Notes

[0] Note: I excluded a handful (5) South-East-Asian & South American nations to aid clarity of reading and because this essay is about the USA, Europe & Asia. You’ll also note that the USA and China both had to be cut from this image because the sheer size of their GDP made the rest of the chart unreadable.

[1] Everything is sourced directly from the UN & WTO’s official data repository, including GDP numbers, and expressed in constant 2017 USD, which is great because one of the worst things about this sort of data is trying to unwind different people’s adjustment factors that never quite tie

[2] The alternative is subsistence, and that’s no fun at all.

What does the decline of manufacturing regions due to foreign competition look like in practice? US residents — real individual people — whose personal income is not threatened by a reallocation of trade to foreign firms might perhaps see large increases in their personal standard of living thanks to their additional consumer surplus. Well-positioned Economic Rent-Seekers might then raise their prices steeply to take advantage of the extra cash in the pockets of consumers. Consider: housing, health care, education.

US residents — again, real people — whose real personal income is reduced by a reallocation of trade to foreign firms can choose to retrain (“Learn to Code”), enter the workforce in non-scalable Services-based industries, and relocate to urban centers or else commit to a permanently lowered standard of living thanks to their inability to compete in the aforementioned Rent-Seek’d areas.

Expectations: bifurcation, urbanization, increased polarization along rural-urban divides, increased Wealth inequality, increased Debt chasing non-productive assets, increased government assistance, increased competition for a smaller number of Wealth-generating jobs, etc.

This loosely matches my mental model of the Industrial world, not completely, but enough that I can see the shape of a viable Narrative beginning to build. I wrote earlier about the dramatic rise of Industrialism:

“Consequential path dependence in the location of economic activity” isn’t exclusive to Feudal Rome. To spell my point out more clearly: The Town is to Feudalism as the Trade Route is to Industrialism. Sticky, self-perpetuating, network-effect-creating, often a Nash Equilibrium, and increasing of market Imperfection in a way that allows existing-participants to Capture Wealth.

“Stickiness” is great when you’re building something, but if you’re a legacy incumbent and a new market entrant is somehow able to pry a lynchpin node away from you, that same “stickiness” can unravel your whole local economy.

[3] Chasing money gets you both money and prestige. Chasing prestige gets you neither.

[4] What I mean is that it’s possible to show that the Chinese Money Supply is in fact not expanding fast enough to handle their economy’s growth, and that the mismatch in US-China money supply growth is such that the US dollar would actually tend to get cheaper.

I dislike these sorts of arguments because they are so many levels removed from a core base of agreed-upon axioms (i.e. cause and effect relationships at the macro level are tenuous, multi-variate, often mislabeled, and lagging).

If this were the sole exhibit in my “case”, I’d dismiss my own case — but then that goes for everything else in the essay too. Each example is just one tiny lens in the Narrative — insufficient alone to build a Manufacturing Powerhouse in the face of network effects…

…but when you stack them all together, a picture begins to resolve itself.

[5] Fun fact, the US just became a Net Oil Exporter for the first time in 75 years. We produced more Oil here at home and sold it to other nations than we imported.

The fact that Middle-Eastern Oil is priced in Dollars — and therefore foreign-produced Oil cannot be sold more cheaply via exchange-rate manipulation — really helps smooth out geopolitical instability.

If foreign Oil wasn’t priced in Dollars, the Oil we produce here in the good ol’ US-of-A would not sell nearly so well on the open market.

[6] Per the US-China case study, this implies some amount of “Transfer Receipts” — i.e. Government assistance — will be required for citizens of the regions that see said Industrial Capacity move itself too Germany.

Are those citizens located in regions where social safety nets are politically favorable?

Are those citizens located in regions that have another source of Economic Surplus that can be taxed and redistributed easily — without encouraging that source of Surplus to move as well?

One hopes the answers are Yes, and Yes.

But I’ve been to Liverpool, Birmingham, and Manchester…

[7] Note: I had to change the axes otherwise the chart was unreadable in 1993, just a big clump of dots. Note how tiny the X-axis is now — 1/10th. Also note that TRADE in general is now larger relative to GDP for every single country in this list — except Singapore, who had to be cut from this 1993 chart because they tripled the Y-axis. Lastly, Japan also had to be removed because they ran a Trade Deficit of -$158B in 1993. Look where negative-$158B would be on this X-axis relative to all the other dots and you’ll see why…

[8] A small irony is that if the United Kingdom had gone full Euro-fanatic 30 years ago, they might have weathered the German Industrial storm better as they would’ve benefited from all the Euro-based currency-dilution in all the same ways Germany has. When it comes to making stuff, I wouldn’t bet against Germany, but it’s worth noting the possibility.