Analyzing Trump On China

Deng Xiao-ping, circa 1979, when he finally overcame the Maoists, toured USA, then visited with Lee Kuan Yew of Singapore, some Hong Kong Billionaires and others and consulted on how to play his hand.

Brilliantly! USA was in the early but irreversible stages of lending malcredit at usury and the hollowing out of USA industry, small manufacturing first, then big manufacturers was well underway.  It would be merely a few years before USA needed massive new factories and management to COPY what USA makes in state of the art new factories.

The great roll-up of the family-owned USA small business occurred over the 1980s, with the capitalists and the communists co-operating in the collectivization of the USA economy.  Get big or get out is the stated economic policy of the USA.

For those unemployed new welfare programs were created, students loans could be given to create the impression of advancement, and Starbucks became the new hiring hall.  Whoever you are, no matter your circumstances, the Man can make up some life-support system for you, and simply put it on the tab of future generations, since there is no rational limit on malcredit.  If and when a culling is necessary, why, we have Obamacare ready.

Now comes comments from Trump:

And I'm not angry about China, in fact I respect them, I made a lot of money with China... I'm not angry at China, I'm angry at our leaders for being so incompetant that they allow it to happen. 
And I said this as part of my response to the Wall Street Journal when they just called.
I said, in the history of the world, this is the greatest theft ever perpetrated by anyone or any country, what China has done to us. 
It is the greatest single theft. They have taken our jobs, they have taken our money, I mean I see the empty buildings all over Staten Island... I see them all over... Really really sad. That's not going to happen anymore with me... 
The truth is, we have all the cards.

So he starts off right, merely stating knowing the score, he too played his cards right.   He also notes the problem is the USA, not the Chinese.  Just so. The he switches "...what China has done to us."  But Trump, they played their hand to the objective detriment of USA just as you did, so by the same token, you condemn yourself.  This of course is lost on the crowd cheering Trump waving red meat of blame China.  The Chinese see what he is doing, telling the Chinese Trump understands perfectly well what is going on, AND Trump is waving red meat in front of his adoring crowd, who haven't a clue. China gets Trump, helps him by objecting to him, and are no too worried that USA will ever be a viable threat.

China has as many empty building as USA, and as many problems.  But China can say to its youth, "go west, young man!" with its Belt and Road initiative integrating Beijing with Berlin.  Indeed, an ancient fairy tale "Journey to the West" is getting multi-decade continuous play in China.

USA has no such West, unless you mean analogously "war."  That is all USA does now, and that is not working out so well as an economic policy.

We do hold all of the cards, since China still copies and we can get creative.  But under capitalism, with our banking system and IPR, it is not possible in USA for good ideas to move forward.  Mag Lev comes up, it gets crushed by "self-driving cars."  New medicines and cures advance, Big Pharma shuts them down.  People try to protect nutritious food, they are thrown in jail for patent infringement.  Countless creative people have fallen through the looking glass of their smartphones, likely never to return.  People with smartphones have no idea what they are missing.

Sure, if we were to deregulate banking, medicine, education, and get rid of our IPR regime, we could be free, just, prosperous and peaceful.  But no, check out this youtube.

Marvin Gaye and Stevie Wonder saw all this long ago, at the beginning:




And of course...


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Credit, Assets and Wealth

Credit is present in almost all exchanges, if all exchanges including daily work payroll and all merchant transactions are considered...  sometimes, though, we slap down a fiver when we need a cup of coffee fast, and thus extinguishing debt...

The big game the last fifty years was to move all commerce over to usury-mulcted, and then blow up the credit balloon to ever more whimsical allocations... that is over.

Now we will have the spectacle, since the game ended about three months ago, of the vast majority of impoverished Americans, who believe themselves wealthy,  as defined as accumulation of titles, and damned well entitled to it, fighting over the trace productive capacity of usa that is to fund their claims.  God willing this takes 40 years and no one decides to change the topic with a world war.  But regardless the true economy will become exponentially more valuable as prices on everything drops.

