruling class that the West is just superior to everyone else: that our technological lead was somehow innate and inevitable and eternal.

Given that China had the tech lead over the entire world for a couple thousand years (or may 1,500 before which it was India or Ancient Greece and before that it was always Mesopotamia or Egypt) this seems strange. Europe took the tech lead for complicated reasons, both China screwing up and European events which were historically contingent and mostly not planned.

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A full discussion is beyond the scope of this article (and fills many many books) but “Why Europe and not China” is its own genre.

But nobody with any sense thought it was because Europeans or those of European descent are innately superior to Chinese.

I’m a broken record on this, but where the industrial base goes, the tech lead goes, at least in the industrial era. Pre-industrial it’s a bit more complicated, but it’s not an awful guideline, the exceptions tend to be transient, but they do exist (the ancient Greeks were insanely advanced) and they tend to occur where there are is a group of constantly competing small nations, which is the over-simplified explanation for European pre-industrial revolution technological advancement and also explains the massive leaps China took during warring states periods.

But if you don’t have a forced competition between near equals who know they can’t sit still or a genuine breakthrough (the industrial revolution) or both, then the more normal processes mean that where the industrial base is, so goes the tech.

Now, sanctions against China would make sense IF and only IF, you were going to take advantage of them immediately. In other words, go to war or make really radical changes to try and re-industrialized.

How radical? Well, my estimate is that if the US wants to re-industrialize it needs to drop housing and rental prices by about two-thirds, and forbid all excess profits on any product which isn’t new, say less than ten years old (and a new model is not new. Smarthone producers should have been allowed to gouge on smartphone prices for ten years after the first iPhone, for example.) No food gouging, no pharma-price gouging on medicines decades old, and so on.

The US (and Europe) need a crash, not in living standards, but in price structures. That means the people at the top need to become a lot less rich, very very fast. Social welfare isn’t a problem, actually, letting ordinary people have a backup so they can take risks and start new companies is a good thing, and so is forcing companies to really compete for employees. Tech advancement and economic growth was far better in periods with when the US had more generous welfare systems.

Obviously these policies are extremely radical, and equally obviously, America isn’t going to pursue them, so anti-China sanctions are basically pointless and actually accelerate their tech progress.

China now has the lead in more techs than not. That’s not going to change: it’s going to get worse. When the US sent its industrial base to China that became inevitable because all “end of history” bullshit was, in fact, bullshit. Capitalism doesn’t require representative democracy and neither does fast technological progress. (It doesn’t need capitalism, per se, either, but that’s the only solution we know and it was necessary for China to do capitalism to get the industrial base transfer. Also, again, another book sized topic.)

Anyway, again, anti-China or Russia sanctions increase the speed with which they catch up in tech, not decrease it. The Russia sanctions could have been justified if they let Ukraine win, but obviously they didn’t, and it should have been obvious at the time they wouldn’t because of China’s very good reason for not allowing them to work.

Our leaders, still only good at making themselves richer, worthless for all other purposes. And, in the end, the policies they pursued to make themselves rich will just turn them into the people running shithole countries which don’t much matter.

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How To Use China To Make Your Left Wing Government Succeed

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On November 28, 2023

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Back in 2016 I wrote a piece called “Seven Rules For Running a Real Left Wing Government.” It proved to be one of my most popular pieces, particularly loved by activists. Since then I’ve often been asked for an more and I’ve finally written a partial update and companion piece.

The Sixth Rule was “Reduce Your Vulnerability to the World Trade System.”

This rule is still true, but how it is applied has changed — you can use a relationship with China to, over time, reduce your dependence on the old system which required you to stay poor and dependent..

Back in 2016 China was massively important, but the rules of the system were still all-powerfully American. Those rules are breaking down now and your government can take advantage of that. Though the title of this piece is about China, much applies to bilateral relationships with other countries. China’s the biggest and most advanced and most useful right now, however.

What working with China can do for you.

  1. Movement up the industrialization chain;
  2. Modernization
  3. one time infrastructure
  4. cheap loans
  5. Training and teching-up your scientists, engineers and designers.

All of these benefits are available, but you have to be smart and structure your deals to give you a long term advantage, China won’t do that for you, but they are open to such deals and won’t sandbag you. To use modern bargaining speak win/win deals are available if you seek them. There are limits, of course, but those limits are far higher than they were and are under the old WTO/US system.

