September 12, 2024 • 49 mins
One of the big buzzwords over the last year or so has been "overcapacity." There's a constant line of argument that China is unfairly flooding the world with unprofitable goods and creating huge, unsustainable imbalances. Western countries, particularly the US (but also Europe), have responded by raising tariffs and engaging in domestic industrial policy in order to compete. But is the strategy sound? Are the basic premises of the problem correct? On this episode of the podcast, we speak with Columbia Professor Adam Tooze, the author of several books, as well as the popular Chartbook newsletter. He argues that the overcapacity framing is misguided, and that the US may be making a mistake putting its chips down on an industrial revival. He talks us through some of the actual weaknesses of the Chinese model, as well as its global political reverberations.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal.
Speaker 3 (00:23):
And I'm Tracy Alloway.
Speaker 2 (00:25):
Tracy, we recently interviewed US Trade Representative Catherine Tie about, obviously,
the changing nature of our relationship with China on trade.
I feel like though we could this entire podcast could
just be about that. Really, there's an infinite number of
angles to explore.
Speaker 3 (00:43):
Okay, we're a China trade podcast. Now it's done.
Speaker 2 (00:45):
Yeah, it's done.
Speaker 3 (00:46):
No, you're absolutely right. So one thing, this has been
hovering in the background all year basically, but you've been
hearing this mention of China over capacity, and I think
even President Joe was talking about this idea of China
flooding global markets with artificially low priced exports. And then
beyond that, a big narrative this year has been China's
(01:10):
economy slowing. And so I guess one question I have,
or one thing that seems very noteworthy to me that
I would love to dive into a little bit more,
is Chinese growth has been slowing. Yeah, the Redman bee
has been appreciating and there have been all these new
trade restrictions since the Trump administration and continuing into the
(01:31):
Biden administration as well, And yet China's current account surplus
and I know there's some discussion about how accurate the
official numbers might be, et cetera, et cetera, but the
surplus is going up again, which seems kind of remarkable.
Speaker 2 (01:47):
Totally. It's a really weird moment because I'll look at
like images of some sort of like battery plant or
factory or some transportation, like, oh, this is the future.
There's extraordinary what's being built and the efficient and all that,
and then you read these headlines that basically talk about
an economy in crisis. We're facing their worst challenges since
(02:08):
dune shell paying or whatever is sort of slow down,
and it's hard to like they fit together in some way,
but on some level, like I still have a hard
time reconciling the dual China narratives right.
Speaker 3 (02:20):
Now, absolutely, And then the other tension that I observe
all the time, and I have a lot of questions about,
is this idea that Okay, China seems committed to the
export driven economic model, even though again, as far as
I can tell, all the headwinds right now seem to
be coming on the export side, and yet like there's
(02:42):
still not that much effort as far as I can tell,
to increase consumption or to maybe I don't know, do
like consumer stimulus or something like that. So yeah, you're right,
it does feel like a strange moment.
Speaker 2 (02:55):
And then I guess two other sort of dimensions of
this is like one of the points and Ambassador Tai
mentioned this is like this view that like China isn't
playing by the rules, or at least the rules that
you know, maybe the members of the WTO for many
of the last decades had accepted. And it always sort
of questions like why, you know, every country has a
(03:17):
different arrangement, right, you know, in the US, companies pay
the healthcare of their workers. In Europe the government pays
for health care. Like every country has different rules. So
like part of me wonders, like what is it about
China and the sort of state directed capitalism that they
have there that's like particularly like, oh no, this crosses
a line and the rules of trade don't really work
(03:38):
with them. And then two, you know, this idea of
like overcapacity and dumping, like I get that perhaps intuitively
in a pure commodity such as say steel, but when
it comes to some other things like solar or petrochemicals
or things that really you know, are very or cars
like I have I struggle with this that like it's
(04:01):
a useful concept, but maybe it is.
Speaker 3 (04:03):
But anyway, rather than us wondering about all these questions
and thinking aloud, let's ask our guests.
Speaker 1 (04:09):
Well.
Speaker 2 (04:09):
I am thrilled to say that we are welcoming back
on the show multi time odd Lots guests. But it's
been a while since we've talked to him. But someone
who could help us understand all of these things, we're
going to be speaking with Adam Toos, professor at Columbia.
Here's the director of the European Institute and the chair
of the Committee for Global Thought. He travels all around
(04:30):
the world and he's actually in mainland China this summer.
So Adam, thank you so much for coming back on odlots.
It's been too long.
Speaker 4 (04:38):
Yeah, it's a pleasure to be here.
Speaker 2 (04:40):
Guess, thank you so much. You know, I just start
Chinese overcapacity. We just hear so much about it. Do
you think that's a useful frame? Like, do you find
that to be a useful sort of analytical concept over
capacity for understanding either China or a relationship with China.
Speaker 4 (04:57):
Right now, I'm a little bit skeptical. I like the
tone of doubt in your own voice, Joe, as you
were introducing this. I don't get it. I mean, I
think maybe it's easier to define in sectors where the
technology is relatively static and where we have relatively straightforward
industrial economics models of trajeatory strategy that would involve building
(05:18):
massive amounts of capacity, maybe sliding down a cost curve,
or maybe just establishing some sort of credible threat where
folks will believe that you're going to fight for market
share because you've just got so much sunk cost. So
you could look at industries like steel and aluminium in
those terms, and I think the Chinese themselves would admit that,
you know, they went hard on urbanization and so they
(05:40):
built enormous capacities in steel, cement and so on. That's
one sort of sector I think where it gets I
just find kind of vaguely puzzling is in new sectors where,
thanks to the kind of new world that we're in
with climate planning, where we use that word advisedly and
we have an idea of what we need to do
to get to net zero, and that's apparently taken seriously
(06:04):
by Western governments. And we know that the demands in
terms of the buildout of green electricity capacity, transmission, and
then end use in the form of electric vehicles are
just huge, and for them all, we're pretty uncertain about
the technologies that are ultimately going to come and dominate
those sectors even over the medium term. And it's hard
for me to really kind of to say that the
(06:26):
world has got too many photovoltaic panels just seems, you know,
not for my daughter and granddaughter's future. I think the
more photovoltaics the better, to be honest. And the fact
that the price is crashed, you know, enables this this
extraordinary story about Pakistan importing thirteen gigawatts of photovoltaic capacity
in the first six months of this year, Pakistan which
(06:48):
is in real serious financial trouble, and that's because they're
so damn cheap, and that's because the Chinese have built
out this huge capacity. So those are the areas where
I find the story just a little hard to really
wrap my head around. And I think it's obvious tactical motivation.
You can see how the argument is being used by
Western politicians. But even when you look at the steel sector,
(07:10):
like you know, if you actually look at the share
of Chinese capacity that's being sold onto global markets, generally speaking,
it's a relatively small share of these absolutely immense industries
the Chinese have built, which are overwhelmingly directed towards their
own home markets.
Speaker 3 (07:25):
So, just to ask Joe's question in a different way,
why do you think it seems like policy makers at
least in the US have landed on China over capacity
as this issue in trade that they seem to be
concerned about to the extent that it is one of
the very few areas of bipartisan consensus.
Speaker 4 (07:44):
Well, I think China generally is an area of bipartisan
consensus in the US anyway, right, So I think this
is another instance of something that folks can agree on
in US politics, and it sounds good and it offers
a rationale for protectionism, which is very much on those
in an election year. And with this consensus, what's really interesting,
isn't it there's been this shift away. I mean, the
(08:06):
big thing in the background here is that there's been
such a powerful shift in American economic policy discourse away
from thinking in terms of consumer interest or holistically in
terms of the balancing of consumer and producer interest, towards
a really rather monolithic focus on producer interests. And you don't,
of course, generally talk about corporate profits in that context.
(08:28):
You talk about American workers, especially as what the Americans
called middle class, in other words, for the rest of
the world, working class, blue collar jobs, and that becomes
the center of policy discourse. And in that context then
you can kind of see how overcapacity begins to sound
like a looming threat as opposed to a free gift
to American consumers all of a sudden get to benefit
(08:50):
from whatever subsidies. Ultimately Chinese taxpayers are going to end
up footing the bill for so I think this shift
towards a worker centered vision, and this operates, you know,
in a purely nationalist mode, a rather masculinis mode on
the Donald Trump side, and it is a huge part
of the Biden folks interpretation of why they lost in
(09:12):
twenty sixteen and why the Democrats had to fashion this
new vision of economic policy which was essentially around restoring
the prospects of the American working class. And I think
that's where the sort of the work is being done
and the segues are being established.
Speaker 2 (09:28):
Do you think there is a good pivot, like, I mean,
setting aside the actual implementation of the tactics, and it
is striking. People aren't talking about, oh, it's great that
we can get all these cheap goods by global trade.
We are not talking about the sort of consumer centric
frame where we overdo as this warranted, the sort of
worker centric frame on the effect of trade.
Speaker 4 (09:50):
I mean, I'm a skeptic also when it comes to
the China shock. I mean I'm not not at the
detailed level. Obviously, there are industrial producer communities in the
US that were hit really high, and that's true all
the way around the world, and in many cases it's
preempted industrialization large parts of Africa, you know, there's just
no prospect of that industrialization any longer happening. So that's real.
(10:11):
But as a diagnosis of the malaise of American society,
I don't think it does work. In general, there are
a whole bunch of things wrong with the conditions of
life for working class of Americans that aren't reducible to
the availability of so called you know, good paying blue
collar jobs. And I think it's a mistake on the
part of Democratic Party in progressive politics to focus excessively
(10:33):
on this, because it distracts from what should have been
a much broader agenda of improving the conditions for the
service sector, which makes up the vast majority of the
US economy, and thinking hard about how to improve the
quality of life, conditions of work, and also to think,
you know, because the standard argument is it's always a
manufacturing that you get the productivity increases, Well, maybe it's
time to think harder about how we could think about
(10:54):
the service sector also as a driver of productivity and
improve quality of provision, quality workplace upskilled the workforce in
those sectors. So and there was a moment in the
early Biden administration with a Build Back Better agenda which
was more promising, and I think a lot of people
may be hoped that Kamala Harris might also be more
amenable to this. But once Manchin got to work on
(11:16):
the agenda, and Biden's I think just habits of mine
euas after all, the very old man. And so he
comes out of an era in which American industrialism was
really the trump card, and so we kind of regressed
into that mode of thinking about industrial policy. And then
in political terms, it's incredibly easy to sort of form
a segue where you have a strategic industrial sector that
(11:36):
China has sort of gobbled up. You have a crisis
of the American working class and deaths of despair and
Angus Deaton and Case and so on. Then you have
the working class voters for Trump, and then you have
the fentomyl epidemic. And you pile all of these things
together and you've got yourself a real stack there. And
the common problem in each case is in a sense
of China, and you know that's an overcapacity fits quite
(11:59):
nicely into that, because overcapacity is the result of the
you know, the unbalanced Chinese growth model that I mean
over capacity is. You could more charitably say, it's a
relatively neutral and technocratic way of describing an accusation against
China that could be put in more forceful than aggressive
terms along the lines of you stole our ip and
(12:19):
screwed us, and instead you say no, no, let us
explain to you, we think you have an overcapacity problem.
