Speaker 1: Hello, and welcome to another episode of the Odd Loots Podcast.
Speaker 1: I'm Joe Wisn't Thal and I'm Tracy Alloway. So, Tracy,
Speaker 1: something that you've been writing about lately, and of course
Speaker 1: we're still in the middle of this extraordinary global crisis.
Speaker 1: The story has taken on a new new dimension and
Speaker 1: I feel like you being positioned in Hong Kong covering
Speaker 1: the story from Asia. It's going to really, uh, really
Speaker 1: an area that you can appreciate. Oh what's that? Well,
Speaker 1: I mean in the last few days and we're recording
Speaker 1: this on May four twenties. So important to note, um,
Speaker 1: the the idea of the trade war, terror of China
Speaker 1: US trade tensions has really sort of re emerged as
Speaker 1: one of the subplots, so to speak, within this crist Oh. Yeah,
Speaker 1: so after a relatively long hiatus, we have Donald Trump
Speaker 1: once again threatening tariffs on China, and of course there
Speaker 1: are political dimensions to what he's doing. China is sort
Speaker 1: of an easy distraction or an easy scapegoat for the
Speaker 1: coronavirus chaos. But yeah, it's definitely interesting to see the
Speaker 1: trade war pop up again in the midst of what
Speaker 1: is arguably the biggest global recession that we have had
Speaker 1: for a long time. Yeah. And it's interesting too because
Speaker 1: obviously the trade war trade tensions dominated really the second
Speaker 1: half of last year, and you would have expected that
Speaker 1: sort of perhaps very early on in this crisis, uh,
Speaker 1: that due to the origin of the virus, that Trump
Speaker 1: would have taken an extremely hard line against China. But
Speaker 1: so far, at least rhetorically, he's been fairly conciliatory. Um.
Speaker 1: I guess that's true, but it does feel like it's
Speaker 1: something that's probably going to come. The other thing that
Speaker 1: I find really weird about the whole past few months
Speaker 1: in the market reaction was back in January. In February,
Speaker 1: when we saw large chunks of the Chinese economy shutting
Speaker 1: down because of the coronavirus efforts. It took a really
Speaker 1: long time for the market to react, and it was
Speaker 1: so odd. I think we've had this conversation before, but
Speaker 1: it was so odd because we spent all of nineteen
Speaker 1: worrying about trade war, and then effectively we had something
Speaker 1: that amounted to a similar thing in the form of
Speaker 1: the Chinese economy shutting down, and the market didn't seem
Speaker 1: to care anymore. Right here, we have like the biggest
Speaker 1: supply shock, so to speak, imaginable, this total shut down
Speaker 1: and manufacturing. And I remember like the first real coronavirus
Speaker 1: episode we did, and it was before US markets really
Speaker 1: started crashing. I was with Dan Wang of gav col
Speaker 1: talking about I think it was just after or it
Speaker 1: was the week that Apple warned about the disruptions, and
Speaker 1: that was the first time like US markets like really
Speaker 1: started getting very anxious about this. But the beginning of
Speaker 1: the story was really about sort of like the supply
Speaker 1: side disruptions out of China, because of course, at that point, um,
Speaker 1: I think it was you know, mid or late February,
Speaker 1: there wasn't an appreciation yet in the market of what
Speaker 1: it would do to the economies of the US and Europe,
Speaker 1: which was de facto total shutdown. Yeah, but that was
Speaker 1: another weird thing because people were very focused on the
Speaker 1: supply shock side of it, and there were you know,
Speaker 1: just a handful of people who were really talking about
Speaker 1: the it to demand. And now two months later, it's
Speaker 1: it's pretty clear it's both a demand and a supply shock.
