March 20, 2018

Rarely, if ever, are trading partners able to achieve a balanced stasis, even among friends and allies. Today keeping personal, trade, and military secrets is fast becoming a thing of the past. Computers and the internet, like flooding waters, continually disseminate them throughout the world. Witness North Korea, India, Pakistan and Iran (Israel has not yet exploded any nuclear bombs); they’ve demonstrated mastery of the nuclear cycle, unthinkable when the Manhattan Project was in full swing. Iran and China, in particular, currently manufacture a host of civilian and military goods that only thirty years ago were the exclusive domain of North America, Europe and Japan. Clearly, as time goes on, today’s surplus nations are going to find it increasingly difficult to maintain that status as the rest of the world becomes self-sufficient and begins to import less. At that point foreign competition, artificial intelligence and robots will drive unemployment, poverty and inequality up throughout the surplus-dependent nations.

This is not an unsupported extrapolation; the United States went from a surplus country at the end of World War II to today’s perennial trade deficits -the largest in the world- and it’s not President Trump’s fault. Accordingly, his contention that the situation cannot continue indefinitely is correct. In fact, It’s already undermining the degree of global trust (fiat) in the dollar as the de facto reserve currency of the world. This is confirmed by the fact that China is already offering to bypass the dollar and pay for oil with its currency, one which, incidentally, can be used to buy all sorts of Chinese-made consumer and military goods.

That legitimate issues related to trade practices must be addressed, and the trade deficit radically reduced or eliminated is beyond dispute. However levying tariffs is not the answer. Cooler heads must prevail as the current animosity between China and Russia, on the one side, and the U.S., NATO and Japan on the other could easily explode into a terminal -yet avoidable and unnecessary- war. Instead, the U.S. should adopt, with confidence, a more realistic, enlightened approach based on the following:

• China is here to stay; it cannot be destabilized or broken up.
• Its population is four times larger. They simply have more customers and scientists, the mainstay of any advanced society, and the disparity is likely to increase.
• Our public colleges and universities should be nearly free as they once were in the late forties and early fifties. That would allow us to tap the mass of our youth -particularly Blacks and Latinos- and hope to keep up with the growing deluge of Chinese discoveries, inventions and patents.
• We must strive to produce that which they might be willing to buy –namely hydrogen to help them produce electricity and water without harming the environment- rather than insisting they buy only what we would like to sell but which they don’t need or want.
• The U.S. does not need military hegemony in order to thrive and survive. It is unrealistic, bordering on delusional, to imagine that 5% of the world’s population could do that going forward. As a result, it does not need military expenditures greater than the next 10 nations combined paid for with borrowed money. Instead, it urgently needs to remedy the abysmal (and growing) gap in wealth and income -the steepest among the world’s most advanced economies- to allow us to successfully compete in the global economy without harming the environment.
• We must accept and prepare for the day when the dollar will cease to be the preferred reserve currency of the world and the federal government will be compelled to balance its budget.