Let us help you think this through and figure out
how we deal with it.
Speaker 3 (12:43):
You mentioned adam the importance of the services sector to
the US economy. And China, of course has a very
different economic model, and I alluded to this in the intro,
but it is still one that seems very much committed
to export driven growth. So I'm curious why you think
(13:04):
that is why, despite all the ostensible headwinds to manufacturing
and exports, China remains committed to growth coming from that.
And then I know there have been some rumblings about
maybe like increasing I think she called it domestic circulation
or something like that, but it doesn't seem like there's
(13:25):
been a real push to boost the services sector or
boost consumption.
Speaker 4 (13:30):
Yeah, so this is a really interesting point. And as
I was listening to you Chaces you opened up, I
was thinking, Hm, I'm not sure.
Speaker 3 (13:38):
If you don't agree, that's fine, Yeah.
Speaker 4 (13:40):
I'm not sure. I'm not sure that I would agree
that the Chinese strategy is export led. I mean, and
we shouldn't confuse Germany in China because I think the Germans,
really you'd have a hard time actually putting a pin
in German strategy, but they celebrate exports per se as
a kind of national achievement, whereas I don't think that
is the same enter of Chinese policy discourse. I mean,
(14:02):
rather the opposite. They actually now have this dual circulation
model where they recognize there is an external sector, but
that's very vulnerable to external shocks, and the center is
really domestic production. You know, if you were to look
at steel, for instance, you know, in a good year
in China either too. And before they did the whole
gearshift with urbanization and construction and real estate, I mean
(14:23):
ninety five percent, certainly ninety two to ninety three percent
of Chinese immense steel production was consumed domestically. Right, They
produced a billion tons of steel and would explore sixty
to seventy million tons. The vast majority of it is
being consumed at home. If you look at Adam Wolfe's
amazing breakdowns of the Chinese motor vehicle industry, you see
(14:44):
exactly the same thing. Right, The vast majority of Chinese
motor vehicle production is domestic. The vast majority of their
ev the electric vehicles, the ones that everyone's up in
arms about, are also being consumed in China. And that's
one of the really impressive things you see on the
streets and the highways around Shanghai just one fancy ev
after another, stuff you've never seen before. Gull wings, it's
(15:04):
so futuristic, you know, it's over. The competent is extraordinary.
But so far it's really largely internal. The big surge
in Chinese motor vehicle exports which has made them all
of a sudden, this huge force in the industry, which
is hugely disruptive to the Europeans, notably is actually in
internal combustion engines, so as it were, lower tech Chinese manufacturing,
(15:27):
and a lot of it is joint ventures. In other words,
Western firms who can no longer find markets in China
for their now defunct and stigmatized You know, folks in
China really don't want to be driving, especially American badged
cars now, and so when what we see is the
export surge. But to attribute that to policy, I think
is a nonsecutar. There is an industrial policy in China
(15:49):
which is driving towards modernization. And then what mediates between
the two things, what hooks these two things up is
the Michael Pettis argument about macroeconomic imbalance. The real issue
is they have this very very heavy driven industrial policy
and they don't have the macro demand to sustain it,
and so it spills over as a result of corporate
(16:11):
strategies of desperation, basically gambling for salvation through looking in
foreign markets. That I think is a convincing overall picture.
When you look at there's one sector where I think
you could tell us slightly different stories and always have
been able to, which is fault voltaics. Because they're about
half of output is exported. They've so overbuilt in Fota
voltaics that that really is they basically decided we're going
(16:34):
to be the monopoly supplier to the entire energy transition worldwide.
There was already the case ten years ago when they
built out to meet European demand for photovoltaics. But across
the board in the Chinese economy, I think it's more
convincing to tell a story of industrial policy, which is
primarily domestically orientated, this huge Chinese innovative scrambling response to
(16:55):
that strategy, which then generates such fierce competition within China,
especially in light of the Michael pektis demand constrained situation
that then the firms go looking for foreign markets to
to find the demand. A story like that I think
is more convincing than to say Beijing is aiming at
export led growth.
Speaker 2 (17:16):
You know, it raises a question and one of the
things again Tracy mentioned it, but why isn't China doing
more to boost its consumer and they have it. You know,
we have seen very sluggish growth. Objectively, consumption has been
very mediocre, particularly ever since the COVID lockdowns, and Matt
Klein had a really great piece in his sub stack recently. Basically,
(17:40):
no matter how you slice it, it looks like the
consumer has been very weak. And so if you just
look at like train miles traveled or restaurant bookings or
things like that, it still looks very mediocre. On the
other hand, despite the lack of sort of direct in
the pockets of consumer stimulus, I see convincing things from
(18:00):
time to time that, like the real goal of economic
policy improve everyone's standard of living is still going on,
that there's still growth and improvement in the standard of
living in Chinese society. I've never been to the mainland.
You were there this summer, and I assume it was
not your first time. When you're there and when you
talk to people, does it seem like overall that whether
(18:23):
it's clearly measurable in retail sales or whatever, that the
current model is continuing to lift people up.
Speaker 4 (18:31):
I mean the overwhelming impression one has if you visit
a city like Shanghai, it's just it's absolutely awesome. I
mean it's in the sort of technical sense, you're just overawed.
It's so vast. I mean, it's twenty million plus people,
it's so well organized, it's so modern, it's so rich
the infrastructure, and you know, there's an upside about the capacity,
which is just like there's no limits on it. There's space,
(18:53):
there's ample room. It is incredibly impressive and clearly still
highly dynamic. It doesn't feel like a society which hasn't
been invested in the last five years of ten years,
like some bits of Europe feel at this point. So
the technological innovation continues. And after all, I mean, even
if we think the numbers have fudged, their growth rates
(19:14):
are higher or at least on a par with the
US and way above those of Europe and Japan. So
it's definitely still growing and still generating affluent and the
innovation and technological change. Yet there's really no there's no
question about that. But what you also hear really quite vocally,
and I was surprised this isn't North Korea or Stalinism
or something where everyone's worried about bugs in the walls
(19:35):
or something. People will tell you quite openly how miserable
they're feeling, and there is definitely a sense that something's broken.
The real estate markets headed in the wrong direction. The
regime is not friendly to go getting just simple wealth
accumulation anymore. The pressures of the intensely examined ri of
an education system on young people and the parents of
(19:56):
young people are relentless and brutal, and there is that
sense of like a system that is straining. It's not
obvious where the next seven to eight percent per annum
growth machine is going to come from, and it's always
an adjustment to go from seven eight per cent per
annum to three or four, even if three and four
is still very respectable and loads of economists. I don't
(20:18):
know whether you folks read the amazing blog Peakonology by
Zishen Wong, who's now actually a student at Princeton. I
don't know whether he'd agreed to be on the show.
Speaker 2 (20:25):
We should have a Mine, yeah, meaning yeah.
Speaker 4 (20:30):
He's like the top and does such a service to
the Anglo sphere and just translating document off to document,
and he's and you'll have seen it. He has this
roundup of eleven prominent and we're talking like vice ministerial
level voices from within the Chinese economic scene, who are
all saying exactly what you're saying, Joe, like, oh, where
this is? Why aren't we doing this? It's so obvious, Like,
(20:51):
here's another way we could do this. We could provide
better housing for rural to urban migrants. We could do
various types of discounts scheme for parents. We could the
tax system in a way it should be more beneficial.
We could build out a welfare system that will be
more supportive. What's really fascinating is that at the top
level there seems to be and this is what this
drum roll of expert opinion from within the Chinese hierarchy.
(21:14):
None of these people are remotely dissident. There does seem
to be almost a German style level of resistance around
a series of ideological ideas, crucially around wealth are dependence,
which basically say, no, we should create this really tough
environment in which Chinese families and households have to prove
themselves and no, we're not going to, you know, just
(21:37):
easily provide support. And it does seem to be something
of a hang up almost about a society. I guess
the regime fears that China will lose that incredible restless,
you know, hungry edge that drove it through the last
twenty to thirty years. It's I guess all I don't
have a good answer. What I'm saying is that within
(21:58):
the system itself, people are just during this perplexity, and
the answer you get back runs along the lines of, well,
the higher ups just don't think that would be a
good idea.
Speaker 3 (22:08):
Since you mentioned Germany, my framework for the China German
economic relationship at least has always been sort of frenemies
where they both benefit in some way and they're quite
closely linked, but there are obviously tensions and points of
issue there. I'm wondering, how do you see the evolution
(22:31):
of the China German relationship right now? Like, how much
has it changed from say pre COVID to where we
are today.
Speaker 4 (22:40):
Yeah, I mean we could start with the structural similarity.
I mean, they both are chronic trade surplus countries and
have kind of competed with each other to have the
largest not just trade imbalance, the current account surplus. So
they have that structural similarity. They were once complementary in
that China would produce with German equips the cheap manufactured
(23:01):
goods that American consumers would buy. Of course, American consumers
also bought high end German exports directly, as did the
Chinese upper middle class, but the direct link was the
American aggregate demand excess provided a market for both German
and Chinese exports, with Chinese industrialization providing a market for
German manufactured goods. And that still is a link, and
(23:25):
you see it in the commitment of capital goods industries
in Germany and industrial companies in Germany. Two ongoing direct
investment in China, which is still live. I saw this
when I was visiting, because I speak German and I'm
known there. I bump into German business people when I'm
in China and they will tell you flat out that
(23:45):
they have to be there for two reasons. Fundamentally, because
it's a big market and it's rapidly growing. If you're
saying heavy chemicals of your basf, you can't not be there.
But the other reason why a VW, for instance, can't
not be there is that if you're actually going to
compete in the global market in the next generation of
vehicles motor vehicles, you can't do what the US firms
(24:06):
are doing, which is basically retreating behind national protectionism. You
have to at least try and stay with the Chinese
manufacturers in the Chinese market, and so VW is doubling
down on its investments in China because they just see
it as the market it's already the biggest, but it's
also now at the qualitative at the technological frontier, and
unless you can compete there, and they've been having a
(24:27):
brutal period of the last eighteen months, you're basically done.