Speaker 1: And the really interesting thing over here in Asia as
Speaker 1: we sort of emerged from lockdown and start to recover
Speaker 1: is that even though manufacturing is getting back up and running,
Speaker 1: a lot of people still learn't in the shop. So
Speaker 1: in China, for instance, you know, the authorities there are
Speaker 1: trying to give out vouchers in order to get people
Speaker 1: to go shopping. Right, So that's the problem. I mean,
Speaker 1: we've seen, perhaps surprisingly the speed with which manufacturing can
Speaker 1: come back online in China, various factories starting off. But
Speaker 1: that doesn't help much if they have no one to
Speaker 1: sell to. Yeah, exactly, Supply and demand shock isn't a
Speaker 1: great thing for the global economy. Indeed. So now anyway
Speaker 1: that the trade war is perhaps starting to re emerge
Speaker 1: as a dimension of the story, I thought it would
Speaker 1: be a good idea to talk about that. And we
Speaker 1: have the perfect guest. I think we've never had him on,
Speaker 1: but he's someone we're both friends with, uh and someone
Speaker 1: who perfectly positioned to speak to the tensions that are
Speaker 1: here and which may be emerging in the months ahead. Great,
Speaker 1: I can't wait, all right, So today we're going to
Speaker 1: be speaking with Matt Klein. He is a calumnist and
Speaker 1: economic columnist at Baron's Magazine, and he is the author
Speaker 1: of a new book called Trade Wars Are Class Wars,
Speaker 1: which he co authored with Michael Pettis, who we have
Speaker 1: had on the show, and uh, he we're going to
Speaker 1: talk about the sort of trade dimensions of this crisis
Speaker 1: and it's aftermath, both in terms of the current sort
Speaker 1: of saber rattling and what it might mean as countries
Speaker 1: really start to attempt to revive their economy. So, Matt,
Speaker 1: thank you very much for joining us. Thank you very
Speaker 1: much for so Matt, before we get started sort of
Speaker 1: like with this crisis specifically, and we've talked about this
Speaker 1: a little bit with your co author on a previous episode,
Speaker 1: Michael Pettis. But what is the core premise of your
Speaker 1: new book when you say trade wars are class wars,
Speaker 1: what is the sort of basic idea there? The basic
Speaker 1: idea is that even though it's very easy to receive
Speaker 1: trade flooks as being between countries, because governments are usually
Speaker 1: actually agents that are aging treade complics with each other,
Speaker 1: and so we therefore conclude that it's about national interests
Speaker 1: and geopolitics and things like that, that actually the drivers
Speaker 1: of trade conflicts are internal class conflicts, and that if
Speaker 1: you have high, well rising inequality, income inequality within a society,
Speaker 1: that's going to end up creating various economic distortions that
Speaker 1: will spill over into the Russian world and end up
Speaker 1: harming people outside of your own national borders. So when
Speaker 1: we think about, for example, the trade complex between China
Speaker 1: United States, it's not so much that Chinese workers and
Speaker 1: American workers are in some zero sum games with gobs
Speaker 1: and incomes. That's actually the opposite, that American workers have
Speaker 1: been harmed by policy in China. That also, aren't we
Speaker 1: primarily in debt harming Chinese workers. So it makes more
Speaker 1: sense to think about this as a class conflict rather
Speaker 1: than a national conflict. So talk to us a bit
Speaker 1: about how you mentioned distortions. But I guess, in other word,
Speaker 1: for those would be imbalances in the global economy, talk
Speaker 1: to us about how those build up and which ones
Speaker 1: are sort of most at play in the current climate. Sure,
Speaker 1: so the imbalances are not necessarily a bad thing, But
Speaker 1: basically it's the society produces goods and services and also
Speaker 1: consumed goods and services, and in a close of comedy
Speaker 1: where there's no trade between societies, the amount of value
Speaker 1: of those goods and services that are produced and consumed
Speaker 1: have to keep the same. If you have trade, though
Speaker 1: you can actually have situations where one society produces more
Speaker 1: than it consumes and use that investment in puts domestically,
Speaker 1: while other and interfore has a circles that sport elsewhere,
Speaker 1: and the other societies of correspondingly that are going to
Speaker 1: end up consuming and investing more of them the people
Speaker 1: are producing, and this can be very beneficial. So we
Speaker 1: talk a fair amount of the book about how historically
Speaker 1: development in terms of industrialization as often dependent on countries
Speaker 1: relying on these sort of circles, was of others in
Speaker 1: order to develop without starving themselves. So this happened in
Speaker 1: the United States, that happening Korea souforea ever since intendance
Speaker 1: um happens orway. And it's not a super well non
Speaker 1: example of the development you no reegion oil and gas
Speaker 1: industry pended on massive amounts of foreign investment or support
Speaker 1: country and can do it themselves. But it can also
Speaker 1: be really problematic if you have a situation where instead
Speaker 1: of imports supplementing domestic production, you have imports and displacing
Speaker 1: domestic production. Uh and instead of you know, disiltating something
Speaker 1: valuable like the development of all shore oil and gas
Speaker 1: that provide income generations. You have instead people using their
Speaker 1: jobs and then forced to borrow to maintain some someone
Speaker 1: of the at that which is what actually happened in
Speaker 1: many parts of the world, particularly United States, over the
Speaker 1: past seple decond So before we get to the current crisis, um,
Speaker 1: just to sort of make it very clear what the
Speaker 1: mechanism that we've been talking about is, talk to us
Speaker 1: about the link between Chinese industrial policy, the repression of
Speaker 1: Chinese workers and Chinese household and Chinese household savings, and
Speaker 1: that how that creates spillovers, specifically that end up harming
Speaker 1: American workers. The basic thing to understand is that you
Speaker 1: can sort of vast over simplify the world. There are
Speaker 1: two types of entities. One is people who if you
Speaker 1: give them a bit of extra income, it's going to
Speaker 1: get spent, most of it's gonna get spent relatively quickly.
Speaker 1: And then their entities where if you give them extra
Speaker 1: income it will not get spm for a large proportion
Speaker 1: of it will not get spent. And what's generally happened
Speaker 1: in China and other countries as well. But what's happened
Speaker 1: is that we've had effectively shift in the distribution of income.
Speaker 1: Some people who would spend most of their money, particularly
Speaker 1: Chinese workers in ordinary savers towards entities that do not,
Speaker 1: whether it's um provincial governments or the rich in China
Speaker 1: or certain kinds of enterprises within China. Uh. And that's
Speaker 1: essentially led to a condition where there's a lot of
Speaker 1: what you know, use the technical term excess saving. So
Speaker 1: if you think of production minus or media consumption as saving,
Speaker 1: then there's a lot more saving than otherwise would be.
