The US is not decoupling from the global system, they’re just lessening their dependence on their adversaries and countries vulnerable to their adversaries for key sectors. The US can only stay prosperous if they remain a central player in the global economy and they know it.
Imagine you’re Farmer Bob in a temperate region great for growing apples and I’m Farmer Fred in a tropical area ideal for bananas. We each like bananas and apples, so tried growing both fruits, each of us harvesting 12 of our specialty and 6 of the other, making a total output of 36 fruits.
But then, we learned about the power of trade. We focused on what our lands did best: I harvested 24 bananas, you 24 apples. We swapped half our produce, and like magic - We both had 12 bananas and 12 apples each, totaling 48 fruits, a 25% increase just from trade.
But what if we stopped trading due to trust issues? We’d revert to the less efficient system, losing out on the additional produce.
Now, think of this on a global scale. When countries specialize and trade, we all gain. But as governments decouple from global trade, they’re choosing to lose these benefits, making economies less efficient. It’s a dangerous path where everyone ends up poorer.
And for our governments to deliberately choose a path that makes us all poorer - that means there’s an unchecked growing tension. It’s almost palpable. We’re already living through a Gilded Age nearly a century after the last one… what happened after the Gilded Age?
Call me a doomer but this is alarming news, even if understandable from a national security perspective
You’re not a “doomer”, as I read it more like the opposite- your defense of global trade is optimistic. Trade and specialization doesn’t work nearly that cleanly in practice.
Companies and governments saw the disruptions of the past few years and realized that there are unaccounted for costs (and benefits) to the global supply chain. COVID, shipping disruptions (strikes, Evergreen, prices), the chip shortage, etc. all have taught a lesson about the diversification of supply chain risk. Decentralization isn’t less efficient when you include those costs. So it makes more sense now to make goods in America for America, and make goods in China for China. Not all goods, obviously, but the scales have shifted…and that’s a good thing for the health of global supply.
To extend your point, the fruit analogy assumes shipping is completely frictionless. In reality there are all kinds of downsides to shipping everything 12,000 miles across the world, both social and environmental. If you ship out 12 bananas and the cargo ship, train, or truck gets delayed, suddenly you have 0 bananas. Not to mention all the extra CO2, which the companies get to conveniently ignore.
what you say is ideally true, but it ignores the complexity of the system: free trade works great if everyone acts in the best interests of the whole, but game theory tells us that even a few bad actors have the potential to ruin the whole thing (this plays out time and time again with monopolies, negative externalities, etc)
plenty of countries around the world don’t play fair, and that leaves everyone else worse off… you can’t assume the game is fair when it’s actually rigged
we can still encourage trade, fairness, interconnectedness, and efficiency whilst not falling prey to being taken advantage of
we can’t let perfect be the enemy of good here: there’s a balance to be struck, until all of the worlds economies play by the same rules
Yep. This is exactly what they teach in Econ classes along with the idea that by being economically entangled no country will want to behave badly because it will ultimately hurt them (so it will help keep peace and avoid wars).
Unfortunately they gloss over some key parts of reality. First is that this is all “long term” change. Until that point, however, there are going to be lots producers that will have huge losses in the interim as their businesses are offshored. Some people might win, but that’s not much of a consolation to everyone who’s now jobless.
Second is it’s important from a national security perspective to be self sufficient - or at least have to capability to be self sufficient without major disruptions. Unlike the examples in Econ classes, we’re not just talking about apples and bananas. We’re talking about things like semiconductors, rare earth metals, etc. If we have to get into a conflict with another country, we’ll be screwed if we’re dependent on that other country for key inputs.
Which brings us to #3 - economic entanglement hasn’t prevented countries from behaving badly. It’s actually done the opposite by enabling bad actors to behave badly. Look at China & Russia. China has been committing genocide against the Uighurs and we should have cut them off until they stopped, but we can’t because we’re dependent on them for so many products. It’s a similar situation with Taiwan - we tiptoe around the issue of them taking over the island because we need them financially. And the EU was hesitant to go up against Russia because of their dependence on their natural gas exports.
While ideally a rising tide lifts all boats, we’re seeing that it’s not exactly playing out that way - partly because the “assumptions” Econ professors talk about miss key points of human nature. The primary one is that people will act in a way to maximize wealth. But that’s not true. Power and social status can be much bigger motivators than cash - especially when you already have enough cash to live an extravagant lifestyle (like Pooh and Putin).
It may make the economy less efficient on paper, but that doesn’t take in to account the external costs of trade. In return for cheap products, we gave up a strong manufacturing career base and replaced it with low quality service industry jobs which pay less overall. It’s one of the factors that’s led to wage stagnation, which is WAY more damaging than more costly products.
That’s not even to mention the environmental costs of shipping. The literal tons of heavy fuel oil that are burned to get the bananas from Farmer Fred are now causing sea level rise and changing weather patterns, which makes both Bob and Fred lose in the end.
Whatever the costs for shipping are are outweighed by the gain in efficiency. Realistically we’re not growing bananas or apples as the main economic output. Complicated modern products like computer chips have a million little steps on the supply chain. Spending even 1% or 2% more resources to produce these at a global scale we’re talking much more than shipping costs.
If you care about environmental costs, you should support free trade.
Also, you have a warped perception of manufacturing vs service jobs. Service jobs are the mark of an industrialized and modern economy for a reason.
I would rather work as a sales rep for a solar company, or a clerk for an underground construction company, or an accountant or lawyer or doctor or IT guy a million times over before I work on an assembly line. And trust me, this is from someone who was born in a 3rd world country and has worked on an assembly line - now I work with computers.
it’s good in the short term but realistically this news is a canary in the coal mine moment
we are decoupling our economies from the global system - increasing the chances for cold and/or hot war
The US is not decoupling from the global system, they’re just lessening their dependence on their adversaries and countries vulnerable to their adversaries for key sectors. The US can only stay prosperous if they remain a central player in the global economy and they know it.
