Trade Deficits and other Disasters

During the presentation yesterday, Mallikarjuna wrote on chat:

Trade deficits are bad. China runs huge trade surplus for itself with almost every other country. That is killing the local industries (silk producers, primarily.)

And

Cheap/Cost-Effective Exports with malware (USA Printers in mid-east, telecom & electrical equipment by Chinese) … How to get over this? Is it beyond economics?

I gave a very brief response during the session. This is an elaboration. I appreciate the concern that he has for his family’s silk production business.

The most important general point that we have to remember always is that what happens to Indian businesses is entirely up to Indians. It is not China or Pakistan or the US or any other country or multinational corporation that is responsible for India’s progress or lack of it.

That’s largely true of an individual as well — that the individual is responsible for much of what he enjoys or suffers. I don’t deny that factors outside the individual’s control do matter such as the country he was born in, the parents he was born to, the intellectual and physical endowments he inherited, lucky and unlucky accidents etc. But after controlling for those factors, what we become is entirely up to us. An adult who explains away his failures by pointing to outside factors is shrugging off his responsibility for what he is.

Countries with very large populations — China, India, the US, Japan, etc. — are less subject to external factors than small countries such as Singapore, Sweden, Somalia, Venezuela, etc. A small boat gets tossed around by medium swells but it takes a tsunami to upend an oil tanker. Therefore when an oil tanker runs aground, it’s almost always the fault of the crew, not the weather.

China is run by the evil Chinese Communist Party. That’s a problem that the Chinese have to deal with. The Chinese people made that bed and they sleep in it, quite comfortably, thank you. But the CCP is not responsible for India’s domestic policy. India’s domestic policies are made directly by Indian governments (at the state and national levels) and indirectly by the people through their voting behavior. Indians choose the people who run the government, and the latter choose the policies.

The Chinese do have the power to lob a bomb at India and the Pakistanis fund terrorism in India. They have the power to damage India considerably. But they don’t and cannot dictate Indian government policies. The Indian government dictates policies in India. Those policies have caused orders of magnitude more damage to India than any of India’s external enemies have ever done or are ever likely to do.

[Orders of magnitude is important. For example, 6 and 12 are multiples of 3; they are not orders of magnitude larger than 3. But 30 and 300 are orders of magnitude larger than 3. 30 is one order of magnitude larger than 3; 300 is two orders of magnitude larger than 3, etc.]

Sure, Pakistan has started wars with India and Indians have paid heavily for that. I don’t know for sure but I doubt that Pakistan has killed more than about 50,000 Indians in the various wars and terrorist acts. Same goes for China. Let’s round that up to 100,000 Indians.

If I were to make a simple estimate, I would say that since 1947 the Indian governments have through their policies killed around 100 million Indians. Go on, challenge me in the comments. I will give you the numbers.

Here’s a hint: these are deaths so routine that we cannot be aware of them. Every day in India, around 2,500 children below the age of 5 die from lack of nutrition, clean water and primary health care. That’s ~900,000 avoidable deaths a year. Child mortality rates must have fallen over the years. So even though the population in 1947 was a third of what it is today, I would estimate the absolute numbers to steady over the last 74 years. Do the numbers and you get an aggregate ~67,000,000 deaths.

[67 million is three orders of magnitude larger than 100,000.]

These deaths are really the tip of the iceberg. A lot more — hundreds of millions of people in each of the three generations of Indians since the British left — have lived lives of unrelenting misery and poverty. Their lives were “mean, petty, nasty, brutish and short.” There’s no accounting for that. But we know that all of that death and misery has one cause: the policies of the Indian governments. Not the Chinese government, horror that it is; not the Pakistani government, the pathetic retards that they are. But the Indian government.

The Indian government is India’s greatest enemy.

Which is, by the way, par for the course. The Chinese government under Mao killed between 40 and 60 million Chinese. The Russian government under Lenin and Stalin killed around 20 million Russians (and remember that the population of USSR was a fraction of the Chinese population.)

More recently, the Venezuelan government has reduced a once-rich country to be so pathetically poor that it beggars belief. I could go on giving examples of how needless the self-inflicted wounds are that destroy nations.

But let this suffice because I have to address Mallikarjuna’s question. I needed to say this to set the stage. Blame the Chinese if you must but evil though the CCP is, it is not responsible for India’s tragedies.

This is too long a post. I will continue it in a bit. Spoilers: trade deficits are not the problem, they are just the symptoms.

 

 

Author: Atanu Dey

Economist.

2 thoughts on “Trade Deficits and other Disasters”

  1. I have always failed to understand this entire song and dance around “trade deficit”. It is one of those things that sound logical but in reality are complete BS.

    If I go to my local street vendor and buy vegetables and fruits, but he never buys the software code I write, am I running trade deficit with the vendor and somehow that is a bad thing ?

    I think this logic stems from people’s failure to assign value to money but not to the goods and services. If china sells us stuff, it is getting money from us in return. That money it needs to spend somewhere, if it does not spend that money and their money piles up, the value of money for them goes down and goods and services automatically become expensive. OR that money is invested back into India/USA and other countries. Almost all major software startups in India today are running on cheap Chinese investments. American real estate and startups too are funded heavily by Japanese and Chinese money.

    Few decades ago Japan and specifically Sony was responsible for huge trade deficits with USA. Some american politicians advocated tariffs on Japanese goods. Sony made shit ton of US dollars and then did not know what to do with it, it then invested it in video games and movies. It helped hollywood.

    Of course a country can use the trade as an attack vector against other countries. This however is entirely a different topic. As a nation how should we defend ourselves from other hostile governments such as CCP is completely irrelevant in the context of trade deficits.

    Side note:
    I think Americans are pulling a fast one on China. The best thing Americans can produce at really low cost is US dollars. Americans are giving this green paper to China and getting useful services/goods from China. In the end China will be left with a worthless pile of paper. If USA opens up its immigration channels to talented and especially young Chinese, the China story will be over in a decade or two.

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