Speaker 1: But the clip side of that is simply that regular
Speaker 1: people aren't able to be suit The share of income
Speaker 1: paid to Chinese workers is exceptually well so except that
Speaker 1: we have comfortable data for this, and it's you know,
Speaker 1: a couple of years out of data for the Chinese
Speaker 1: updated and last osage in play sixteen, I don't think
Speaker 1: to change commatical to them about of the value of
Speaker 1: Chinese non financial corporations is paid out to workers now
Speaker 1: for comparisons say in the US and Europe, and it's
Speaker 1: between sort of sixties seventy percent. So there's a real
Speaker 1: big difference between norm and China and the more and
Speaker 1: the rest of the bold. And there are a lot
Speaker 1: of factors that can point through that enable us. For example,
Speaker 1: labor organizing is immediately there's a big wait. A couple
Speaker 1: of years ago, there's a situation where a lot of
Speaker 1: very earnest Chinese college bees top universities were taken seriously
Speaker 1: the guidance of their leaders to study Marxist classics, and
Speaker 1: they realized that they should be making like there's some
Speaker 1: ideological forebears and going on to the factories and trying
Speaker 1: to organize workers, and they all got arrested, uh, and
Speaker 1: then they had the forced apollies. It's actually kind of
Speaker 1: interesting and recording this on May fourth, because that's you know,
Speaker 1: hundred more years ago. May fourth was when you know
Speaker 1: the Chinese comments partis with traces that intellectual antasies them
Speaker 1: because where you had UH university students who are politically
Speaker 1: active and calling for changes and reform. So you know
Speaker 1: the government is very aware of what's going on in
Speaker 1: the campuses and they want to make sure there are
Speaker 1: threatening they're even allionishing workers and students on very private
Speaker 1: in them, and so that's something you saw. There's the
Speaker 1: household registration or Hooko system, which I mean other people
Speaker 1: have read the about the Chinese government says that they
Speaker 1: know that system is a problem, but they don't do
Speaker 1: anything about it. Essentially, but what it is a foreign
Speaker 1: internal population movement controls. It was set up by now
Speaker 1: and is Um and you know in that period, and
Speaker 1: basically it was supposed to keep people in the village
Speaker 1: where they were born and that way to maintain a
Speaker 1: supply agriculturally for things like that, and also usuable to
Speaker 1: discourage revolutionary activity. It's been maintained, it's been loosened since then.
Speaker 1: So you have hundreds of millions of internal migrants going
Speaker 1: from the countryside and the city before, providing a very
Speaker 1: large share of the grog of workforce. But technically speaking,
Speaker 1: they're not really legal residents of the persons by living
Speaker 1: and they don't have access to a lot of the
Speaker 1: benefits that many don't reference have some education, healthcare, to
Speaker 1: do to pay taxes as part of their social security contributions,
Speaker 1: they don't get the benements, and they're always at risk
Speaker 1: in theory of being deported. And you saw this again
Speaker 1: and things is around the twenty team Fromenting where large
Speaker 1: sections of Beijing where a lot of migrant workers lived
Speaker 1: and basically feared out because it supposed to unsand but
Speaker 1: you put this in the context of the local governments
Speaker 1: because such as Beijing and Sean and I saying they
Speaker 1: want to have population tabs, but I think over proud
Speaker 1: of than another benefit locals, And essentially seems with inside China,
Speaker 1: uh you know, immigration restrictionism showing up among different areas
Speaker 1: of country. So that's you know, a new thing, and
Speaker 1: that's something you definitely washed. But the fact that that's
Speaker 1: always a possibility also being deported like that, obviously it's
Speaker 1: gonna underline whatever degreciate how Worfords would have Uh. Yeah,
Speaker 1: And it goes every way too, which is that the
Speaker 1: extent time where you lived in the city you thought
Speaker 1: you had some that then you can always support someone
Speaker 1: from extremely poor village in the western part of the country.
Speaker 1: So when you consider all these sort of restrictions or
Speaker 1: communism with Chinese characteristics, that ends up creating this kind
Speaker 1: of inequality in China. And then you look also at
Speaker 1: the imbalances in the US and inequality there. I guess
Speaker 1: my question is which one of those is a bigger
Speaker 1: problem or which one is the greater contributor to the
Speaker 1: trade tensions that we're currently seeing between the two countries.
Speaker 1: That's a great question, and it's something that we've spent
Speaker 1: a fair amount of time in the book trying to
Speaker 1: address in the chapter that we have on the United States,
Speaker 1: because it's absolutely right the United States not as necessarily
Speaker 1: unequal with China having done at the same level of
Speaker 1: the same amount of change, but it's definitely uh significant.