You're basically going to be a legacy manufacturer of sophisticated
internal combustion engines, not of the new cutting edge siemens.
I think the electrical engineering firm is kind of a
little bit in between the two. I think it also
sees especially in like process manufacturing, so the sort of
highly sophisticated, fully integrated electrollically controlled manufacturing lines which the
(24:51):
German firms specialize in, they feel they have to still
be there. So there is this substantial investment driven, market
orientated technologically you know, inspired link between Germany and China.
And you see it in the way the German government
maintains its relationships with China through thick and thin. And
when Schultz goes, he takes these large delegations of German
(25:14):
business leaders with him, and they're quite outspoken. That sort
of anti China consensus that you quite rightly pointed out
is prevailing in the US and which I really think
ways on American business leaders now doesn't prevent German business
leaders openly saying, if we're in the business of car making,
we need to be in China. I mean, they'll just
simply say that flat out. And BASF, who's played real
(25:36):
hard ball with the German government over the Ukraine War
and the energy costs issue, has openly said, you know,
basically it's you know, you either give us the support
we need or we're leaving for China. And in the
end they've left for China where they will get you know,
the power plant they need. This isn't dirty stuff. That
the BSF has this commitment to being carbon neutral in
the foreseeable future, and so what they said to their
(25:57):
Chinese the region where they're investing is, Hey, we need
to get walt of clean power. And guess what, the wind farm,
the offshore wind farm is already in the process of construction.
So yes, the German relationship is different, and it's based
on this division of labor industrial integration.
Speaker 2 (26:28):
So since we pivoted to Germany, you know, there's just
a ton of stories these days about frailties within the
German model and the poor growth. And it feels like
a very flipped the script from the twenty tens when
Germany was booming and the periphery.
Speaker 3 (26:46):
Was so weak.
Speaker 2 (26:47):
And then of course early September we had the AfD party,
which is a right wing party, one big in regional elections.
So there's a lot of anxst right now about what's
going on in Germany, what is going on in Germany?
Even like how much of the concern is like, okay,
German legacy manufacturers are having trouble competing with Chinese manufacturers.
(27:10):
There's obviously the politics of immigration and so forth, Like
how much of a direct line can you draw between
what's going on with the economy and then sort of
what's going on in the political scene.
Speaker 4 (27:23):
I think there's three issues in play that the extraordinary
election results that we saw into Engia and Saxony, two
states Germany's a federal system. Toingia and Saxony are two
states from the newly joined East German provinces. One element
of this is the legacy impact of German unification, which
I mean, if you've ever had the chance to travel
through East Germany was accomplished, you know, it's really a
(27:46):
gold plated regional policy program. In cities like Dresden are
absolutely gorgeous, hugely invested, wonderful places to live. But nevertheless,
there is this reasonably well founded understanding on the part
of East Germans that they are some level new to
the party. They were basically bolted onto the West German
experiment and had to largely accept its terms and for
(28:08):
a traumatic period in the nineties and the early two thousands.
This is largely the parents or the middle aged generation
of East Germans. There was huge unemployment and massive disruption
and the industrialization of a really shocking variety, and that
lingers in the political system. And if you ask the
voters for the two extreme formations, one is the AfD,
(28:29):
the Alternativa for deutschtand originally an anti Drages eurosceptic party,
and the other one is Sarah Wagan connect so truly
a Marxist philosopher who is also keen to make a
compromise with Putin over Ukraine. So there's a left and
a right wing extreme. And if you ask their voters
how they feel about their standing in German society, eighty
percent plus will say we feel that second class citizens.
(28:51):
So that's that's one key element. The second key element
is the migration issue. And the AfD didn't start as
an anti migrant, nphobia racist party. It started as the
alternative was to Qe to Dragi, but after the refugee
shock in Syria in fifteen sixteen, it became an openly racist,
(29:11):
openly in neo Nazi formation. Where I think the de
industrialization element of the story comes in is that that
removes the last best hope, if you like, of the mainstream,
which says, you know, the way we're going to address
these problems and as it were, integrate the ease more
successfully is by Germany's economic success story that's ultimately going
(29:35):
to take care of this problem, will achieve successful integration,
and they plowed money into Intel and the Taiwanese manufacturing
chips around Dresden. That hasn't brought off the East German voters.
And the real nightmare of the shift in the motor
vehicle industry, which is a huge piece of the German
industrial infrastructure still is that if that goes, then your antidote,
(29:59):
if you like, to what is essentially a politics of
racism and is Lamophobia, that is no longer plausible, and
it isn't. I don't think that, you know, folks in
Dresden or in Cheering Gear are voting AfD because they're
worried about jobs being lost in VW. It's more that
in Berlin there's total panic because if you haven't got
the VW model, it's not obvious that Germany really has
(30:21):
a growth model. And in part it's the same blind
spot as we were talking about with the US. In
other words, they aren't actually focused on what, even in
Germany is the main source of employment and GDP, which
is services and not the manufacturing base. But they have
been they've trapped themselves. They are trapped by powerful interest groups,
the very strong voice of organized labor in Germany, but
(30:41):
also the industrial lobby and a kind of lack of imagination.
They're kind of clinging to industrialism as really the last straw.
And yeah, that's why then the threat of China is
really ominous.
Speaker 3 (30:53):
You alluded earlier to the idea that maybe both China
and Germany seem to be hoping for or I guess,
the immaculate emergence of supply side solutions to their problems
rather than having to do some sort of large scale stimulus.
How realistic is that, Like, where could relief actually come from?
Speaker 4 (31:15):
I mean, in the Chinese case, it's pretty easy to see.
I mean, they could do. There's a whole series of
moves that they could make that would be it's hard
to see that they're just not straightforwardly win win win,
really and they would be an expansion of household demand
and expansion of high quality human services. There's a lot
of remedial stuff that actually needs doing to backfill the
(31:37):
China dream. The extraordinary sophistication of a city like Shanghai
is not matched in the Chinese hinterland, which is of
course vast and its contained hundreds of millions of people,
and even elementary stuff like schooling is really miserable in
provincial China. We of course, think of the huge success
of elite education in China, but that isn't the majority experience,
(31:59):
and so you know, you would very easily imagine a
kind of comprehensive upskilling upgrading strategy. Implementing it would be
a different thing, but that would be the way you
would go. First, economy as large as China's, it's a
domestics policy story in the end that will make the
difference for Germany. I think it has to be a
year wide that's the way to go. I mean, they
(32:19):
could break the impast domestically over the debt break and
invest and that would be one option, and that's certainly
a big priority. And there's some promising noises now mercifully
finally out of the SPD, out of the Social Democratic Party, Chancellor,
the Schultz Party about a frontal attack on this debt break.
So the debt break is the German version of the
(32:39):
European debt rules, or vice versa, the European rules, or
aversion of the German debt break, which limits the deficit
and constraints borrowing, even when Germany pays hardly any real
interest and is in need of several hundred billion euros
worth of investment in every area of public infrastructure of digitization.
So that would be one way out. The other one
(32:59):
I think has got to be Europe, and it may
be shocks which you know, deliver the opportunity to do this.
A Trump victory followed by disaster for the Ukrainians would
I think unleash a new europe level borrowing package, maybe
another half trillion years worth of borrowing, and that would
be the kind of structural stimulus that would benefit the
(33:22):
German economy quite considerably.
Speaker 2 (33:24):
You know, I mentioned this in the intro, but one
of the arguments that you hear in the US about
why ramping up the trade restrictions with China is this
idea that they're cheating in some way, right, maybe over
whether it's a pure sort of industrial espionage. But then
there's this question like, well, there's all this state support
and these aren't the rules of global trade. Just from
(33:46):
like the historian perspective, Is this a novel argument or
has there always been this idea that like, no, you're
you're doing it the wrong way, or you've built up
this industrial capacity in a different way than we built
up and you know, again, and it strikes me that
like every country has different domestic rules and so forth.
You know, in the US we subsidize education to quite
(34:08):
a degree, and so that is a form of subsidizing
worker training that then corporations can take advantage. How novel
is this claim that like, we get to do these
things because we don't like the way you've developed. Has
that always been part of these global trade debates.
Speaker 4 (34:24):
The first thing to say is that as far as
we're able to estimate, there've been a couple of fairly
serious minded efforts to estimate the scale of Chinese industrial
policy spending, and it's significant. I think the most widely
cited estimate puts in about one point seven percent of GDP,
which when you compare it to a similarly defined measure,
though I agree with Joe there's like lots of different
(34:45):
ways of defining, but if you player the same classification
to Europe and the US, that's about three times the
share that they spend. So that's one element of this
that's clearly for real. Another, I think horizon against which
to measure this like the regime that we had before,
And I think the ferocity of this argument has to
(35:05):
be judged against the assumption that somehow we had outgrown
that kind of era of state led and state subsidized support.
And in the European case, you'd have to say that
since the nineties they've taken that really quite seriously. In
other words, the Europeans do have rules that bite to
prevent national governments and regional governments from doing the kind
(35:28):
of subsidy that the Chinese take for granted. Why, because
the Europeans are balancing this really complicated multi European union,
and so to avoid just these crazy subsidy races and
Germany winning all of them, that have to be these
very tight rules. And the Europeans take this seriously to
an extent that is at times quite fascical. The argument
(35:49):
coming from the American side is a little less plausible,
because that kind of subsidy never really went away, and
the American states and cities have always competed in a
fairly brutal way for investment. But I think that's an
horizon against which sort of the point the finger is
pointed at China, which was okay in the nineties, we
expected you to do this because you were still poor then,
and then you did wto and then we were expecting
(36:11):
you to get rich and grow out of this, and
goddamn it, you haven't. No, in fact, you've somehow doubled down.
Since the twenty tens, you've been doing it more and
more intensely. And there's a new study of China which
suggests that, in fact, this was a policy learning on
the part of Beijing out of two thousand and eight.
So the Chinese imagine that after the great financial crisis
in the West, the Europeans and the Americans would realize
(36:34):
that finance centered growth was not a great thing, and
they would double the hub on industry and to get
ahead of the game, the Chinese thought they should. And
of course it turned out that no one else really
ever did quite make that move, and the Chinese really did.