Wealth, correctly defined as access to the widest range of goods and services at affordable prices, will be the domain of the insignificant small business operator working in the true economy, being built by those practicing in the true economy.  The only credit in this will be in microscopic amounts and always asset-backed, with no-interest.  No more bad EZ credit acting like a virus sickening the body economic.

"I am entitled because I am wealthy, look at all my titles (house title, car title, education title, pension title, portfolio title, etc...) therefore I deserve a larger share of the rents from the income stream."  As all those assets steadily decline in price, as so little (bad) credit begins chasing so much misallocation, the body politic will convulse with eruptions in claims and counter claims.

Now, one need not endure that.  By shifting from false economy to true economy, and simply abandoning any false economy claims, and begin building a true economy, one can ride out the coming years and have access to the widest range of goods and services.

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USA FTZ v China FTZ

There is a difference in the terms, in China FTZ means Free Trade Zone and in USA FTZ means Foreign Trade Zone.

In both the idea is to facilitate international trade outside of the rules and regulations of the sovereign state, by order of the sovereign state.

In the USA a Foreign Trade Zone is designed to assist a Boeing and its customers in escaping duties related to international trade.

In China a Free Trade Zone is designed to compartmentalize experiments in financial matters independent of ChiCom rules and regs.    Makes for safer experimenting.

Many blogs are tracking SGE withdrawals currently, using it as the yardstick for Chinese wholesale gold demand. While partially true, I would like to emphasize this yardstick has become elastic.
Before the SGE’s subsidiary, the Shanghai International Gold Exchange (SGEI), was launched total SGE withdrawals provided us a clear view on Chinese wholesale gold demand, as the SGE is the exchange where all import and domestically mined gold is required to be sold first (in addition to scrap) before entering the Chinese domestic market. This clear view is now blurred.
The SGEI facilitates gold trading in the Shanghai Free Trade Zone (FTZ). Physical gold trading in the FTZ is completely separated form the Chinese domestic gold market, which is a closed market; bullion exports are prohibited and only 15 banks are licensed to import bullion. 

So the difference is in USA the FTZ exists to keep zombie companies on life support by privatizing profits and socializing losses, while in China the FTZ is designed to experiment in new ways of producing value.

It bugs me when we are losing out to competitors because zombies own the policy-machine.

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False Economies

Honeywell is kept alive by its war-machine contracts, when it should have folded long ago.  I blogged on that company before, and innovators have entered the field, grown, sold to Google for $3 billion before Honeywell could not even think of a reply, so they sued to stop competition.

Finally Honeywell has replied.  It has four reviews, all five star, my textual analysis says they were written by the same person.  Why not?  If you never listen to customers anyway, why not just make it up?

Honeywell is one of those countless "we don't care, we don't have to..." companies that depend on government contract.  Sad thing is, we keep them in business with our tax dollars.  This is all so Soviet.

Welfare, war and spying is not the basis of a sustainable economy.  In my book I talk about how how the last USA industrial sewing machine company outsourced its sewing machine production, and with the same domestic capacity began making missile parts for our wehrmacht at ten times the profits.  I was at an Apple store yesterday in which clearly some head honchos had shown up to measure something, and every employee, including the honchos, were dressed like children.  Well, with no sewing machines, perhaps that is inevitable.

Is the pendulum swinging back?  Every USA industry category is subject to get big or get out. Clothes, Gap; Furniture, Ikea; Food, McDonald/Starbucks; Housing, Section 8; entertainment, netflix; medicine, morris dancers; security, TSA; and so on.   So I was pleased to see in Seattle a brick and mortar company that sells beginner suits to people who desire to transition to adulthood, SuitSupply.  Quality seems good, price is fine, and 55 stores worldwide.  That is tiny by today's standards.  Maybe de-escalation of the big-or-get-out imperative is to go from 1000 stores necessary to 100, 50, 20, 10, one being enough to make a living.  No doubt their compensation package, usually min wage plus commission at such places, would have to be adjusted for the new law, which means a separate accounting for the Seattle store, which defeats the advantages of having 55 stores...  no doubt they will adjust, but others considering Seattle will skip it for markets that are not so adverse to small business.