Speaker 1: So on the one hand, you do have a lot
Speaker 1: of developments in unrests that resemble actually many ways resemble
Speaker 1: hap the journey. So we've made that point explicit in
Speaker 1: the book in terms of, you know, the shift that
Speaker 1: happens are post two thousand thoughts that is partly upset
Speaker 1: by the fact that the United States, like you think
Speaker 1: one is that the United States financial system is very
Speaker 1: open and accommodating of events or desires in the rest
Speaker 1: of the world, and relatively that the consumer market also
Speaker 1: adapts to sort of what you know, accommodate how the
Speaker 1: financial system designs of the thought so and the rest
Speaker 1: of the world, you know, when they know this or
Speaker 1: they're just you know, their preferences. But essentially, if you
Speaker 1: have exces savings and you're in China, a bunch of
Speaker 1: that's going to end up somehow in the United States,
Speaker 1: and that's true globally it will end up being the
Speaker 1: case that the United States served as a sink for
Speaker 1: the western rest of the world. And I think the
Speaker 1: way you see this is the counter like forces. The
Speaker 1: fact that if you look at some of the European
Speaker 1: countries that had the massive woods and crusts in the
Speaker 1: two thousands and essentially driven by trade, essentially what you
Speaker 1: consider trade conflict types of area that similar the US,
Speaker 1: they're actually much larger. And those are places where the
Speaker 1: inequality was most more strained. So some are like Spain Italy,
Speaker 1: you didn't see increase for that, and you didn't see
Speaker 1: the same kind of shift in the Incan distribution before
Speaker 1: the crisis in those places that you did in the
Speaker 1: United States. And yet you saw not Yet perhaps I
Speaker 1: can think of these sort of points of causal length
Speaker 1: that that's why there was commncially bigger shift in their
Speaker 1: international development, because their domestic developers, because they were less
Speaker 1: domestically bounced, they absorbed that in a greater foreign balance.
Speaker 1: And so I think that the US and we sort
Speaker 1: of ended up with the worst of both in many
Speaker 1: ways because we had so much weakness domestically the kind
Speaker 1: of thing that would have led to trade circlusses in
Speaker 1: terms of domestic investment, in government infrastruction, investment, wader growth,
Speaker 1: and yet that didn't even translate in the trade circless
Speaker 1: that legistnancials some that was just bepounded by the increase
Speaker 1: in borrowing from the rest of the world at the
Speaker 1: end of the state. So Matt just just to sort
Speaker 1: of like sort of square the circle here for people
Speaker 1: who haven't thought about it in this respect. If you say, oh,
Speaker 1: the US ends up as a sink for everybody's savings,
Speaker 1: a lot of people listen to that. They're like, oh,
Speaker 1: that sounds like a good thing. People want to recycle
Speaker 1: their extra money in the US. They want to buy
Speaker 1: our debt, they want to invest in assets, And what
Speaker 1: are the real economy random ramifications of a world that
Speaker 1: wants to recycle a texture dollars in too United States?
Speaker 1: So I think the easiest way to look at it
Speaker 1: is the corresponding entry to those financial influence coming to
Speaker 1: the US is that there's also a lot of goods
Speaker 1: and services coming into the US that may be that
Speaker 1: are effectively also excess. So if you take away sort of.
Speaker 1: I mean, it's very useful to look at from the
Speaker 1: perspective financial markets, like this is Financial Markets podcast. But
Speaker 1: if you look at sort of abstracted away from that,
Speaker 1: in a sense of in China and other countries, there
Speaker 1: are more groups and services being produced than absorbed domestically,
Speaker 1: that creates a blot of stuff. In practice, stuff the
Speaker 1: services trade is not a big thing. Stuff like a
Speaker 1: lot of stuff. They're not buying it at home, so
Speaker 1: someone has to buy it, so they're selling it somewhere else. Now,
Speaker 1: if we want more stuff then we are people of producing,
Speaker 1: then that's great for us because then we end up
Speaker 1: with more stuff than we could have had and our
Speaker 1: lives standards are higher. But if instand what actually happens
Speaker 1: is we could have produced that stuff ourselves, but we
Speaker 1: don't because we're getting it from someone else at a
Speaker 1: you know, heavily subsidize discount, then we're worse off. So,
Speaker 1: which is in fact what we've seen in the United
Speaker 1: States in particular, where the capacity utilization of the manufacturing executive,
Speaker 1: which is essentially was telling you how much are the
Speaker 1: factor is actually running the employment data all these things
Speaker 1: that they show is that there were people were producing
Speaker 1: a lot more than your but we ended up just
Speaker 1: using a lot of jobs instead because of God from
Speaker 1: somewhere else. And that was only tenable because there was
Speaker 1: a lot of UH finance money coming in to allow
Speaker 1: people to borrow and spend a difference. But that, of course,
Speaker 1: it's not a sustainable strategy, right, I mean, if you
Speaker 1: lose your job, but then you're able to sort of
Speaker 1: keep on a certain amount of spending because while your
Speaker 1: house has gone up in value and you can get
Speaker 1: a second mortgage, or you have some disability benefits, temperary,
Speaker 1: I mean, that's not really going to be a laung term,
Speaker 1: you know, sustained economic solution for anyone. And that's why
Speaker 1: it's it's so harmful. And when people say, well, we
Speaker 1: the United States benefits from this, if you're very careful,
Speaker 1: who is actually befant, right, So basically that's why Trump
Speaker 1: wont I think it's a contributing factor. I mean, you know,
Speaker 1: we're not like both of the science people, and I
Speaker 1: don't want to get too much in the in the
Speaker 1: leads on that, but I mean there have been people
Speaker 1: who start studied at the margin of workplaces are negatively
Speaker 1: affected in places such as Wisconsin and Nuchigan and Pennsylvania,
Speaker 1: And it looks as if there's a high correlation between
Speaker 1: the change in the share the bookshare of those people
Speaker 1: you know from republic and time and presidential elections, and
Speaker 1: the impact of competition from displacing the subject in Chinese imports.