And you know, by twenty fifteen they had made in
China twenty twenty five policies. So there was an asynchronicity
in which, as it were, European and American policy theory
(36:55):
thought we would get grow out of this, So the
Chinese suddenly in fact doubled down.
Speaker 2 (36:59):
There's so funny because I always think, like all these
things chips act inflacial reduction act. I always have this idea.
It's like you know, two thousand and nine might have
been a good time to have done this, and there
was a lot of spare capacity and cheap labor and
all this stuff. Anyway, I just have one last question
for you, And you know you've been fairly critical of
the Biden administration. You know, we have had this turn right,
(37:21):
so the administration and maybe starting with Trump, but certain
the administration is like pivoted away from the sort of
I guess people call it neoliberal consensus of the decades
that preceded it, the worker centered approach to thinking about
our trade relationships, et cetera, domestic investment, maybe belatedly getting
(37:42):
to do some of the policies that maybe we should
have implemented fifteen years ago after the financial crisis. What
do you see as your role as I guess a
public intellectual, someone on the left. You know, you're someone
who people in the Democratic Party might read and listen to.
What do you what do you see is sort of
what you trying to accomplish with your writing and your
(38:05):
public work.
Speaker 4 (38:07):
Yeah, it's been it's been quite a shock, actually. I mean,
on the one hand, we were listened to and I'll
say weird advisedly, but it's the bit of Biden economics
which is now buried and they prefer to forget, which
is my team. I was one of the leading spokespeople
of the team that basically said Obama didn't go big
enough with the stimulus in two thousand and nine, and
(38:27):
we needed to go really big, you know, this time.
And we were listened to, like you know, I know
from Schumer's people that absolutely that argument that they missed
a trick in two thousand and nine. It really that
actually got through. After all, they did the huge stimulus
early in the Biden administration, and I would argue that
it delivered a miraculous macroeconomic record, right. But the funny
(38:49):
thing is that that's the bit of Biden economics that
everyone wants to forget because of the Larry Summer's invasion argument, right,
because that was anathematized almost as it was happening. Instead,
the entire team have swarmed around this industrial policy element,
and I think there I've discovered a new role. So
I think in the first phase I felt okay, there
was policy learning that was going on, and the kind
(39:11):
of left critique of the Obama administration was making a
very positive contribution in feeding that. Then we came to
what actually emerged in the industrial policy, and I have
to say that a lot of folks that I would
you know, consider allies, friends, whatever, shifted roles to essentially
the role of a kind of cheerleading around the Biden administration.
And I get it right, they're Americans. I'm not an
(39:32):
American non American citizen. For them, this is life and
death fate of the Republic. We have to rally behind
our team. And by joke, they did, like the Biden administration,
if nothing else, was brilliant at message management and worked
you know the usual suspects in the finance twitter space,
incredibly hard to get everyone on side and keep pushing.
And at that point I have to say I'd discovered
(39:53):
a slightly different role, which was more that it's a
less attractive role. It's a less it's less comfortable, which
is really that sort of inside critic or just simply
somebody who wasn't necessarily drinking the kool aid and was saying, well,
by what metric, by what scale is this really adequate?
And so that was on the IRA side, the Inflation
(40:13):
Reduction Act, where this was turned into this gigantic epic
of industrial policy, and I just don't see it. I
don't see it in the data. I don't see it
in the scale. I don't see it if you run
any kind of counterfaction on what we would have expected
anyway to have happened. I think there's been a real
sort of soft kid glove treatment of this. And much
more seriously, however, is the is the question of war,
(40:35):
is the question of warm peace and the way in
which natural security has come to form an essential part
of even of a progressive economic policy in the United States.
And I come from the generation of Europeans whose childhood
and youth was entirely dominated by the prospect that we
were all going to end our lives in a nuclear incineration.
And I find that turned towards a hawkish, anti China
(40:59):
synthesis of industrial, economic and military policy profoundly troubling, and
at the very least, I think the role of folks
with you my kind of biography, I will become an
American citizen. But nevertheless, I feel like our role at
this point is to push back because there's an element
of flag waving, a kind of left American exceptionalism that
(41:20):
comes very rapidly to the foe in moments like that,
and there is a willingness to believe that, yes, you know,
I don't know America can do a Green Marshall Plan
or that whole rhetoric they're very familiar with. And I've
discovered a different role for myself than I really imagined
in I don't know whether I've anchored anything, but that's
just consistently asking the question is this And it's not
a skepticism about, you know, the potentially beneficial role of
(41:44):
US leadership. It's just actually, more often than not, a
kind of asking, are you actually serious at all? Because
I see hundreds of millions and single digit billions when
we all know that the problems we're talking about, if
you're serious and if you actually want to compete with China,
ask one hundreds of billions, if not trillions of dollars
that need mobilizing. And what I definitely don't think we
(42:05):
should buy is the kind of weak soup of a
promise of giant and dramatic action which we all kind
of you know, can get excited about, when in fact
what's being delivered is something far less than that.
Speaker 2 (42:16):
Adam joos so great at having you back on odd lot.
It's fantastic conversation and looking forward to the next time.
Speaker 4 (42:23):
Thank you really appreciate the way you guys do. It's
such a such an essential list and together. I can't
tell you how many like, Oh my god, I can't
stand this airport moment, you know what I mean, listened
to odd lots everything can keep that seriously, I kid
you not. Just in he throwed three days ago. It
was like a nightmare of security line. I just put
them on great stuff from Johnson Whole.
Speaker 2 (42:46):
Oh, thank you so much.
Speaker 4 (42:47):
Like you know, it's really it's really a huge.
Speaker 3 (42:50):
Sence and it warms my cynical heart to know that
we make the experience of Heathrow Airport a little bit better.
That's great.
Speaker 4 (42:57):
I mean there are other also better moments. I could
just go, but yeah, it's really.
Speaker 2 (43:04):
Well, thank you so much and take care and hope
to see around soon.
Speaker 4 (43:06):
Yeah you too.
Speaker 2 (43:20):
I love talking to Adam. It really had been too long,
but you know, I love talking to people. You just
throw out anything and they'll have something interesting to say.
That's a great guest.
Speaker 3 (43:28):
Yeah, he definitely makes it easy, that's for sure. I
did like his point about the sort of etymological point
about the word over capacity and this idea that like, okay,
well you have a grievance with China that basically boils
down to while they're not playing fair. But if you
can put this sort of seemingly neutral, technocratic, almost it
(43:51):
sounds scientific term onto it, and maybe you can use
that as the basis for like adding specific number or
just giving it this veneer of like scientific feeling. I
thought that was really interesting because it does seem to
be like maybe that has happened over the past year
or so.
Speaker 2 (44:10):
You know what I've found to be a very interesting point.
And actually something else made me think about this recently
and maybe we should talk about it more is the
sort of acceptance that we have that if we want
productivity growth, we can't get that in the service sector, right,
And so like you know, you see, you know, health
care costs. I think that actually the cost curve has
(44:33):
been bent a little bit in recent years, but like
there's a growing growing like health care costs, housing services
continuing to be a major source of strain. We all
know the frustrations that people have with like university costs,
or childcare costs or elder care costs, things like that.
And so when we think about like economic growth and
(44:54):
where productivity gains are going to come from, we default
to the manufacturing sector. Mean, while there's this huge swath
of our economy that I think many people intuitively feel
like we're losing ground on that we're getting the same thing,
but it's more expensive every year, and that perhaps the
sort of big challenge or a task that we should
(45:16):
take up at some point is like, why do we
make our services cheaper?
Speaker 3 (45:20):
Well, I think it's true, and you see that's a
totally that's a great point, and you see it born
out in the inflation statistics.
Speaker 4 (45:27):
Right.
Speaker 3 (45:27):
I sometimes think, Okay, the cost of things is going down,
but the cost of living is going up, and you
see that delineated very clearly in the statistics where like, okay,
TVs have become more sophisticated and more advanced than they're
cheaper than ever, but rents, home ownership, insurance, medical costs,
(45:49):
college education, childcare, food prices to some extent, all of
those have gone up phenomenally. So yeah, I think it's
a great.
Speaker 2 (45:57):
Point totally, and I'm glad dam brought that up. Another
interesting thing that he said was just this idea that
like there is a lot of dissatisfaction in China. I mean,
there's a lot of dissatisfaction in the United States. And
you hear this from multiple people when you talk to them,
that like there really is this sort of like deeply
(46:17):
negative vibe. And maybe it's just because you know, GDP
growth has been weak, but it feels like, at least
again there's all secondhand for me that there is like
something something wrong going on there with the way the
domestic population perceives how the economy is unfolding.
Speaker 3 (46:34):
Well, one thing I was thinking, you know, we talked about, well,
why didn't the US maybe have bigger stimulus post two
thousand and eight, And again, I think that's a really
valid point that has been brought up by a number
of people at this point. But conversely, if you look
at China, China had massive stimulus posts two thousand and eight,
(46:54):
and people have even described China as saving the global
economy in that time period, And I think you kind
of have to wonder like if that stimulus had been
somewhat scaled down, would that have made I guess the
transition or the post two thousand sort of twelve years
(47:14):
a little bit easier like the US, if we had
scaled up fiscal sooner post two thousand and eight, maybe
things would have been better. But conversely, if China had
maybe scaled some of it down post two thousand and eight,
would it have been better for the economy. It maybe
enabled it to move more to you know, market driven
consumer demands. That's interesting.
Speaker 4 (47:34):
I don't know, no, but it's so funny.
Speaker 2 (47:36):
I had not realized that this idea that like, after
the financial system in the US collapsed, that the Chinese
may have thought, oh, the West is going to give
up on their financialized economy, and then we basically just
went right back to the same approach. So much to
pull from that convery.
Speaker 3 (47:55):
Yeah, always great catching up with Adam. Shall we leave
it there?
Speaker 2 (47:57):
Let's leave it there.
Speaker 3 (47:58):
This has been another episodisode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (48:04):
And I'm Jill Wisenthal. You can follow me at The Stalwart.
Follow our guest Adam Twos He's at Adam Underscore two is.
Also check out his podcast ones and twos, and also
check out his fantastic newsletter chartbook. Follow our producers Carmen
Rodriguez at Carman armand dash Ol Bennett at dashbod and
Kelbrooks at Kelbrooks. And thank you to our producer Moses Onam.
(48:26):
For more Oddlots content, go to Bloomberg dot com slash
od lots, where you have transcripts, a blog, and a newsletter
and you can chat about all of these topics in
our discord. In fact, there is an Adam twos channel
in there because people are so interested in Adam that
there's a separate place where people chat about Adam in
our discord Discord dot gg slash odd Lots.
