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Even more than the pandemic itself and its economic effects, it is the infinite healthcare and economic clumsiness of the bulk of governments, including developed countries, that has disrupted national, regional, and global markets. The effects on the dynamic structure of capital – the importance of which too many economists prefer to ignore – will be devastating.
The United States is the largest consumer market on the planet and the most integrated economy into global networks of trade and finance. And in the United States – as in all other developed economies – something is being camouflaged that threatens to wreak havoc for decades to come. It is more important in the United States because the impact, negative or positive, of its economy on the recovery of the rest of the world will be enormous.
With record deficits, in 2020, American savings reached negative levels. The Federal Reserve indicates that the net national savings rate – domestic savings of households, businesses, and government – was -0.9% as of the second quarter of 2020. Not since 2009, when it fell to -2.7% have we seen a negative rate. And in 2009 it was in the midst of a global recession. The reckless accumulation of public debt, a long-standing problem that grew exponentially with the pandemic, is more dangerous in an economy suffering from a drop in national savings.
Conventional macroeconomics
There were clear signs of recovery in the U.S. economy by the end of 2020. But the new administration will reverse the fiscal, regulatory, and energy policies that sustained that reasonably healthy recovery. And with that, we could see a drop in the savings rate accelerating the weakening of the dollar and an expansion of the U.S. trade deficit along with more and more borrowing from Washington. But for us to see more borrowing, a weak dollar and rising trade deficits together, we might also have to see a negative savings rate, more or less sustained. This is conventional macroeconomics and has serious theoretical shortcomings, but in this case it points to the likely.
It’s about savings and investment
By cutting taxes and regulations, the Trump administration succeeded in bringing back American capital from abroad, more foreign investment and new sustainable industrial job creation in sectors previously deemed unrecoverable. But investors know that came to an end with the Biden administration. In his first hours in the White House, Biden destroyed 1,000 direct jobs in the energy sector. And with the same measure he did, he almost certainly condemned another 42,000 jobs -both direct and indirect- while the Agitprop agencies disguised as “fact checkers” try to cancel the factual reality of the Internet.
The problem that conventional macroeconomics cannot see is that sustainable investments -and jobs- will be destroyed in a healthy economic environment, while artificial growth is promoted -with deficit public spending, subsidies and mercantilist privileges- at Washington’s whim. It is an unsustainable bubble, substituting for sustainable investment and employment. And if the economy lacks sufficient financing from domestic savings, it will require greater net inflows from abroad.
And with what the Biden administration has already begun in the United States, it will require foreign capital to finance it. Capital that is different and will not go where it was going with the Trump administration’s successful tax cuts and regulations.
Where would this foreign capital come from? Well, from repeating the Obama administration’s unconfessed “America last” – as obviously desired by Biden and the bulk of the Democratic party – with high trade deficits that would attract to the United States the Chinese capital that the Trump administration preferred to keep away. For geostrategic and national security reasons and strictly economic reasons. However, opening doors to Beijing’s totalitarianism will not be as simple for Biden as for Obama.
Under Trump’s shadow
The Trump administration framed its trade conflict with Beijing as a broad containment of the global power projection of China’s new totalitarian superpower. A new cold war so different from the previous one that calling it a cold war – although it is – may even confuse us.
Trump was firm in confronting protectionist trade practices, currency manipulation and technology theft by Beijing. Even with higher tariffs on Chinese goods by more than $360 billion. He reduced the Chinese trade surplus, which had soared when the Obama administration was complacent with Beijing’s double-dealing, to attract Chinese capital at the cost of destroying local jobs and investment. It will no longer be so simple.
On the one hand because despite efforts to cancel and prosecute, in what can only be described as the political-mercantilist collusion of big tech – and other big corporations – with a socialist power in a shared totalitarian project, the conservative opposition in the United States exists in the real world and on the political and institutional stage.
It is half the country, or more. And it will no longer be cancelled without resistance – as in the case of the universities, the bulk of the traditional press, most of culture, entertainment and big technology – and that opposition will no longer believe in the inevitability of the relocation of industrial employment to China, in exchange for growth concentrated in services and technology and of Chinese purchase of American debt along with growing Chinese investment in America.
The Trump administration showed that it was not inevitable and that it was reversible and that the American economic environment could grow while competing with Beijing in the industrial arena. In the ranks of the great social-mercantilist collusion, they are noticing that Chinese corporations are no longer mediocre copycats. From the theft of technology, the protectionism of their huge domestic market and their own research and development, they are now formidable competitors.
China is a formidable competitor for the American and global market and is not just a simple slave factory for manufacturing with cheap and subjugated labor for greedy Western corporations.
Guillermo Rodríguez is a professor of Political Economy in the extension area of the Faculty of Economic and Administrative Sciences at Universidad Monteávila, in Caracas. A researcher at the Juan de Mariana Center and author of several books // Guillermo es profesor de Economía Política en el área de extensión de la Facultad de Ciencias Económicas y Administrativas de la Universidad Monteávila, en Caracas, investigador en el Centro Juan de Mariana y autor de varios libros