Speaker 1: So I don't think it's incasonable to say that. So
Speaker 1: you just described your framework for thinking about the global
Speaker 1: economy and how these imbalances are are giving rise to
Speaker 1: trade tensions between countries. Talk to us about how that
Speaker 1: framework actually fits into the current crisis when it comes
Speaker 1: to coronavirus. Joe and I were discussing in the intro
Speaker 1: about how this is probably going to end up being
Speaker 1: a supply and a demand shock. How do you see
Speaker 1: that playing out in your particular framework. So I think
Speaker 1: you've grown up really well earlier Trader when you're talking
Speaker 1: about that manufacturing capacity has been brought back online much
Speaker 1: more quickly than consumption. And this is something that you
Speaker 1: can see in all the data in the in the
Speaker 1: Asian countries that have the virus first and also from
Speaker 1: the control with and I think that that's really just
Speaker 1: going to heighten the trade tensions that were existing before.
Speaker 1: So I remember shortly before I went on you know,
Speaker 1: friendly and sort of stopped paying a close attention to news,
Speaker 1: there was this whole idea that the trade Phase one
Speaker 1: trade deal in the US and China that I thought
Speaker 1: was what wouldn't in fact the grown in the book
Speaker 1: that just beca kind of greed the buy more swordings
Speaker 1: or airplanes whatever. It doesn't not gonna change just underlying
Speaker 1: dynamics here that are creating a trade friction. The thing
Speaker 1: that's gonna make a lot worse is if Chinese consumers
Speaker 1: such as they are probably reduced their spending at least
Speaker 1: for the same period of time, or Chinese manufacturing so
Speaker 1: on going at fulfilled because the Chinese government wants to
Speaker 1: make sure people of jobs, and that's gonna gramatically increase
Speaker 1: any frictions that you have. Not just trying to guess
Speaker 1: when China you're trying and everyone, um, but it's not
Speaker 1: just gonna be trying to I think we're gonna see
Speaker 1: this host of countries because the except that I'm trying
Speaker 1: to understand this stuff like manufacturing jobs is relatively easier
Speaker 1: to make them work under conditions of trying to keep
Speaker 1: people says possible. You can you already used to wring
Speaker 1: protective fear in a lot of these situations. They're not
Speaker 1: usually have a focus, are right next to each other,
Speaker 1: but there are ways of adapting the make it, you know,
Speaker 1: work with the perspective producing th I would expect that
Speaker 1: that's gonna come back and f workly than many other
Speaker 1: sections economy just can't do that. And if that's the case,
Speaker 1: then you're going to have a situation where even the
Speaker 1: manufacturing productions running ninety percent of normal, which is depressionary
Speaker 1: under normal start case, if consumption is seventy percent of normal,
Speaker 1: it's gonna be real empalce and it'll see companies fighting
Speaker 1: for a larger piece of a smaller market share a
Speaker 1: smaller market, and that's gonna basically all the things that
Speaker 1: we that we talked about in the book and much
Speaker 1: more high. We were writing this book in the context
Speaker 1: of relatively good specipical environment with global economy, and there
Speaker 1: were problems in terms of sustainability. There are questions about
Speaker 1: what would happen if there were, you know, downturn in China,
Speaker 1: what would happen if, you know, under certain certain chances
Speaker 1: of Europe. Whatever we were talking about the book that
Speaker 1: we were thinking of sort of downsides and there this
Speaker 1: is much worse. So that suggests that the kinds of
Speaker 1: things are warning about would be just even more extreme.
Speaker 1: And I think that we're gonna I would not be
Speaker 1: surprised if we see a lot more extreme conflict without
Speaker 1: trade as countries trying to preserve jobs that they can
Speaker 1: in an environment with a man is just the last
Speaker 1: and that's going to be I think it's gonna be scary.
Speaker 1: So what does that look like? Specifically? So China tries
Speaker 1: to run its factories full till to keep people employed.
Speaker 1: Vietnam does the same thing. Presumably Germany. They're doing a
Speaker 1: good job of keeping their companies together, keeping their manufacturing going.
Speaker 1: All these manufacturing power houses going to continue to produce.
Speaker 1: Demand is collapsed, particularly in the US, the consumer of
Speaker 1: last resort for much of the world. So then where
Speaker 1: does the rubber meet the road? What's what happens because
Speaker 1: of that? Where does it go next? That's a big question.
