RE:
Confusing Personal Economics With National Economics
In the first place, the United States cannot, in the nature of
things, get into debt to China, as the term is ordinarily
understood.
Money is not a commodity. That is simply a fiction of economists
playing at being hard scientists when they are only theologians.
Money consists, for the most part of "instruments," pieces of
paper reading "promise to pay" or whatever. There is very little
actual cash, that is gold and silver coins or bullion, in use.
These pieces of paper have serial numbers, and are carried on
ledgers in various financial institutions. It is not technically
very difficult to freeze or repudiate such instruments, and to do
it in a precise enough way that it affects only the desired
target. If China should offer American T-bills to a French banker,
the first thing that banker will do is to call up Washington, and
find out whether or not the United States Treasury is willing to
put the things in his name or not. One well-placed rumor that the
Chinese Central Bank is forging American paper would probably be
enough to render the Chinese Central Bank's holdings
nontransferable without explicit American consent. Short
of military action, an international creditor has no
recourse, save to refuse to engage in further trading. Within a
country, one's ultimate resort is to apply to the courts for a
sheriff's seizure, a garnishment, or the equivalent.
However, there is no generally accepted international agency
with the power to compel payment. A country can decide which
of its trading partners it wishes to stiff, and which it
does not wish to stiff. The fact of the country having repudiated
a large portion of its external debt means that its
balance-of-payment problems are eased, and it is therefore less
likely to repudiate other debts. Under the circumstances, it would
take a very strong measure of solidarity between creditors
for a finely controlled asset freeze to injure the freezing
country's general credit.
Suppose China refuses to trade with the United States: what are
they going to do with all their cheap t-shirts, then? The
Europeans are already buying as many t-shirts as they are likely
to want. The United States supplies China with some raw materials,
and especially foodstuffs, and gets back clothing, housewares,
machinery, etc. These last are collectively durable goods. You
break off the trade for a month or two, and Americans get
incrementally scruffier, whereas Chinese get hungrier. The Arabs
have no cornlands-- they cannot replace the food deficit.
Most of the world's sizable agricultural nations are so badly
organized that they cannot generate food exports-- most of Africa
and Latin America, and the former Soviet Union, for example.
Hungry people become violent, and they tend to attack someone
close at hand. Unless the Chinese government is completely
mad, it will do what it has to do in order to ensure continued
supplies of wheat from Montana, Idaho, and the Dakotas.
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A second point is that the Chinese are not, economically speaking,
ten feet tall. Here is one American businessman's account of
outsourcing something to China:
http://politics.slashdot.org/article.pl?sid=06/10/02/212248
It is quite clear that China is not Japan, nor is it South Korea
either. A lot of the things China manufactures tend to be
"delocalized," that is, bits and pieces get moved around the
world, with different operations being done in different
countries. Looking at an object with a "Made in China" label may
give you a somewhat exaggerated idea of China's industrial
capability, especially in electronics. Over the moderately
long-term, say ten years, China may not do so well, because
greater automation diminishes the importance of unskilled
cheap labor, China's strong suit. When a factory passes a certain
threshold of automation, its insurance rates, and especially, its
government subsidy, become more important than its wage bill. For
example, if the United States Air Force wants to purchase
microprocessors which have never been in Chinese control, and
cannot possible have implanted sabotage devices, and which are of
the latest type, that will result in a proliferation of surplus
chip foundries inside the United States. Since the cost of
operating a chip foundry once built is negligible, that will
mean that in trying to sell to Americans, the Chinese will in
effect be competing against military surplus goods. What
seems to be developing in the computer and electronics industry is
a system of price wars subsidized by two or more governments.
China may well be able to produce a lot of electronics in absolute
terms, but that does not necessarily work out to being able to
trade them for foodstuffs.
Similarly, over the next ten years or so, the costs of goods which
can be automatically manufactured are going to come down quite a
lot, compared to things which cannot be automated. For
example, there are few if any operations in manufacturing either a
computer or an automobile which cannot be performed by robots. The
limiting factor on automation is usually American workers who fear
losing their jobs. Once the job has gone off to China, that
is no longer a consideration, and the ground is potentially
cleared for extremely automated factories in the United States,
again, probably operating under government (military)
subsidy. I have been reading The American Machinist's blogsite a
lot recently, and I gather that large numbers of machinists are
getting their hands on "5-axis" numerically controlled machine
tools, which can manufacture almost any metal part.
http://www.americanmachinist.com/
http://www.practicalmachinist.com/cgi-bin/ubbcgi/ultimatebb.cgi?ubb=get_topic;f=13;t=003804;p=0
http://www.mmsonline.com/articles/070402.html
What I think this will translate to, among other things, is a
radically increased ability to go energy-independent upon very
slight provocation. The cost, and time requirement, of
switchover will decrease by annual increments until it will become
something which can happen in retaliation for an
insult, something on the order of Teddy Roosevelt's "This
government wants Perdicaris alive or Raisuli dead."
http://en.wikipedia.org/wiki/Ion_Perdicaris
http://ehistory.osu.edu/world/amit/display.cfm?amit_id=1960
What it comes down to is that our economic
relationships with the third world do not represent the most
advanced aspects of out economy, and they are likely to become
less important with time and technological progress.