Speaker 3 (48:46):
And if you enjoy odd Lots, if you too like
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And remember, if you are a Bloomberg subscriber, you can
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(49:07):
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Thanks for listening.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal.
Speaker 3 (00:23):
And I'm Tracy Alloway.
Speaker 2 (00:25):
Tracy, we recently interviewed US Trade Representative Catherine Tie about, obviously,
the changing nature of our relationship with China on trade.
I feel like though we could this entire podcast could
just be about that. Really, there's an infinite number of
angles to explore.
Speaker 3 (00:43):
Okay, we're a China trade podcast. Now it's done.
Speaker 2 (00:45):
Yeah, it's done.
Speaker 3 (00:46):
No, you're absolutely right. So one thing, this has been
hovering in the background all year basically, but you've been
hearing this mention of China over capacity, and I think
even President Joe was talking about this idea of China
flooding global markets with artificially low priced exports. And then
beyond that, a big narrative this year has been China's
(01:10):
economy slowing. And so I guess one question I have,
or one thing that seems very noteworthy to me that
I would love to dive into a little bit more,
is Chinese growth has been slowing. Yeah, the Redman bee
has been appreciating and there have been all these new
trade restrictions since the Trump administration and continuing into the
(01:31):
Biden administration as well, And yet China's current account surplus
and I know there's some discussion about how accurate the
official numbers might be, et cetera, et cetera, but the
surplus is going up again, which seems kind of remarkable.
Speaker 2 (01:47):
Totally. It's a really weird moment because I'll look at
like images of some sort of like battery plant or
factory or some transportation, like, oh, this is the future.
There's extraordinary what's being built and the efficient and all that,
and then you read these headlines that basically talk about
an economy in crisis. We're facing their worst challenges since
(02:08):
dune shell paying or whatever is sort of slow down,
and it's hard to like they fit together in some way,
but on some level, like I still have a hard
time reconciling the dual China narratives right.
Speaker 3 (02:20):
Now, absolutely, And then the other tension that I observe
all the time, and I have a lot of questions about,
is this idea that Okay, China seems committed to the
export driven economic model, even though again, as far as
I can tell, all the headwinds right now seem to
be coming on the export side, and yet like there's
(02:42):
still not that much effort as far as I can tell,
to increase consumption or to maybe I don't know, do
like consumer stimulus or something like that. So yeah, you're right,
it does feel like a strange moment.
Speaker 2 (02:55):
And then I guess two other sort of dimensions of
this is like one of the points and Ambassador Tai
mentioned this is like this view that like China isn't
playing by the rules, or at least the rules that
you know, maybe the members of the WTO for many
of the last decades had accepted. And it always sort
of questions like why, you know, every country has a
(03:17):
different arrangement, right, you know, in the US, companies pay
the healthcare of their workers. In Europe the government pays
for health care. Like every country has different rules. So
like part of me wonders, like what is it about
China and the sort of state directed capitalism that they
have there that's like particularly like, oh no, this crosses
a line and the rules of trade don't really work
(03:38):
with them. And then two, you know, this idea of
like overcapacity and dumping, like I get that perhaps intuitively
in a pure commodity such as say steel, but when
it comes to some other things like solar or petrochemicals
or things that really you know, are very or cars
like I have I struggle with this that like it's
(04:01):
a useful concept, but maybe it is.
Speaker 3 (04:03):
But anyway, rather than us wondering about all these questions
and thinking aloud, let's ask our guests.
Speaker 1 (04:09):
Well.
Speaker 2 (04:09):
I am thrilled to say that we are welcoming back
on the show multi time odd Lots guests. But it's
been a while since we've talked to him. But someone
who could help us understand all of these things, we're
going to be speaking with Adam Toos, professor at Columbia.
Here's the director of the European Institute and the chair
of the Committee for Global Thought. He travels all around
(04:30):
the world and he's actually in mainland China this summer.
So Adam, thank you so much for coming back on odlots.
It's been too long.
Speaker 4 (04:38):
Yeah, it's a pleasure to be here.
Speaker 2 (04:40):
Guess, thank you so much. You know, I just start
Chinese overcapacity. We just hear so much about it. Do
you think that's a useful frame? Like, do you find
that to be a useful sort of analytical concept over
capacity for understanding either China or a relationship with China.
Speaker 4 (04:57):
Right now, I'm a little bit skeptical. I like the
tone of doubt in your own voice, Joe, as you
were introducing this. I don't get it. I mean, I
think maybe it's easier to define in sectors where the
technology is relatively static and where we have relatively straightforward
industrial economics models of trajeatory strategy that would involve building
(05:18):
massive amounts of capacity, maybe sliding down a cost curve,
or maybe just establishing some sort of credible threat where
folks will believe that you're going to fight for market
share because you've just got so much sunk cost. So
you could look at industries like steel and aluminium in
those terms, and I think the Chinese themselves would admit that,
you know, they went hard on urbanization and so they
(05:40):
built enormous capacities in steel, cement and so on. That's
one sort of sector I think where it gets I
just find kind of vaguely puzzling is in new sectors where,
thanks to the kind of new world that we're in
with climate planning, where we use that word advisedly and
we have an idea of what we need to do
to get to net zero, and that's apparently taken seriously
(06:04):
by Western governments. And we know that the demands in
terms of the buildout of green electricity capacity, transmission, and
then end use in the form of electric vehicles are
just huge, and for them all, we're pretty uncertain about
the technologies that are ultimately going to come and dominate
those sectors even over the medium term. And it's hard
for me to really kind of to say that the
(06:26):
world has got too many photovoltaic panels just seems, you know,
not for my daughter and granddaughter's future. I think the
more photovoltaics the better, to be honest. And the fact
that the price is crashed, you know, enables this this
extraordinary story about Pakistan importing thirteen gigawatts of photovoltaic capacity
in the first six months of this year, Pakistan which
(06:48):
is in real serious financial trouble, and that's because they're
so damn cheap, and that's because the Chinese have built
out this huge capacity. So those are the areas where
I find the story just a little hard to really
wrap my head around. And I think it's obvious tactical motivation.
You can see how the argument is being used by
Western politicians. But even when you look at the steel sector,
(07:10):
like you know, if you actually look at the share
of Chinese capacity that's being sold onto global markets, generally speaking,
it's a relatively small share of these absolutely immense industries
the Chinese have built, which are overwhelmingly directed towards their
own home markets.
Speaker 3 (07:25):
So, just to ask Joe's question in a different way,
why do you think it seems like policy makers at
least in the US have landed on China over capacity
as this issue in trade that they seem to be
concerned about to the extent that it is one of
the very few areas of bipartisan consensus.
Speaker 4 (07:44):
Well, I think China generally is an area of bipartisan
consensus in the US anyway, right, So I think this
is another instance of something that folks can agree on
in US politics, and it sounds good and it offers
a rationale for protectionism, which is very much on those
in an election year. And with this consensus, what's really interesting,
isn't it there's been this shift away. I mean, the
(08:06):
big thing in the background here is that there's been
such a powerful shift in American economic policy discourse away
from thinking in terms of consumer interest or holistically in
terms of the balancing of consumer and producer interest, towards
a really rather monolithic focus on producer interests. And you don't,
of course, generally talk about corporate profits in that context.
(08:28):
You talk about American workers, especially as what the Americans
called middle class, in other words, for the rest of
the world, working class, blue collar jobs, and that becomes
the center of policy discourse. And in that context then
you can kind of see how overcapacity begins to sound
like a looming threat as opposed to a free gift
to American consumers all of a sudden get to benefit
(08:50):
from whatever subsidies. Ultimately Chinese taxpayers are going to end
up footing the bill for so I think this shift
towards a worker centered vision, and this operates, you know,
in a purely nationalist mode, a rather masculinis mode on
the Donald Trump side, and it is a huge part
of the Biden folks interpretation of why they lost in
(09:12):
twenty sixteen and why the Democrats had to fashion this
new vision of economic policy which was essentially around restoring
the prospects of the American working class. And I think
that's where the sort of the work is being done
and the segues are being established.
Speaker 2 (09:28):
Do you think there is a good pivot, like, I mean,
setting aside the actual implementation of the tactics, and it
is striking. People aren't talking about, oh, it's great that
we can get all these cheap goods by global trade.
We are not talking about the sort of consumer centric
frame where we overdo as this warranted, the sort of
worker centric frame on the effect of trade.
Speaker 4 (09:50):
I mean, I'm a skeptic also when it comes to
the China shock. I mean I'm not not at the
detailed level. Obviously, there are industrial producer communities in the
US that were hit really high, and that's true all
the way around the world, and in many cases it's
preempted industrialization large parts of Africa, you know, there's just
no prospect of that industrialization any longer happening. So that's real.
(10:11):
But as a diagnosis of the malaise of American society,
I don't think it does work. In general, there are
a whole bunch of things wrong with the conditions of
life for working class of Americans that aren't reducible to
the availability of so called you know, good paying blue
collar jobs. And I think it's a mistake on the
part of Democratic Party in progressive politics to focus excessively
(10:33):
on this, because it distracts from what should have been
a much broader agenda of improving the conditions for the
service sector, which makes up the vast majority of the
US economy, and thinking hard about how to improve the
quality of life, conditions of work, and also to think,
you know, because the standard argument is it's always a
manufacturing that you get the productivity increases, Well, maybe it's
time to think harder about how we could think about
(10:54):
the service sector also as a driver of productivity and
improve quality of provision, quality workplace upskilled the workforce in
those sectors. So and there was a moment in the
early Biden administration with a Build Back Better agenda which
was more promising, and I think a lot of people
may be hoped that Kamala Harris might also be more
amenable to this. But once Manchin got to work on
(11:16):
the agenda, and Biden's I think just habits of mine
euas after all, the very old man. And so he
comes out of an era in which American industrialism was
really the trump card, and so we kind of regressed
into that mode of thinking about industrial policy. And then
in political terms, it's incredibly easy to sort of form
a segue where you have a strategic industrial sector that
(11:36):
China has sort of gobbled up. You have a crisis
of the American working class and deaths of despair and
Angus Deaton and Case and so on. Then you have
the working class voters for Trump, and then you have
the fentomyl epidemic. And you pile all of these things
together and you've got yourself a real stack there. And
the common problem in each case is in a sense
of China, and you know that's an overcapacity fits quite
(11:59):
nicely into that, because overcapacity is the result of the
you know, the unbalanced Chinese growth model that I mean
over capacity is. You could more charitably say, it's a
relatively neutral and technocratic way of describing an accusation against
China that could be put in more forceful than aggressive
terms along the lines of you stole our ip and
(12:19):
screwed us, and instead you say no, no, let us
explain to you, we think you have an overcapacity problem.