Speaker 1: I mean, you know, I don't know really how you
Speaker 1: know how to engage with the U S response fling
Speaker 1: this would be Historically the US has been pretty tolerant. Actually,
Speaker 1: in other countries using the United States sort of as
Speaker 1: a you know, dumping ground or sync or whatever word
Speaker 1: you want to use. Economically, I don't think this. I
Speaker 1: think this circumstances quite different, not just because of who's
Speaker 1: in charge, but also because the manage shop. So I
Speaker 1: think it's really very hard to say how that's gonna
Speaker 1: play out. I mean, I think one would expect that
Speaker 1: to a naively, countries that did a better job containing
Speaker 1: the virus domestically ought to have relatively more resilient summer markets,
Speaker 1: and therefore, if there's foally balancing, it should be such
Speaker 1: that the places that are really relavantly well should actually
Speaker 1: switch you know, either circleces were contracted and even the
Speaker 1: depisode or something, so they would actually be absorbing some
Speaker 1: of the sort of global loss through the trade account.
Speaker 1: So they just will keep producing things, but they important more.
Speaker 1: I sort of don't think that's gonna happen, but it
Speaker 1: doesn't happen, it could be quite pleasant. I mean we're
Speaker 1: also seeing, you know, sort of in the emerging markets,
Speaker 1: there's an interesting situation there where, you know, how like
Speaker 1: trying to say, but there's been a there's a real
Speaker 1: financing shot for a lot of murder more countries they're
Speaker 1: going to access funds just maintain standing. And I guess
Speaker 1: that's importantly you have been reediated. But the extent that
Speaker 1: you have the real financial crunch, and there are certain
Speaker 1: emerging countries that have been providing sort of used to
Speaker 1: global demands to the three places, you know, India, Brazil
Speaker 1: or Turkey or what have you, then that also will
Speaker 1: have an impact elsewhere. I would be astoually see how
Speaker 1: that plays out, and I don't think it'll be here
Speaker 1: for anyone really restoring hold the demands obviously the things
Speaker 1: you should really trying to focus out here, how you
Speaker 1: have the context of the virus that really discourages a
Speaker 1: lot of people from engaging in commerce. I don't so.
Speaker 1: I guess we're talking about these sort of big picture imbalances,
Speaker 1: and one of them, um which comes up throughout your
Speaker 1: entire book, is that under consumption notion. And it feels
Speaker 1: to me like the focus is always on trying to
Speaker 1: get people to spend less and save more, or trying
Speaker 1: to solve those and balances in saving and spending. Do
Speaker 1: people ever talk about just producing less? That's an interesting question.
Speaker 1: I mean, the sertense is sort of something that we're
Speaker 1: a little bit right now, right well, to go back
Speaker 1: and making curries. That was something I was tried. I mean,
Speaker 1: FDR was feeling stuff the ag cultural sector where there's
Speaker 1: but there were farmers things where destroying props and slaughter
Speaker 1: in their animals. And actually we're seeing it now the
Speaker 1: certain extent the meat sector where you can't have farmers
Speaker 1: who can't sells to clients with plans to shut down,
Speaker 1: so they kill their breeding styles. So that's not really
Speaker 1: I would say, from the optimal solution. But yeah, the
Speaker 1: theory producing less good be away of you, you know,
Speaker 1: that spending. I think in general though, I mean I
Speaker 1: sort of would not say that we're in the world,
Speaker 1: would literally everyone has anything you need, and therefore we
Speaker 1: don't mean we're producing more stuff. I think it's the
Speaker 1: question of how do we get the stuff to controduce?
Speaker 1: M Is it possible that China responds to this crisis
Speaker 1: by doing things like building out it's safety net. I mean,
Speaker 1: they've just had the millions of workers are going to
Speaker 1: lose their jobs at least on a temporary basis. Extraordinary shock,
Speaker 1: it's an extraordinary health shock. Is it possible or could
Speaker 1: you see China taking that path of essentially helping to
Speaker 1: build up the the safety net for it's domestic workers,
Speaker 1: which would in theory become at least a marginal source
Speaker 1: of demand, and a four of rectifying some of these imbalances. Yeah,
Speaker 1: that would be great if they did. I'm not going
Speaker 1: to pretend that any deep inside into thinking of the
Speaker 1: Chinese leadership on this, but we actually did see in
Speaker 1: response to thousand eight something along those lines through the
Speaker 1: expansion of healthcare provision in China. And it's not near
Speaker 1: fussal healthcare the way they said, but it's not crazy
Speaker 1: to imagine they would do something similar, especially because even
Speaker 1: if the official unemployment rules are not particularly high, those
Speaker 1: don't account all the minorant workers who force to go
Speaker 1: home and don't have droughts where they live, so the
Speaker 1: real unemployment right and trying to problem much higher. So yeah,
Speaker 1: they were expanding safety and regards some figger income sport,
Speaker 1: that would be fantastic and that would help a lot,
Speaker 1: And I think that definitely would be consistent with things
Speaker 1: in the past that said they want. The question is
Speaker 1: whether they will actually do it. So, Matt, you worked
Speaker 1: with Michael Pettis on this book, and I'm just wondering.
Speaker 1: It's always great having Michael on the al Plots podcast
Speaker 1: and he always comes up with, you know, some interesting
Speaker 1: anecdotes about China in particular. Was there anything that you
Speaker 1: learned about China that sort of surprised you in your research? Oh? Man, uh, yeah,
Speaker 1: Well I actually got to spend about a week and
Speaker 1: a half at his house working on the book, which
Speaker 1: was quite interesting. Yeah, that was that was interesting. I
Speaker 1: got a chance the tour some of the Cusine Invasion.