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All Hail Matthew Burnett & Makersrow.com!

Anthony bird-dogged a report on a fellow who had trouble sourcing in China, Matthew Burnett.  Now no surprise there, he had not taken my seminar so these things happen.  After hav ing problems in China, what he decided is to have his garments made in USA.  The next problem was to find USA suppliers of garments.  Hard to do.

So, in his suffering (passion) he found joy in solving the problem.  He organized a website that showcases garment related manufacturers in USA.  This is what the internet is good at, widening the access and lowering the cost of research and communication.  (I wonder if he checked out Thomasnet.com for say "denim jeans" and if so, why that did not do the trick?)

Anyway,  from the article...

Nicole Levy is one manufacturer who likes the new website. Her small factory, Baikal, makes fashionable handbags in Manhattan. She got a lot of calls from designers who saw her video online. She even had to hire more workers to keep up with demand.

I would test the reaction she gets from Thomasnet.com vs. makersrow.com for both number and quality of inquiries.

"It could revolutionize the industry domestically because it could create a lot of labor for domestic factories and keep them around," Levy says.

Maybe, on the other hand, it may just reiterate the reason people go overseas, which is the crazy make-work regs, the absurd minimum wage laws, employer-mandate and confiscatory tax regime in USA that drives creative people to seek management of production overseas.

Also, a "Made in the USA" label could be a good selling point for American consumers who want to avoid ethical questions about overseas manufacturing.

The way to avoid ethical questions is to decline to act unethically.  If one acts unethically, then it does not matter where you produce.  Where you produce does not determine ethicality.  

Some new designers don't quite understand how domestic manufacturing works. Their rookie mistakes and naïve questions can be irritating to an old-timer like Terry Schwartz. His company,Sherry Accessories, has been in New York's Garment District for decades.

"The ones I can't handle are the ones who are making a product, who want to know why I can't make it for the same price as the Dominican Republic," Schwartz says.

Mr. Schwartz need to dummy up that MOQ order offer page to repel the unserious and attract the serious.

"I do have some things that are very unique," Schwartz says. "I honestly never saw things like this before, and I'm trying to create these for these people, to make them work."

And here is where the rubber will meet the road.  Mr. Schwartz is not competing on labor rates, he is competing on the cost of managing the design and production process of the items in question.  Can Mr. Schwartz out-hustle the Chinese factories in China and the Chinese factories in the Dominican Republic?    Will the Chinese managers require less compensation for the same level of expertise of result?  

The answer to that question will determine if garment making comes back to USA, if the investors in makersrow.com ever see a profit from their investment in the website.

But Matthew Burnett has had the "experience."  He found out joy is not something you can get directly, but it is a by-product of passion (suffering.)  He found joy in working on a problem.  

There is no stopping him now.

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Apple Follows Lenovo Onshoring to USA

China has decided to take advantage of cheap USA labor and build its ThinkPads in USA.  Wait.  That can't be right.  Let me try again.  Since assembly is mechanized intensive, and labor is not a factor in international trade, Lenovo's Chinese management has realized that since management costs are now similar,  ThinkPads can now be made in USA.

Apple is following suit, and they will be making some models in USA.  Now we may find in time it is tax give-aways that is causing this reshoring, but I doubt that.  Apple wouldn't play that game.  What is motivating this is after 25 years of development, Chinese management is no less expensive than USA management in this narrow category.

Although some Chinese labor is nominally lower paid than USA labor, in this category the difference is negligible.

Labor rates have never been a factor in international trade.  The reason you believe labor rates to matter is that you have not studied it, you just believed what you were told.  You were told labor rate were too high in USA so the labor movement in USA could more easily be crushed.

With more management than opportunity, the cost of management is dropping fast in USA.  This is very good news, because we cannot have a recovery without falling costs.  And a healthy economy always experiences gradually falling prices.

So reshoring here looks good.

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