How The World & China Have Changed And How You Can Use Those Changes

China is now the largest trade nation in the world and caught up to the West or surpassing it in most, though not yet all, technologies.

Post-Ukraine war it has been structuring many non-dollar deals.

These deals settle outside of the banking system controlled by America and Europe and thus you are not forced into structures which automatically try to keep you from moving up the value chain without being a US satrapy (like South Korea and Japan and most of Europe) or seeking moderate economic independence. (See the original 7 Rules article for how the old system works.)

De-dollarization and a nascent non-Western banking system make it possible to break the stranglehold the old international trade and finance regime put on left wing governments.

To take advantage of this opportunity you need to understand China’s domestic issues:

  1. China has far more construction and development capacity than it needs. It has built most of the buildings, roads, ports, hospitals, schools, power plants and so on it requires. China could get rid of those jobs and cut the industry in half OR it could use it overseas and not throw a pile of people out of work and destroy half an industry. This means, among other things, that China is willing to put up infrastructure for very low prices in order to keep the people employed.
  2. China has a vast need for resources: food, fuel, minerals and so on. If you’ve got it, odds are they need it and they want long term secure deals.
  3. China is moving up the manufacturing value chain and moving into services. In many cases the Chinese government has forced industries to shut down low value manufacturing plants that are still profitable. They want the lower chain industry out of their country, and over time what counts as “lower” moves further up the chain.

What all this means is that China is willing to build your country what it wants for cheap in exchange for deals for your resources and, more importantly, to relocate industry to your country.

You have to take advantage of this in the right ways, or it is just another trap, but it’s still a big opportunity because the US offered this deal to only a few nations and required satrapy status in return. Think South Korea and Japan and Taiwan.

This isn’t to say that China doesn’t have some non-negotiable requirements if you want to be cut in on the good deals, however, they’re just less onerous than the old US and European deals were. Let’s discuss that next.

China’s Non Negotiable Requirements

These are simple. You will not recognize Taiwan and will stay out of the Taiwan/Mainland dispute. You will stay out of anything relating to Tibet and that will most likely include not hosting the Dalai Lama at the senior government level. If you are not in the South China Sea, you’ll stay out of that dispute.

These aren’t particularly onerous, though you may find they stick in the craw slightly. Still, it’s a lot less than what the US and Europe require.

What You’ll Lose By Aligning With China

Simply, good treatment from Europe and the US. That means reliable and fair access to the western financial system, the ability to buy Western military gear and expect to get parts and ammo when you actually need it, and to a lesser extent, access to western goods and services.

The financial aspect is the most important, but will become less and less important. The whole point is bilateral or multilateral deals outside of the Western financial system anyway, and it’s that financial system which has been primarily responsible for keeping the global South down for the last 70 years.

The military aspect is negligible at this point. It’s clear that the West’s military production system is sclerotic and can’t keep up with major demand spikes: we’ve seen that in the Ukraine where they can’t even keep Ukraine supplied with enough dumb artillery shells. You’re better off getting your military supplies from China, Russia and Iran. There isn’t even much of a quality gap and in some areas, like missiles, you’ll receive better.

As for goods and services, increasingly, outside of pharmaceuticals (which they’ll withhold from you in a crisis anyway, as Covid proved), China can supply what you need, including advanced telecom equipment and more of the production stack than the West can these days. You’re giving up very very little and in ten years it will be essentially nothing.

What Types Of Deals To Cut

There are three types of deals you want beyond the basic “we sell you stuff and then buy goods from you.” There’ll always be some of that, but the idea is to make your country more independent and more prosperous and your people better off over time. That will not happen if you just sell resources and then turn around and buy goods.

Bilateral up the chain deals.

This means “we give you resources or low chain goods and you help us move up the chain.” If you’re not already on the chain, that’ll mean starting with textiles, most likely, but you have to start somewhere.

Bilateral Cartel Deals

In these deals you agree that you’ll own a particular industry and the other country won’t compete with you. In exchange there’s an industry you won’t compete with them in and both of you will buy the others products. These deals take a lot of trust: both sides have to believe the other side won’t cut them off in the future. One “semiconductor ban” and the deal is shot, and most likely shot permanently.

