WEBVTT - The Economics of the Tariff Regime 0:00:01.680 --> 0:00:08.159 All Zone Media. Welcome to IKE It Happened Here, a 0:00:08.240 --> 0:00:14.360 podcast that has increasingly become about tariffs in the second 0:00:14.360 --> 0:00:20.439 Trump regime. I am your host, Miil Wong, and oh boy, 0:00:20.880 --> 0:00:24.480 it has been a big few weeks for tariff news. 0:00:24.560 --> 0:00:28.920 We have tariff numbers on China that I'm not even 0:00:29.000 --> 0:00:32.919 going to bother to actually record right now because by 0:00:32.960 --> 0:00:35.320 the time this goes out, the numbers will probably be different. 0:00:35.320 --> 0:00:39.960 There are supposed to be major negotiations underway between Trump 0:00:40.040 --> 0:00:43.200 and the Chinese government to attempt to come to yet 0:00:43.240 --> 0:00:47.760 another trade agreement and stave off yet another round one 0:00:47.840 --> 0:00:52.000 hundred percent tariffs. Now, if you want to follow the 0:00:52.040 --> 0:00:55.000 sort of blow by blow of what exactly is going on, 0:00:55.120 --> 0:00:59.520 I'm going to just sort of refer you to my 0:00:59.600 --> 0:01:05.400 section tariff talk on Executive Disorder. However, Comma, we need 0:01:05.440 --> 0:01:09.560 to take a deeper look at what structurally is going 0:01:09.640 --> 0:01:15.880 on in the global economy that is resulting in the 0:01:15.959 --> 0:01:19.920 demand for tariffs in the first place. And I think 0:01:20.560 --> 0:01:23.560 the place to go if that's the thing that you're 0:01:23.560 --> 0:01:26.760 trying to figure out. And we've talked about the sort 0:01:26.800 --> 0:01:30.360 of ideological aspects of this in other episodes. We've talked 0:01:30.360 --> 0:01:34.720 about the ways that the sort of politics of fascism, 0:01:34.760 --> 0:01:39.240 the politics and anti semitism, the politics of masculinity lead 0:01:39.360 --> 0:01:44.320 people towards these extremely ulternationalist policies that are specifically supposed 0:01:44.360 --> 0:01:49.120 to sort of protect the domestic blood and soil national 0:01:49.400 --> 0:01:54.200 industry and are supposed to protect material goods over services. 0:01:54.840 --> 0:01:57.800 But there are things that are happening structurally in the 0:01:57.880 --> 0:02:03.840 economy that make it such that people would consider things 0:02:03.880 --> 0:02:06.520 like the tariffs that have been happening under this regime 0:02:07.040 --> 0:02:10.440 as a solution to things that are kind of structural 0:02:10.440 --> 0:02:14.560 problems of the economy specifically. And this is what we're 0:02:14.560 --> 0:02:19.400 going to be focusing on today. Over capacity and steel. Now, 0:02:20.000 --> 0:02:22.440 some of you may be asking, Mia, why are we 0:02:22.480 --> 0:02:25.640 talking about steel over capacity? And I think there's a 0:02:25.639 --> 0:02:29.080 few important notes here. One, steel is in some ways 0:02:29.120 --> 0:02:32.440 emblematic of American tariff policy. It is I guess you 0:02:32.440 --> 0:02:36.240 would call it the most material of the tariffs in 0:02:36.320 --> 0:02:38.360 the sense that it's the one where there's the most 0:02:39.000 --> 0:02:45.600 actual direct sort of material forces and direct lobbying groups 0:02:45.639 --> 0:02:49.680 asking for these specific tariffs. The American steel industry has 0:02:49.760 --> 0:02:54.040 been lobbying to some extent for some measures kind of 0:02:54.120 --> 0:02:57.320 like this Steel is also one of the industries whereas 0:02:57.360 --> 0:03:00.840 as tariff rates are fluctuated and up and down and 0:03:00.880 --> 0:03:03.560 whole waves of like Liberation Day, tariffs got put into 0:03:03.639 --> 0:03:06.200 place and then removed, and some of them we got 0:03:06.200 --> 0:03:10.160 put back into place a little bit. The steel tariffs 0:03:10.320 --> 0:03:12.760 were set at fifty percent and they've stayed at fifty 0:03:12.760 --> 0:03:16.080 percent since they were set. Basically, there's been a little 0:03:16.120 --> 0:03:18.480 bit of variation sort of before the final fix percent 0:03:18.560 --> 0:03:21.560 number was arrived at, but the steel tariffs had been 0:03:21.560 --> 0:03:25.840 one of the most stable tariffs. And the reason why 0:03:25.919 --> 0:03:28.800 it's been this stable if people can think back all 0:03:28.880 --> 0:03:31.079 the way to twenty eighteen, which I know