Imagine you’re Farmer Bob in a temperate region great for growing apples and I’m Farmer Fred in a tropical area ideal for bananas. We each like bananas and apples, so tried growing both fruits, each of us harvesting 12 of our specialty and 6 of the other, making a total output of 36 fruits.
But then, we learned about the power of trade. We focused on what our lands did best: I harvested 24 bananas, you 24 apples. We swapped half our produce, and like magic - We both had 12 bananas and 12 apples each, totaling 48 fruits, a 25% increase just from trade.
But what if we stopped trading due to trust issues? We’d revert to the less efficient system, losing out on the additional produce.
Now, think of this on a global scale. When countries specialize and trade, we all gain. But as governments decouple from global trade, they’re choosing to lose these benefits, making economies less efficient. It’s a dangerous path where everyone ends up poorer.
And for our governments to deliberately choose a path that makes us all poorer - that means there’s an unchecked growing tension. It’s almost palpable. We’re already living through a Gilded Age nearly a century after the last one… what happened after the Gilded Age?
Call me a doomer but this is alarming news, even if understandable from a national security perspective
You’re not a “doomer”, as I read it more like the opposite- your defense of global trade is optimistic. Trade and specialization doesn’t work nearly that cleanly in practice.
Companies and governments saw the disruptions of the past few years and realized that there are unaccounted for costs (and benefits) to the global supply chain. COVID, shipping disruptions (strikes, Evergreen, prices), the chip shortage, etc. all have taught a lesson about the diversification of supply chain risk. Decentralization isn’t less efficient when you include those costs. So it makes more sense now to make goods in America for America, and make goods in China for China. Not all goods, obviously, but the scales have shifted…and that’s a good thing for the health of global supply.
To extend your point, the fruit analogy assumes shipping is completely frictionless. In reality there are all kinds of downsides to shipping everything 12,000 miles across the world, both social and environmental. If you ship out 12 bananas and the cargo ship, train, or truck gets delayed, suddenly you have 0 bananas. Not to mention all the extra CO2, which the companies get to conveniently ignore.
what you say is ideally true, but it ignores the complexity of the system: free trade works great if everyone acts in the best interests of the whole, but game theory tells us that even a few bad actors have the potential to ruin the whole thing (this plays out time and time again with monopolies, negative externalities, etc)
plenty of countries around the world don’t play fair, and that leaves everyone else worse off… you can’t assume the game is fair when it’s actually rigged
we can still encourage trade, fairness, interconnectedness, and efficiency whilst not falling prey to being taken advantage of
we can’t let perfect be the enemy of good here: there’s a balance to be struck, until all of the worlds economies play by the same rules
Yep. This is exactly what they teach in Econ classes along with the idea that by being economically entangled no country will want to behave badly because it will ultimately hurt them (so it will help keep peace and avoid wars).
Unfortunately they gloss over some key parts of reality. First is that this is all “long term” change. Until that point, however, there are going to be lots producers that will have huge losses in the interim as their businesses are offshored. Some people might win, but that’s not much of a consolation to everyone who’s now jobless.
Second is it’s important from a national security perspective to be self sufficient - or at least have to capability to be self sufficient without major disruptions. Unlike the examples in Econ classes, we’re not just talking about apples and bananas. We’re talking about things like semiconductors, rare earth metals, etc. If we have to get into a conflict with another country, we’ll be screwed if we’re dependent on that other country for key inputs.
Which brings us to #3 - economic entanglement hasn’t prevented countries from behaving badly. It’s actually done the opposite by enabling bad actors to behave badly. Look at China & Russia. China has been committing genocide against the Uighurs and we should have cut them off until they stopped, but we can’t because we’re dependent on them for so many products. It’s a similar situation with Taiwan - we tiptoe around the issue of them taking over the island because we need them financially. And the EU was hesitant to go up against Russia because of their dependence on their natural gas exports.
While ideally a rising tide lifts all boats, we’re seeing that it’s not exactly playing out that way - partly because the “assumptions” Econ professors talk about miss key points of human nature. The primary one is that people will act in a way to maximize wealth. But that’s not true. Power and social status can be much bigger motivators than cash - especially when you already have enough cash to live an extravagant lifestyle (like Pooh and Putin).
It may make the economy less efficient on paper, but that doesn’t take in to account the external costs of trade. In return for cheap products, we gave up a strong manufacturing career base and replaced it with low quality service industry jobs which pay less overall. It’s one of the factors that’s led to wage stagnation, which is WAY more damaging than more costly products.
That’s not even to mention the environmental costs of shipping. The literal tons of heavy fuel oil that are burned to get the bananas from Farmer Fred are now causing sea level rise and changing weather patterns, which makes both Bob and Fred lose in the end.
Whatever the costs for shipping are are outweighed by the gain in efficiency. Realistically we’re not growing bananas or apples as the main economic output. Complicated modern products like computer chips have a million little steps on the supply chain. Spending even 1% or 2% more resources to produce these at a global scale we’re talking much more than shipping costs.
If you care about environmental costs, you should support free trade.
Also, you have a warped perception of manufacturing vs service jobs. Service jobs are the mark of an industrialized and modern economy for a reason.
I would rather work as a sales rep for a solar company, or a clerk for an underground construction company, or an accountant or lawyer or doctor or IT guy a million times over before I work on an assembly line. And trust me, this is from someone who was born in a 3rd world country and has worked on an assembly line - now I work with computers.
The writing was on the wall for the current global economy as soon as BRICS was announced.