China’s capable of taking over most industries if it really wants to, but there’s an opportunity cost to doing so, and they need and want good relations. In many cases these deals will be cut with a side “and if you let us keep or have this industry, and buy from us, we’ll keep selling you grain/oil/nickel/whatever.”

China wants secure deals. Give them that security and be rewarded in exchange.

One Time Infrastructure Deals

As discussed earlier, China’s the infrastructure King. If you needs roads or ports or hospitals or power plants or almost anything, they can build it fast and cheaper than anyone else and the quality is good. Maybe not Japan good, but good enough.

You’ve got to cut these deals, all of them, right, though, or you’ll wind up not receiving what you want, or in the case of infrastructure deals wind up with white elephants you can’t afford to maintain. So—

How To Structure Deals To Ensure You Benefit

The objective here is to gain local knowledge, skills and capacity. This means a few things.

No Branch Plants. You want partnership deals, 49% China, 51% you. The plants or whatever get set up in your country by their engineers and managers, in partnership with your managers and engineers. At first the foreigners take the lead, but over time they are largely phased out, the capacity becomes indigenous.

Move the parts and repairs. You don’t want to just be putting goods together from pieces made elsewhere. You want the parts moved to your country too. Lots of small companies usually support big companies. You want that network. Without that network in your country, you don’t actually have industry. With it you have the culture of industry which is required to start making your own advances, to create new products and types of work. You have the chance to get a dynamic economy which innovates.

Buy Infrastructure you can maintain. If you’re going to constantly need the Chinese to come back and fix your power infrastructure, or roads, or ports or anything else, or to constantly buy parts from them, then you haven’t really bought anything. All deals must include the necessary training for your locals to maintain the infrastructure and that most of what is needed for maintenance is made in your country.

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Be very careful about large asphalt and concrete deals. Concrete and asphalt does not last and needs constant and expensive maintenance cycles. The world which supports that is going to go away as climate change and environmental collapse do their damage. Find ways to increase the lifespan of infrastructure and make it easier to maintain, ideally with as unskilled labor as possible.

If you can’t maintain it, you don’t really own it and it won’t be there when you need it.

Educational Exchange

Let’s be clear here, sending students overseas to learn from more advanced societies isn’t all it’s cracked up to be. A lot of them stay, others become compromised with values which are inappropriate to your society and much of what they learn at university isn’t all that useful in industry, unless they’re in real engineering or science and even then, less than you’d think.

Still, do some of that.  It’s not a hard deal to cut, because it’s flattering to the Chinese and thanks to Chinese culture, you’ll see less of the students stay in China than used to stay in America. They’ll have to learn Mandarin, but that’s good. English will stay the lingua franca for a while, but the gravity is to Mandarin and if you’re following the advice herein, well, China’s your big trade partner.

The other exchange you want is to get your engineers and scientists and managers into partner companies in China so they can get real world experience with how industry and business works. Get them from the lowest levels where they see the factory floor to the highest levels. Have them make contacts, have them work on real products. Again, some are going to stay, but many will come home and you will benefit massively.

Most of the most important information about how products and businesses and societies work is never written down. You need your people to learn it.

So get those exchanges going. And if you need to flatter the Chinese a bit, swallow your pride and do it.

Concluding Remarks

China’s still on the rise. Countries on the rise are much more generous than countries in decline or even mature countries, economically speaking. There’s still tons of possibility and present and future surplus to share. The emphasis is on increasing the size of the pie and not fighting over a static or shrinking pie. On top of this China needs and wants friends and wants desperately to be admired. If someone wants admiration, it’s cheap and there is plenty that can be admired without hypocrisy.

Take advantage of this opportunity but remember, the goal is to increase your own country’s real prosperity by increasing your indigenous production ability and the skill and knowledge base of your own people. It is not to gain fleeting prosperity from selling resources or bottom tier products.

And remember also, this economic age, the age of heedless industry, is coming to an end. Build smart: lots of passive solar, for example. Trains and rapid transit, not expressways. Infrastructure that is easy to maintain. Goods that aren’t frequently replaced.

Learn from China but don’t be just like them, use them to create a non car-centric, non-disposable economy. If you do so, you’ll be one of the nations who prospers in the next age.

China is an opportunity to get on a ladder. Choose the right ladder.

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