Let us help you think this through and figure out
how we deal with it.
Speaker 3 (12:43):
You mentioned adam the importance of the services sector to
the US economy. And China, of course has a very
different economic model, and I alluded to this in the intro,
but it is still one that seems very much committed
to export driven growth. So I'm curious why you think
(13:04):
that is why, despite all the ostensible headwinds to manufacturing
and exports, China remains committed to growth coming from that.
And then I know there have been some rumblings about
maybe like increasing I think she called it domestic circulation
or something like that, but it doesn't seem like there's
(13:25):
been a real push to boost the services sector or
boost consumption.
Speaker 4 (13:30):
Yeah, so this is a really interesting point. And as
I was listening to you Chaces you opened up, I
was thinking, Hm, I'm not sure.
Speaker 3 (13:38):
If you don't agree, that's fine, Yeah.
Speaker 4 (13:40):
I'm not sure. I'm not sure that I would agree
that the Chinese strategy is export led. I mean, and
we shouldn't confuse Germany in China because I think the Germans,
really you'd have a hard time actually putting a pin
in German strategy, but they celebrate exports per se as
a kind of national achievement, whereas I don't think that
is the same enter of Chinese policy discourse. I mean,
(14:02):
rather the opposite. They actually now have this dual circulation
model where they recognize there is an external sector, but
that's very vulnerable to external shocks, and the center is
really domestic production. You know, if you were to look
at steel, for instance, you know, in a good year
in China either too. And before they did the whole
gearshift with urbanization and construction and real estate, I mean
(14:23):
ninety five percent, certainly ninety two to ninety three percent
of Chinese immense steel production was consumed domestically. Right, They
produced a billion tons of steel and would explore sixty
to seventy million tons. The vast majority of it is
being consumed at home. If you look at Adam Wolfe's
amazing breakdowns of the Chinese motor vehicle industry, you see
(14:44):
exactly the same thing. Right, The vast majority of Chinese
motor vehicle production is domestic. The vast majority of their
ev the electric vehicles, the ones that everyone's up in
arms about, are also being consumed in China. And that's
one of the really impressive things you see on the
streets and the highways around Shanghai just one fancy ev
after another, stuff you've never seen before. Gull wings, it's
(15:04):
so futuristic, you know, it's over. The competent is extraordinary.
But so far it's really largely internal. The big surge
in Chinese motor vehicle exports which has made them all
of a sudden, this huge force in the industry, which
is hugely disruptive to the Europeans, notably is actually in
internal combustion engines, so as it were, lower tech Chinese manufacturing,
(15:27):
and a lot of it is joint ventures. In other words,
Western firms who can no longer find markets in China
for their now defunct and stigmatized You know, folks in
China really don't want to be driving, especially American badged
cars now, and so when what we see is the
export surge. But to attribute that to policy, I think
is a nonsecutar. There is an industrial policy in China
(15:49):
which is driving towards modernization. And then what mediates between
the two things, what hooks these two things up is
the Michael Pettis argument about macroeconomic imbalance. The real issue
is they have this very very heavy driven industrial policy
and they don't have the macro demand to sustain it,
and so it spills over as a result of corporate
(16:11):
strategies of desperation, basically gambling for salvation through looking in
foreign markets. That I think is a convincing overall picture.
When you look at there's one sector where I think
you could tell us slightly different stories and always have
been able to, which is fault voltaics. Because they're about
half of output is exported. They've so overbuilt in Fota
voltaics that that really is they basically decided we're going
(16:34):
to be the monopoly supplier to the entire energy transition worldwide.
There was already the case ten years ago when they
built out to meet European demand for photovoltaics. But across
the board in the Chinese economy, I think it's more
convincing to tell a story of industrial policy, which is
primarily domestically orientated, this huge Chinese innovative scrambling response to
(16:55):
that strategy, which then generates such fierce competition within China,
especially in light of the Michael pektis demand constrained situation
that then the firms go looking for foreign markets to
to find the demand. A story like that I think
is more convincing than to say Beijing is aiming at
export led growth.
Speaker 2 (17:16):
You know, it raises a question and one of the
things again Tracy mentioned it, but why isn't China doing
more to boost its consumer and they have it. You know,
we have seen very sluggish growth. Objectively, consumption has been
very mediocre, particularly ever since the COVID lockdowns, and Matt
Klein had a really great piece in his sub stack recently. Basically,
(17:40):
no matter how you slice it, it looks like the
consumer has been very weak. And so if you just
look at like train miles traveled or restaurant bookings or
things like that, it still looks very mediocre. On the
other hand, despite the lack of sort of direct in
the pockets of consumer stimulus, I see convincing things from
(18:00):
time to time that, like the real goal of economic
policy improve everyone's standard of living is still going on,
that there's still growth and improvement in the standard of
living in Chinese society. I've never been to the mainland.
You were there this summer, and I assume it was
not your first time. When you're there and when you
talk to people, does it seem like overall that whether
(18:23):
it's clearly measurable in retail sales or whatever, that the
current model is continuing to lift people up.
Speaker 4 (18:31):
I mean the overwhelming impression one has if you visit
a city like Shanghai, it's just it's absolutely awesome. I
mean it's in the sort of technical sense, you're just overawed.
It's so vast. I mean, it's twenty million plus people,
it's so well organized, it's so modern, it's so rich
the infrastructure, and you know, there's an upside about the capacity,
which is just like there's no limits on it. There's space,
(18:53):
there's ample room. It is incredibly impressive and clearly still
highly dynamic. It doesn't feel like a society which hasn't
been invested in the last five years of ten years,
like some bits of Europe feel at this point. So
the technological innovation continues. And after all, I mean, even
if we think the numbers have fudged, their growth rates
(19:14):
are higher or at least on a par with the
US and way above those of Europe and Japan. So
it's definitely still growing and still generating affluent and the
innovation and technological change. Yet there's really no there's no
question about that. But what you also hear really quite vocally,
and I was surprised this isn't North Korea or Stalinism
or something where everyone's worried about bugs in the walls
(19:35):
or something. People will tell you quite openly how miserable
they're feeling, and there is definitely a sense that something's broken.
The real estate markets headed in the wrong direction. The
regime is not friendly to go getting just simple wealth
accumulation anymore. The pressures of the intensely examined ri of
an education system on young people and the parents of
(19:56):
young people are relentless and brutal, and there is that
sense of like a system that is straining. It's not
obvious where the next seven to eight percent per annum
growth machine is going to come from, and it's always
an adjustment to go from seven eight per cent per
annum to three or four, even if three and four
is still very respectable and loads of economists. I don't
(20:18):
know whether you folks read the amazing blog Peakonology by
Zishen Wong, who's now actually a student at Princeton. I
don't know whether he'd agreed to be on the show.
Speaker 2 (20:25):
We should have a Mine, yeah, meaning yeah.
Speaker 4 (20:30):
He's like the top and does such a service to
the Anglo sphere and just translating document off to document,
and he's and you'll have seen it. He has this
roundup of eleven prominent and we're talking like vice ministerial
level voices from within the Chinese economic scene, who are
all saying exactly what you're saying, Joe, like, oh, where
this is? Why aren't we doing this? It's so obvious, Like,
(20:51):
here's another way we could do this. We could provide
better housing for rural to urban migrants. We could do
various types of discounts scheme for parents. We could the
tax system in a way it should be more beneficial.
We could build out a welfare system that will be
more supportive. What's really fascinating is that at the top
level there seems to be and this is what this
drum roll of expert opinion from within the Chinese hierarchy.
(21:14):
None of these people are remotely dissident. There does seem
to be almost a German style level of resistance around
a series of ideological ideas, crucially around wealth are dependence,
which basically say, no, we should create this really tough
environment in which Chinese families and households have to prove
themselves and no, we're not going to, you know, just
(21:37):
easily provide support. And it does seem to be something
of a hang up almost about a society. I guess
the regime fears that China will lose that incredible restless,
you know, hungry edge that drove it through the last
twenty to thirty years. It's I guess all I don't
have a good answer. What I'm saying is that within
(21:58):
the system itself, people are just during this perplexity, and
the answer you get back runs along the lines of, well,
the higher ups just don't think that would be a
good idea.
Speaker 3 (22:08):
Since you mentioned Germany, my framework for the China German
economic relationship at least has always been sort of frenemies
where they both benefit in some way and they're quite
closely linked, but there are obviously tensions and points of
issue there. I'm wondering, how do you see the evolution
(22:31):
of the China German relationship right now? Like, how much
has it changed from say pre COVID to where we
are today.
Speaker 4 (22:40):
Yeah, I mean we could start with the structural similarity.
I mean, they both are chronic trade surplus countries and
have kind of competed with each other to have the
largest not just trade imbalance, the current account surplus. So
they have that structural similarity. They were once complementary in
that China would produce with German equips the cheap manufactured
(23:01):
goods that American consumers would buy. Of course, American consumers
also bought high end German exports directly, as did the
Chinese upper middle class, but the direct link was the
American aggregate demand excess provided a market for both German
and Chinese exports, with Chinese industrialization providing a market for
German manufactured goods. And that still is a link, and
(23:25):
you see it in the commitment of capital goods industries
in Germany and industrial companies in Germany. Two ongoing direct
investment in China, which is still live. I saw this
when I was visiting, because I speak German and I'm
known there. I bump into German business people when I'm
in China and they will tell you flat out that
(23:45):
they have to be there for two reasons. Fundamentally, because
it's a big market and it's rapidly growing. If you're
saying heavy chemicals of your basf, you can't not be there.
But the other reason why a VW, for instance, can't
not be there is that if you're actually going to
compete in the global market in the next generation of
vehicles motor vehicles, you can't do what the US firms
(24:06):
are doing, which is basically retreating behind national protectionism. You
have to at least try and stay with the Chinese
manufacturers in the Chinese market, and so VW is doubling
down on its investments in China because they just see
it as the market it's already the biggest, but it's
also now at the qualitative at the technological frontier, and
unless you can compete there, and they've been having a
(24:27):
brutal period of the last eighteen months, you're basically done.
You're basically going to be a legacy manufacturer of sophisticated
internal combustion engines, not of the new cutting edge siemens.