Speaker 1: You can not get a chance to go here any
Speaker 1: of these bands live, um, China. I guess one thing
Speaker 1: this wasn't Yeah, so this is a bit of an
Speaker 1: older thing. But one thing that I found striking was
Speaker 1: they're kind of digging into the economic issue of China
Speaker 1: in the eighties and how in some ways that was
Speaker 1: really the shift from you know, sort of the now
Speaker 1: era to the initials with late seventies nine naties period,
Speaker 1: because you had a really heavy hand state direction and
Speaker 1: then there was just a sort of generalized and localization
Speaker 1: of policy and not just a liberalization since of not
Speaker 1: letting people do anything, but specifically of trying to shift
Speaker 1: from the industry and the industrial products in the military too.
Speaker 1: Well let's see if like a small former can make
Speaker 1: a better you know, for himself, so self, And that
Speaker 1: was effectively had a redistributional effect. One of the reasons
Speaker 1: so resisted by the transf was precisely because undermined their
Speaker 1: power by diffusing power income across the broader populist And
Speaker 1: then part of the reason that broke apart was that
Speaker 1: if you liberalize the agricultural sector that was the vast
Speaker 1: majority of country at the time and also considered less
Speaker 1: strategic compared to heavy industry. But you don't liberalize the
Speaker 1: same asself the urban economy, you're going to have mismatches
Speaker 1: in prices, were changing changes in prices, and one of
Speaker 1: those was very sharp increasing food prices, well, an urban
Speaker 1: lation by the end of the which led to some
Speaker 1: pretty widespread discontent. And you know, I would not say
Speaker 1: that is what led to the pro democracy protests in
Speaker 1: nine but it was definitely a contributing factor. Um. And
Speaker 1: that's also what people in the government at the time thought.
Speaker 1: They said that there was document and something. You know,
Speaker 1: they've been published since then, which is partly why for
Speaker 1: the Western mine we generally think of canimates who are
Speaker 1: specifically the best of news camera story. It was a
Speaker 1: really striking visual, but it was actually a national movement,
Speaker 1: the pro democracy movement, and it wasn't just students. There
Speaker 1: was students and it was also the urban workers and
Speaker 1: so who were disaffected about variety of that. Both lot
Speaker 1: of the promises between economic promises tied up into back
Speaker 1: which is partly why the governing kind of spredate. And
Speaker 1: one of the leaders of the part Marks move who
Speaker 1: left Holo Kong was was a worker with whom now
Speaker 1: and months of the China Leaguer bothing and uh, you know,
Speaker 1: not college educated at all all, and that I think
Speaker 1: that's why they found it is threatening. If they did,
Speaker 1: that's a particular kind of alliance between workers and students
Speaker 1: that you know, essentially their origin stories. So um, I
Speaker 1: think that's probably a whole sort of narrative. And then
Speaker 1: seeing how that sort of worked over time to a
Speaker 1: degree or new concentration of even though they didn't roll
Speaker 1: back to the sense of well, I want to sure
Speaker 1: hards depending probably interesting thing about China man before we go,
Speaker 1: I want to go back to the sort of existing
Speaker 1: crisis and possible policy responses. What happens you know, there's
Speaker 1: been a lot of talk, particularly because of the US's
Speaker 1: inability to quickly ramp up the production of personal protective
Speaker 1: equipment for doctors and nurses, the difficulty with rolling out
Speaker 1: tests rapidly, sort of a lot of awareness about the
Speaker 1: deficiencies of not having at least certain key things manufactured here.
Speaker 1: We don't know what the future holds, but what if
Speaker 1: the U S sort of takes a turn for like
Speaker 1: a very sort of like self reliant movement where we
Speaker 1: really focus on increasing domestic manufacturing throughout massive tarroffs and
Speaker 1: you know, difficult with the rest of the world. Is
Speaker 1: this a plausible path? Is this something in your view
Speaker 1: that the U S could possibly do? And what kind
Speaker 1: of ramifications could that have? Good question s too. Media thoughts.
Speaker 1: That one is that if anyone, any country in the
Speaker 1: world could do it, it would be the United States,
Speaker 1: because the US is like far the most diversified economy
Speaker 1: in the world. It is large, it is relatively not
Speaker 1: that exposed in ports of exports compared to other in
Speaker 1: madior economies. So if anyone, and of course the US
Speaker 1: is the most tend oft advanced economy in the world.
