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China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle
Forward Guidance
Analyzing Global Trade Imbalances and Their Effects on Employment and Demand
Since the 1960s, the prevailing belief has been that trade benefits all, despite significant trade deficits experienced by some countries. This perspective coincided with a sharp decline in U.S. manufacturing jobs, which peaked at 20 million in 1980 and fell to a low of 11 million in 2009, currently stabilizing around 13 million. A shift in consensus has emerged among both political parties recognizing that allowing unfettered imports, particularly from countries like China, may not be beneficial. The principle of comparative advantage suggests countries should specialize in producing goods in which they have a relative efficiency, leading to increased global production through trade. However, trade imbalances disrupt this ideal situation. Countries may subsidize their manufacturing sectors to maintain employment, inadvertently reducing domestic demand and pushing weak economic conditions onto trade partners. This can lead to rising unemployment and debt in those countries, creating persistent downward pressure on demand globally. Key insights indicate that while trade can encourage economic growth through supply expansion, unresolved trade imbalances can lead to sustained economic contraction and increased reliance on debt to manage demand discrepancies.
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