I think the electrical engineering firm is kind of a
little bit in between the two. I think it also
sees especially in like process manufacturing, so the sort of
highly sophisticated, fully integrated electrollically controlled manufacturing lines which the
(24:51):
German firms specialize in, they feel they have to still
be there. So there is this substantial investment driven, market
orientated technologically you know, inspired link between Germany and China.
And you see it in the way the German government
maintains its relationships with China through thick and thin. And
when Schultz goes, he takes these large delegations of German
(25:14):
business leaders with him, and they're quite outspoken. That sort
of anti China consensus that you quite rightly pointed out
is prevailing in the US and which I really think
ways on American business leaders now doesn't prevent German business
leaders openly saying, if we're in the business of car making,
we need to be in China. I mean, they'll just
simply say that flat out. And BASF, who's played real
(25:36):
hard ball with the German government over the Ukraine War
and the energy costs issue, has openly said, you know,
basically it's you know, you either give us the support
we need or we're leaving for China. And in the
end they've left for China where they will get you know,
the power plant they need. This isn't dirty stuff. That
the BSF has this commitment to being carbon neutral in
the foreseeable future, and so what they said to their
(25:57):
Chinese the region where they're investing is, Hey, we need
to get walt of clean power. And guess what, the wind farm,
the offshore wind farm is already in the process of construction.
So yes, the German relationship is different, and it's based
on this division of labor industrial integration.
Speaker 2 (26:28):
So since we pivoted to Germany, you know, there's just
a ton of stories these days about frailties within the
German model and the poor growth. And it feels like
a very flipped the script from the twenty tens when
Germany was booming and the periphery.
Speaker 3 (26:46):
Was so weak.
Speaker 2 (26:47):
And then of course early September we had the AfD party,
which is a right wing party, one big in regional elections.
So there's a lot of anxst right now about what's
going on in Germany, what is going on in Germany?
Even like how much of the concern is like, okay,
German legacy manufacturers are having trouble competing with Chinese manufacturers.
(27:10):
There's obviously the politics of immigration and so forth, Like
how much of a direct line can you draw between
what's going on with the economy and then sort of
what's going on in the political scene.
Speaker 4 (27:23):
I think there's three issues in play that the extraordinary
election results that we saw into Engia and Saxony, two
states Germany's a federal system. Toingia and Saxony are two
states from the newly joined East German provinces. One element
of this is the legacy impact of German unification, which
I mean, if you've ever had the chance to travel
through East Germany was accomplished, you know, it's really a
(27:46):
gold plated regional policy program. In cities like Dresden are
absolutely gorgeous, hugely invested, wonderful places to live. But nevertheless,
there is this reasonably well founded understanding on the part
of East Germans that they are some level new to
the party. They were basically bolted onto the West German
experiment and had to largely accept its terms and for
(28:08):
a traumatic period in the nineties and the early two thousands.
This is largely the parents or the middle aged generation
of East Germans. There was huge unemployment and massive disruption
and the industrialization of a really shocking variety, and that
lingers in the political system. And if you ask the
voters for the two extreme formations, one is the AfD,
(28:29):
the Alternativa for deutschtand originally an anti Drages eurosceptic party,
and the other one is Sarah Wagan connect so truly
a Marxist philosopher who is also keen to make a
compromise with Putin over Ukraine. So there's a left and
a right wing extreme. And if you ask their voters
how they feel about their standing in German society, eighty
percent plus will say we feel that second class citizens.
(28:51):
So that's that's one key element. The second key element
is the migration issue. And the AfD didn't start as
an anti migrant, nphobia racist party. It started as the
alternative was to Qe to Dragi, but after the refugee
shock in Syria in fifteen sixteen, it became an openly racist,
(29:11):
openly in neo Nazi formation. Where I think the de
industrialization element of the story comes in is that that
removes the last best hope, if you like, of the mainstream,
which says, you know, the way we're going to address
these problems and as it were, integrate the ease more
successfully is by Germany's economic success story that's ultimately going
(29:35):
to take care of this problem, will achieve successful integration,
and they plowed money into Intel and the Taiwanese manufacturing
chips around Dresden. That hasn't brought off the East German voters.
And the real nightmare of the shift in the motor
vehicle industry, which is a huge piece of the German
industrial infrastructure still is that if that goes, then your antidote,
(29:59):
if you like, to what is essentially a politics of
racism and is Lamophobia, that is no longer plausible, and
it isn't. I don't think that, you know, folks in
Dresden or in Cheering Gear are voting AfD because they're
worried about jobs being lost in VW. It's more that
in Berlin there's total panic because if you haven't got
the VW model, it's not obvious that Germany really has
(30:21):
a growth model. And in part it's the same blind
spot as we were talking about with the US. In
other words, they aren't actually focused on what, even in
Germany is the main source of employment and GDP, which
is services and not the manufacturing base. But they have
been they've trapped themselves. They are trapped by powerful interest groups,
the very strong voice of organized labor in Germany, but
(30:41):
also the industrial lobby and a kind of lack of imagination.
They're kind of clinging to industrialism as really the last straw.
And yeah, that's why then the threat of China is
really ominous.
Speaker 3 (30:53):
You alluded earlier to the idea that maybe both China
and Germany seem to be hoping for or I guess,
the immaculate emergence of supply side solutions to their problems
rather than having to do some sort of large scale stimulus.
How realistic is that, Like, where could relief actually come from?
Speaker 4 (31:15):
I mean, in the Chinese case, it's pretty easy to see.
I mean, they could do. There's a whole series of
moves that they could make that would be it's hard
to see that they're just not straightforwardly win win win,
really and they would be an expansion of household demand
and expansion of high quality human services. There's a lot
of remedial stuff that actually needs doing to backfill the
(31:37):
China dream. The extraordinary sophistication of a city like Shanghai
is not matched in the Chinese hinterland, which is of
course vast and its contained hundreds of millions of people,
and even elementary stuff like schooling is really miserable in
provincial China. We of course, think of the huge success
of elite education in China, but that isn't the majority experience,
(31:59):
and so you know, you would very easily imagine a
kind of comprehensive upskilling upgrading strategy. Implementing it would be
a different thing, but that would be the way you
would go. First, economy as large as China's, it's a
domestics policy story in the end that will make the
difference for Germany. I think it has to be a
year wide that's the way to go. I mean, they
(32:19):
could break the impast domestically over the debt break and
invest and that would be one option, and that's certainly
a big priority. And there's some promising noises now mercifully
finally out of the SPD, out of the Social Democratic Party, Chancellor,
the Schultz Party about a frontal attack on this debt break.
So the debt break is the German version of the
(32:39):
European debt rules, or vice versa, the European rules, or
aversion of the German debt break, which limits the deficit
and constraints borrowing, even when Germany pays hardly any real
interest and is in need of several hundred billion euros
worth of investment in every area of public infrastructure of digitization.
So that would be one way out. The other one
(32:59):
I think has got to be Europe, and it may
be shocks which you know, deliver the opportunity to do this.
A Trump victory followed by disaster for the Ukrainians would
I think unleash a new europe level borrowing package, maybe
another half trillion years worth of borrowing, and that would
be the kind of structural stimulus that would benefit the
(33:22):
German economy quite considerably.
Speaker 2 (33:24):
You know, I mentioned this in the intro, but one
of the arguments that you hear in the US about
why ramping up the trade restrictions with China is this
idea that they're cheating in some way, right, maybe over
whether it's a pure sort of industrial espionage. But then
there's this question like, well, there's all this state support
and these aren't the rules of global trade. Just from
(33:46):
like the historian perspective, Is this a novel argument or
has there always been this idea that like, no, you're
you're doing it the wrong way, or you've built up
this industrial capacity in a different way than we built
up and you know, again, and it strikes me that
like every country has different domestic rules and so forth.
You know, in the US we subsidize education to quite
(34:08):
a degree, and so that is a form of subsidizing
worker training that then corporations can take advantage. How novel
is this claim that like, we get to do these
things because we don't like the way you've developed. Has
that always been part of these global trade debates.
Speaker 4 (34:24):
The first thing to say is that as far as
we're able to estimate, there've been a couple of fairly
serious minded efforts to estimate the scale of Chinese industrial
policy spending, and it's significant. I think the most widely
cited estimate puts in about one point seven percent of GDP,
which when you compare it to a similarly defined measure,
though I agree with Joe there's like lots of different
(34:45):
ways of defining, but if you player the same classification
to Europe and the US, that's about three times the
share that they spend. So that's one element of this
that's clearly for real. Another, I think horizon against which
to measure this like the regime that we had before,
And I think the ferocity of this argument has to
(35:05):
be judged against the assumption that somehow we had outgrown
that kind of era of state led and state subsidized support.
And in the European case, you'd have to say that
since the nineties they've taken that really quite seriously. In
other words, the Europeans do have rules that bite to
prevent national governments and regional governments from doing the kind
(35:28):
of subsidy that the Chinese take for granted. Why, because
the Europeans are balancing this really complicated multi European union,
and so to avoid just these crazy subsidy races and
Germany winning all of them, that have to be these
very tight rules. And the Europeans take this seriously to
an extent that is at times quite fascical. The argument
(35:49):
coming from the American side is a little less plausible,
because that kind of subsidy never really went away, and
the American states and cities have always competed in a
fairly brutal way for investment. But I think that's an
horizon against which sort of the point the finger is
pointed at China, which was okay in the nineties, we
expected you to do this because you were still poor then,
and then you did wto and then we were expecting
(36:11):
you to get rich and grow out of this, and
goddamn it, you haven't. No, in fact, you've somehow doubled down.
Since the twenty tens, you've been doing it more and
more intensely. And there's a new study of China which
suggests that, in fact, this was a policy learning on
the part of Beijing out of two thousand and eight.
So the Chinese imagine that after the great financial crisis
in the West, the Europeans and the Americans would realize
(36:34):
that finance centered growth was not a great thing, and
they would double the hub on industry and to get
ahead of the game, the Chinese thought they should. And
of course it turned out that no one else really
ever did quite make that move, and the Chinese really did.
And you know, by twenty fifteen they had made in
China twenty twenty five policies. So there was an asynchronicity
in which, as it were, European and American policy theory
(36:55):
thought we would get grow out of this, So the
Chinese suddenly in fact doubled down.
Speaker 2 (36:59):
There's so funny because I always think, like all these
things chips act inflacial reduction act. I always have this idea.
