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Studying economics for some time, I think economists often ask wrong questions. So let's say trade war occurs, and china will lose some of its exports. The main

Studying economics for some time, I think economists often ask wrong questions. So let's say trade war occurs, and china will lose some of its exports. The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Yeah, if it won't be utilised then there will be unemployment, well pointed by the author. If domestic consumer will consume what was produced for exports, then consumption would increase and savings would fall. If Chinese will find a way to use spare capacity to produce something else what is in higher demand (high tech let's say) then investment would rise. And let me assure you that strong Chinese government will find a way to use all the freed up labour/capital resources, so any downfalls would be temporary. On the other side are democracies like US which don't have that much control over production side and whose economies are not that robust to shocks that China may face now.

baybal2 8y ago
>The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Undifferentiated low end products are more price elastic than brand goods. China will do fine even if USA will declare a 100% embargo. Edit: specified that I talk about price elasticity
- andygoo 8y ago
  If they are more elastic it means that demand is more responsive to price hikes. This is opposite to your conclusion
  - baybal2 8y ago
    I mean that Chinese manufactures have an option just to do a slight downgrade of their undifferentiated mass consumption goods that were previously sold to America, and sell them to poorer countries, as well as domestic consumer. This is what happened in 2008. To Chinese electronics industry the crisis was a blessing in disguise. It saw an unprecedented expansion after it reoriented from OEM for "rich American co." to selling own products to places like South Asia, CIS, and African nations. A bit of explanation: Pre-2008 industry was very oriented on developed countries with contract manufacturing of high premium goods secured by branding, marketing, IP lockdown and such - in other word, niches with very inefficient market and companies hellbent on profit maximisation. Thus, they had a huuge leeway for trading unit value for volume which they used to devastating effect. That was right the time when people in places like Africa realised that $20 Nokla is no worse than low end $100 Nokia, the rest is history.
    - andygoo 8y ago
      Fair as long as demand is as elastic as it used to be. Like if everyone has a phone now it will be harder to sell new phones. And good for pointing out a critical assumption behind the article - that CA surplus will actually fall as a result of tariffs, as you showed there is a fifth solution - sell to other countries, EU for example, US is not the whole world
    - cinquemb 8y ago
      They can try that, but I don't think they'll have much success this time around. At least In Indonesia, the government here just hiked rates on imports, as well as implementing a whole bunch of other policies in order to defend the IDR. I can only assume this is going on as well in other non developed markets.
- andygoo 8y ago
  Did you mean that China can just decrease domestic price and sell the goods to domestic consumers?
doombolt 8y ago
> let me assure you that strong Chinese government will find a way to use all the freed up labour/capital resources, You're telling us that they have found The Holy Grail. Let me stay confident that it isn't the case.
bitxbit 8y ago
You can go through a simple two-stage exercise. But it comes down to how China can churn out tech and this is exactly why they are not allowing the Big Silicon Valley to do business there (and understandably so). To be honest, the tech baton will stay in the US until someone can put up a comparable education and research ecosystem. I don’t see that happening for at least another 50 years. China is at a crucial point in their economy and my bet is they will do whatever they can to generate growth in the WRONG (and easy) areas.
- baybal2 8y ago
  >To be honest, the tech baton will stay in the US until someone can put up a comparable education and research ecosystem. ... US in my eyes, evidently scores much, much, much less than China when it comes to public education. Both secondary and undergraduate tertiary level. Only graduate school does well in US, just because high profile academicians tend to like working in high profile universities
  - bitxbit 8y ago
    Disagree. The best high schools and undergraduate programs are all in the US. No contest.
polotics 8y ago
How can you be so naive as to state that a dictatorship is a "strong" government? Having one man and his clique at the helm is extreme weakness. Any strength the government may have at any time is wholly incidental, not structural or systemic like what a well-functioning democracy of the people for the people produces. In many way the current state of governance in China is worse than what an established hereditary monarchy would provide. Any way this all will be tested soon enough.

baybal2 8y ago

>The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Undifferentiated low end products are more price elastic than brand goods. China will do fine even if USA will declare a 100% embargo. Edit: specified that I talk about price elasticity

andygoo 8y ago
If they are more elastic it means that demand is more responsive to price hikes. This is opposite to your conclusion
- baybal2 8y ago
  I mean that Chinese manufactures have an option just to do a slight downgrade of their undifferentiated mass consumption goods that were previously sold to America, and sell them to poorer countries, as well as domestic consumer. This is what happened in 2008. To Chinese electronics industry the crisis was a blessing in disguise. It saw an unprecedented expansion after it reoriented from OEM for "rich American co." to selling own products to places like South Asia, CIS, and African nations. A bit of explanation: Pre-2008 industry was very oriented on developed countries with contract manufacturing of high premium goods secured by branding, marketing, IP lockdown and such - in other word, niches with very inefficient market and companies hellbent on profit maximisation. Thus, they had a huuge leeway for trading unit value for volume which they used to devastating effect. That was right the time when people in places like Africa realised that $20 Nokla is no worse than low end $100 Nokia, the rest is history.
  - andygoo 8y ago
    Fair as long as demand is as elastic as it used to be. Like if everyone has a phone now it will be harder to sell new phones. And good for pointing out a critical assumption behind the article - that CA surplus will actually fall as a result of tariffs, as you showed there is a fifth solution - sell to other countries, EU for example, US is not the whole world
  - cinquemb 8y ago
    They can try that, but I don't think they'll have much success this time around. At least In Indonesia, the government here just hiked rates on imports, as well as implementing a whole bunch of other policies in order to defend the IDR. I can only assume this is going on as well in other non developed markets.
andygoo 8y ago
Did you mean that China can just decrease domestic price and sell the goods to domestic consumers?

doombolt 8y ago

> let me assure you that strong Chinese government will find a way to use all the freed up labour/capital resources, You're telling us that they have found The Holy Grail. Let me stay confident that it isn't the case.

bitxbit 8y ago

You can go through a simple two-stage exercise. But it comes down to how China can churn out tech and this is exactly why they are not allowing the Big Silicon Valley to do business there (and understandably so). To be honest, the tech baton will stay in the US until someone can put up a comparable education and research ecosystem. I don’t see that happening for at least another 50 years. China is at a crucial point in their economy and my bet is they will do whatever they can to generate growth in the WRONG (and easy) areas.

baybal2 8y ago
>To be honest, the tech baton will stay in the US until someone can put up a comparable education and research ecosystem. ... US in my eyes, evidently scores much, much, much less than China when it comes to public education. Both secondary and undergraduate tertiary level. Only graduate school does well in US, just because high profile academicians tend to like working in high profile universities
- bitxbit 8y ago
  Disagree. The best high schools and undergraduate programs are all in the US. No contest.

polotics 8y ago

How can you be so naive as to state that a dictatorship is a "strong" government? Having one man and his clique at the helm is extreme weakness. Any strength the government may have at any time is wholly incidental, not structural or systemic like what a well-functioning democracy of the people for the people produces. In many way the current state of governance in China is worse than what an established hereditary monarchy would provide. Any way this all will be tested soon enough.