Speaker 1: The other thought, I have is that in many ways
Speaker 1: would be the turn informed. One of the things we
Speaker 1: talked about in the book is that the original development
Speaker 1: US a factual sector was something that was a state
Speaker 1: led project because George Washington supposedly said, you can't be
Speaker 1: a free country if you're dependent on other people for
Speaker 1: essential supplies, and if the Europeans are going to be unreliable,
Speaker 1: and you know, for thousands of miles anyway, uh, you know,
Speaker 1: we better build up our own man facing face. And
Speaker 1: then the other thing. And then what happened after that
Speaker 1: was sort of events the cover, which is that you
Speaker 1: have decades of war between revolutionary France and England and
Speaker 1: other European powers and so forth, and U as an
Speaker 1: effectively cut off from your anyway the gardens of whether
Speaker 1: we want to because we wanted to be neutral and
Speaker 1: because of blockades and so where there were there really
Speaker 1: wasn't any ability to access those markets, and sort of
Speaker 1: by necessity have this school US manufacturing face developed and
Speaker 1: it was so disignifing. The By the time the pulling
Speaker 1: out of wars finally end, there's real pressure to institute
Speaker 1: protective Paris for the first time extremely high rates to
Speaker 1: make sure that the manufacturing sector that had been created
Speaker 1: doesn't go away, and that ends up being sustained in
Speaker 1: the next under view. So I'm not saying that you
Speaker 1: should do, but it wouldn't be It would definitely be
Speaker 1: in character for an event like this if you just
Speaker 1: use access to supply the force of change, specially by
Speaker 1: the way you're seeing Chinese haven't done that already. The
Speaker 1: Chinese government maybe sure, they don't have to worry about
Speaker 1: U S sanctions that prevent them from getting access to
Speaker 1: high tech electronics and parts and so forth. So it's
Speaker 1: about being self sufficient so they don't have to worry
Speaker 1: about using US. Just sort of a universally understood concept.
Speaker 1: How that goes out right now, I don't know, but
Speaker 1: it wouldn't be surprivately. Uh, Matt Klein is so great
Speaker 1: to talk to you. I feel like we wanted to
Speaker 1: talk to you for a long time and this was
Speaker 1: the perfect time. So Uh, glad it worked out. Thanks
Speaker 1: for coming and congrats on the book, Tracy. I love
Speaker 1: the way Matt and also his co author Michael Pettis,
Speaker 1: who we talked to several months ago. I love their
Speaker 1: narrative and the way they sort of described the relationships
Speaker 1: between the different entities, whether it's the Chinese worker or
Speaker 1: the Chinese e lead class, the US elite, the US worker.
Speaker 1: It's such a more interesting and compelling story than I
Speaker 1: feel like how most people talk about the trade war.
Speaker 1: Oh totally. I think most people just talk about it
Speaker 1: in a sort of you know, mere cantilist terms US
Speaker 1: versus China. But the focus on the intra country imbalances
Speaker 1: is a really really interesting and also compelling framework. And
Speaker 1: the way Matt laid out the sort of um peculiar
Speaker 1: characteristics of the Chinese socialist system, it's really interesting, and
Speaker 1: also the way he compared and contrasted those with the
Speaker 1: US right. I'm always sort of amused to be reminded
Speaker 1: of how unsocialist the Chinese socialist system is that they
Speaker 1: don't have something that resembling universal healthcare that students had
Speaker 1: to apologize for actually studying Karl Marx and attempting to
Speaker 1: apply what some of the old literature said. But it's
Speaker 1: a good reminder of, like there really is a system
Speaker 1: that's designed to sort of push income up into uh
Speaker 1: among to the elite who don't spend as much money
Speaker 1: as the poorer and working class people would if they
Speaker 1: were getting all of their income. Yeah, absolutely, And again
Speaker 1: Matt and Michael have sort of published lists at exactly
Speaker 1: the right time because you can see all those imbalances
Speaker 1: and social works are are going to start playing out
Speaker 1: in the current crisis. And again one of the big
Speaker 1: ones is of course the notion of the Chinese savings
Speaker 1: squat uh and after the coronavirus. You can't really sive
Speaker 1: that coming down very much, but no, you can't. And
Speaker 1: also it raises the questions, you know, just from a
Speaker 1: market perspective too, because a lot of the people are
Speaker 1: sure trying to figure out, Okay, what is a return
Speaker 1: to normal. Look like, there's the health return to normal,
Speaker 1: will people go out? Then there's the question of how
Speaker 1: much demand will there be domestically for various services that
Speaker 1: have been forth to shut down restaurants and so forth.
Speaker 1: But what happens also if demand doesn't you know, go
Speaker 1: back to which it probably won't. Meanwhile, you have this
Speaker 1: huge glut of supply of goods coming from a Chinese
Speaker 1: manufacturing sector that's trying to keep everyone employed. Like it
Speaker 1: just feels like the sort of aftershocks of this crisis
Speaker 1: are going to be with us for a long time. Yeah.
Speaker 1: In other words, many Odd Thoughts episodes to come on
Speaker 1: this topic. I think I think you're right, all right.
Speaker 1: This has been another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Halloway. You can follow me on Twitter at
Speaker 1: Tracy Halloway and I'm Joe Wisn't Though. You can follow
Speaker 1: me on Twitter at the Stalwart, and you should follow
Speaker 1: our guest on Twitter, Matt Klein. He's the author of
Speaker 1: Trade Wars Are Class Wars. Check it out. His handle
Speaker 1: is at mc klein, and be sure to follow our
Speaker 1: producer on Twitter, Laura Carlson. She's at Laura M. Carlson.
Speaker 1: The Bloomberg head of podcast Francesca Levi at Francesca Today,
Speaker 1: and check out all of our podcasts at bloom Burg
Speaker 1: under the handle at podcasts. Thanks for listening.