It's like you know, two thousand and nine might have
been a good time to have done this, and there
was a lot of spare capacity and cheap labor and
all this stuff. Anyway, I just have one last question
for you, And you know you've been fairly critical of
the Biden administration. You know, we have had this turn right,
(37:21):
so the administration and maybe starting with Trump, but certain
the administration is like pivoted away from the sort of
I guess people call it neoliberal consensus of the decades
that preceded it, the worker centered approach to thinking about
our trade relationships, et cetera, domestic investment, maybe belatedly getting
(37:42):
to do some of the policies that maybe we should
have implemented fifteen years ago after the financial crisis. What
do you see as your role as I guess a
public intellectual, someone on the left. You know, you're someone
who people in the Democratic Party might read and listen to.
What do you what do you see is sort of
what you trying to accomplish with your writing and your
(38:05):
public work.
Speaker 4 (38:07):
Yeah, it's been it's been quite a shock, actually. I mean,
on the one hand, we were listened to and I'll
say weird advisedly, but it's the bit of Biden economics
which is now buried and they prefer to forget, which
is my team. I was one of the leading spokespeople
of the team that basically said Obama didn't go big
enough with the stimulus in two thousand and nine, and
(38:27):
we needed to go really big, you know, this time.
And we were listened to, like you know, I know
from Schumer's people that absolutely that argument that they missed
a trick in two thousand and nine. It really that
actually got through. After all, they did the huge stimulus
early in the Biden administration, and I would argue that
it delivered a miraculous macroeconomic record, right. But the funny
(38:49):
thing is that that's the bit of Biden economics that
everyone wants to forget because of the Larry Summer's invasion argument, right,
because that was anathematized almost as it was happening. Instead,
the entire team have swarmed around this industrial policy element,
and I think there I've discovered a new role. So
I think in the first phase I felt okay, there
was policy learning that was going on, and the kind
(39:11):
of left critique of the Obama administration was making a
very positive contribution in feeding that. Then we came to
what actually emerged in the industrial policy, and I have
to say that a lot of folks that I would
you know, consider allies, friends, whatever, shifted roles to essentially
the role of a kind of cheerleading around the Biden administration.
And I get it right, they're Americans. I'm not an
(39:32):
American non American citizen. For them, this is life and
death fate of the Republic. We have to rally behind
our team. And by joke, they did, like the Biden administration,
if nothing else, was brilliant at message management and worked
you know the usual suspects in the finance twitter space,
incredibly hard to get everyone on side and keep pushing.
And at that point I have to say I'd discovered
(39:53):
a slightly different role, which was more that it's a
less attractive role. It's a less it's less comfortable, which
is really that sort of inside critic or just simply
somebody who wasn't necessarily drinking the kool aid and was saying, well,
by what metric, by what scale is this really adequate?
And so that was on the IRA side, the Inflation
(40:13):
Reduction Act, where this was turned into this gigantic epic
of industrial policy, and I just don't see it. I
don't see it in the data. I don't see it
in the scale. I don't see it if you run
any kind of counterfaction on what we would have expected
anyway to have happened. I think there's been a real
sort of soft kid glove treatment of this. And much
more seriously, however, is the is the question of war,
(40:35):
is the question of warm peace and the way in
which natural security has come to form an essential part
of even of a progressive economic policy in the United States.
And I come from the generation of Europeans whose childhood
and youth was entirely dominated by the prospect that we
were all going to end our lives in a nuclear incineration.
And I find that turned towards a hawkish, anti China
(40:59):
synthesis of industrial, economic and military policy profoundly troubling, and
at the very least, I think the role of folks
with you my kind of biography, I will become an
American citizen. But nevertheless, I feel like our role at
this point is to push back because there's an element
of flag waving, a kind of left American exceptionalism that
(41:20):
comes very rapidly to the foe in moments like that,
and there is a willingness to believe that, yes, you know,
I don't know America can do a Green Marshall Plan
or that whole rhetoric they're very familiar with. And I've
discovered a different role for myself than I really imagined
in I don't know whether I've anchored anything, but that's
just consistently asking the question is this And it's not
a skepticism about, you know, the potentially beneficial role of
(41:44):
US leadership. It's just actually, more often than not, a
kind of asking, are you actually serious at all? Because
I see hundreds of millions and single digit billions when
we all know that the problems we're talking about, if
you're serious and if you actually want to compete with China,
ask one hundreds of billions, if not trillions of dollars
that need mobilizing. And what I definitely don't think we
(42:05):
should buy is the kind of weak soup of a
promise of giant and dramatic action which we all kind
of you know, can get excited about, when in fact
what's being delivered is something far less than that.
Speaker 2 (42:16):
Adam joos so great at having you back on odd lot.
It's fantastic conversation and looking forward to the next time.
Speaker 4 (42:23):
Thank you really appreciate the way you guys do. It's
such a such an essential list and together. I can't
tell you how many like, Oh my god, I can't
stand this airport moment, you know what I mean, listened
to odd lots everything can keep that seriously, I kid
you not. Just in he throwed three days ago. It
was like a nightmare of security line. I just put
them on great stuff from Johnson Whole.
Speaker 2 (42:46):
Oh, thank you so much.
Speaker 4 (42:47):
Like you know, it's really it's really a huge.
Speaker 3 (42:50):
Sence and it warms my cynical heart to know that
we make the experience of Heathrow Airport a little bit better.
That's great.
Speaker 4 (42:57):
I mean there are other also better moments. I could
just go, but yeah, it's really.
Speaker 2 (43:04):
Well, thank you so much and take care and hope
to see around soon.
Speaker 4 (43:06):
Yeah you too.
Speaker 2 (43:20):
I love talking to Adam. It really had been too long,
but you know, I love talking to people. You just
throw out anything and they'll have something interesting to say.
That's a great guest.
Speaker 3 (43:28):
Yeah, he definitely makes it easy, that's for sure. I
did like his point about the sort of etymological point
about the word over capacity and this idea that like, okay,
well you have a grievance with China that basically boils
down to while they're not playing fair. But if you
can put this sort of seemingly neutral, technocratic, almost it
(43:51):
sounds scientific term onto it, and maybe you can use
that as the basis for like adding specific number or
just giving it this veneer of like scientific feeling. I
thought that was really interesting because it does seem to
be like maybe that has happened over the past year
or so.
Speaker 2 (44:10):
You know what I've found to be a very interesting point.
And actually something else made me think about this recently
and maybe we should talk about it more is the
sort of acceptance that we have that if we want
productivity growth, we can't get that in the service sector, right,
And so like you know, you see, you know, health
care costs. I think that actually the cost curve has
(44:33):
been bent a little bit in recent years, but like
there's a growing growing like health care costs, housing services
continuing to be a major source of strain. We all
know the frustrations that people have with like university costs,
or childcare costs or elder care costs, things like that.
And so when we think about like economic growth and
(44:54):
where productivity gains are going to come from, we default
to the manufacturing sector. Mean, while there's this huge swath
of our economy that I think many people intuitively feel
like we're losing ground on that we're getting the same thing,
but it's more expensive every year, and that perhaps the
sort of big challenge or a task that we should
(45:16):
take up at some point is like, why do we
make our services cheaper?
Speaker 3 (45:20):
Well, I think it's true, and you see that's a
totally that's a great point, and you see it born
out in the inflation statistics.
Speaker 4 (45:27):
Right.
Speaker 3 (45:27):
I sometimes think, Okay, the cost of things is going down,
but the cost of living is going up, and you
see that delineated very clearly in the statistics where like, okay,
TVs have become more sophisticated and more advanced than they're
cheaper than ever, but rents, home ownership, insurance, medical costs,
(45:49):
college education, childcare, food prices to some extent, all of
those have gone up phenomenally. So yeah, I think it's
a great.
Speaker 2 (45:57):
Point totally, and I'm glad dam brought that up. Another
interesting thing that he said was just this idea that
like there is a lot of dissatisfaction in China. I mean,
there's a lot of dissatisfaction in the United States. And
you hear this from multiple people when you talk to them,
that like there really is this sort of like deeply
(46:17):
negative vibe. And maybe it's just because you know, GDP
growth has been weak, but it feels like, at least
again there's all secondhand for me that there is like
something something wrong going on there with the way the
domestic population perceives how the economy is unfolding.
Speaker 3 (46:34):
Well, one thing I was thinking, you know, we talked about, well,
why didn't the US maybe have bigger stimulus post two
thousand and eight, And again, I think that's a really
valid point that has been brought up by a number
of people at this point. But conversely, if you look
at China, China had massive stimulus posts two thousand and eight,
(46:54):
and people have even described China as saving the global
economy in that time period, And I think you kind
of have to wonder like if that stimulus had been
somewhat scaled down, would that have made I guess the
transition or the post two thousand sort of twelve years
(47:14):
a little bit easier like the US, if we had
scaled up fiscal sooner post two thousand and eight, maybe
things would have been better. But conversely, if China had
maybe scaled some of it down post two thousand and eight,
would it have been better for the economy. It maybe
enabled it to move more to you know, market driven
consumer demands. That's interesting.
Speaker 4 (47:34):
I don't know, no, but it's so funny.
Speaker 2 (47:36):
I had not realized that this idea that like, after
the financial system in the US collapsed, that the Chinese
may have thought, oh, the West is going to give
up on their financialized economy, and then we basically just
went right back to the same approach. So much to
pull from that convery.
Speaker 3 (47:55):
Yeah, always great catching up with Adam. Shall we leave
it there?
Speaker 2 (47:57):
Let's leave it there.
Speaker 3 (47:58):
This has been another episodisode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (48:04):
And I'm Jill Wisenthal. You can follow me at The Stalwart.
Follow our guest Adam Twos He's at Adam Underscore two is.
Also check out his podcast ones and twos, and also
check out his fantastic newsletter chartbook. Follow our producers Carmen
Rodriguez at Carman armand dash Ol Bennett at dashbod and
Kelbrooks at Kelbrooks. And thank you to our producer Moses Onam.
(48:26):
For more Oddlots content, go to Bloomberg dot com slash
od lots, where you have transcripts, a blog, and a newsletter
and you can chat about all of these topics in
our discord. In fact, there is an Adam twos channel
in there because people are so interested in Adam that
there's a separate place where people chat about Adam in
our discord Discord dot gg slash odd Lots.
Speaker 3 (48:46):
And if you enjoy odd Lots, if you too like
to listen to episodes while waiting in airports, then please
leave us a positive review on your favorite podcast platform.
And remember, if you are a Bloomberg subscriber, you can
listen to all of our episodes absolutely ad free. All
you need to do is connect your Bloomberg account with
Apple Podcasts. In order to do that, just find the
(49:07):
Bloomberg channel on the platform and follow the instructions there.
Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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