that was 0:03:31.120 --> 0:03:34.040 a long time ago, but there was a miniature trade 0:03:34.040 --> 0:03:37.320 war between the US and China in twenty eighteen, and 0:03:37.440 --> 0:03:42.960 significant portions of it were focused on Chinese steel production specifically, 0:03:43.600 --> 0:03:45.720 and you know, this is one of the sort of 0:03:45.760 --> 0:03:50.520 fights that was had out Nothing really structurally changed much 0:03:50.600 --> 0:03:53.080 from those There was kind of a back and forth 0:03:53.120 --> 0:03:57.360 and then both sides kind of pulled back. But Comma, 0:03:57.640 --> 0:04:01.000 that's not happening this time. And what's interesting, and the 0:04:01.040 --> 0:04:04.160 reason that I'm specifically talking about steel here is that 0:04:04.600 --> 0:04:08.000 it's now not just Trump that is tempting to institute 0:04:08.080 --> 0:04:13.720 large scale tariffs on steel. The European Commission for the 0:04:13.760 --> 0:04:19.080 EU has released a proposal to double tariffs on imported 0:04:19.160 --> 0:04:21.800 steel up to fifty percent, which is matched in the US, 0:04:22.080 --> 0:04:24.080 and also reduce the amount of steel that could be 0:04:24.120 --> 0:04:26.960 imported into the EU without paying any tariffs at all. 0:04:27.640 --> 0:04:31.320 And this is actually massive because this is an example 0:04:31.440 --> 0:04:35.200 of the EU effectively following US trade policy for very 0:04:35.279 --> 0:04:40.360 very similar reasons as the US. And if we can 0:04:40.400 --> 0:04:42.360 get to the bottom of what is going on here, 0:04:42.400 --> 0:04:44.800 and I promise we will, and I promise this will 0:04:45.240 --> 0:04:48.760 go towards something that is explaining really truly the macro 0:04:48.920 --> 0:04:52.960 dynamics of the entire global economy and why it's fucked. 0:04:54.080 --> 0:04:56.440 If we can actually trace out what's going on with 0:04:56.480 --> 0:05:00.760 these steel tariffs, we can do that. So well, let's 0:05:00.800 --> 0:05:05.840 talk about steel over capacity. Over Capacity as a concept 0:05:06.400 --> 0:05:10.320 is sort of convoluted. You know, you have to sort 0:05:10.320 --> 0:05:12.800 of ask the question, what is the quote unquote correct 0:05:12.839 --> 0:05:16.839 amount of steel? Because over capacity, you know, implies that 0:05:16.880 --> 0:05:20.719 there's capacity to produce steel over the amount that should 0:05:20.760 --> 0:05:23.120 be produced. So, okay, how do you figure how much 0:05:23.120 --> 0:05:28.760 steel should be produced? Eh? Very nebulous. It's also very 0:05:28.760 --> 0:05:32.120 difficult to measure because, okay, we're gonna try to measure 0:05:32.120 --> 0:05:34.520 steel over capacity. There's a lot of ways to do 0:05:34.560 --> 0:05:37.880 it that rely on things like utilization rates. Right, So 0:05:38.080 --> 0:05:40.160 you look at the steel facilities, you see how much 0:05:40.160 --> 0:05:42.520 they're being used at You see how much you know 0:05:42.640 --> 0:05:44.919 excess capacity, there is, how many how many factories are 0:05:44.920 --> 0:05:48.440 sitting empty BOE percentage of factories, you know, total outputs 0:05:48.480 --> 0:05:52.680 being used. This doesn't work because the utilization rates of 0:05:52.720 --> 0:05:57.120 these factories of this fixed capital varies seasonally, for example, 0:05:57.560 --> 0:05:59.839 and it varies due to not just the season, but 0:05:59.839 --> 0:06:02.839 a whole bunch of other factors, things like you know, 0:06:02.960 --> 0:06:07.359 labor supply, weather, demand, polls, and a whole bunch of 0:06:07.360 --> 0:06:12.719 other factors. Utilization rates of steel producing facilities are very 0:06:12.839 --> 0:06:15.640 rarely at one hundred percent, even in Marcus where demand 0:06:15.640 --> 0:06:19.000 a shrip supply, and this makes it very, very difficult 0:06:19.040 --> 0:06:23.680 to measure China's actual quote unquote overcapacity. I am not 0:06:23.920 --> 0:06:27.080 going to even really try to give numbers because it's 0:06:27.120 --> 0:06:31.200 extremely subjective. How do I say this? Based on the 0:06:31.240 --> 0:06:33.719 research that I have done, I think the numbers you 0:06:33.760 --> 0:06:36.120 normally see in the West are inflated because they are 0:06:36.120 --> 0:06:40.800 not accounting for things like the weather, because it is 0:06:40.800 --> 0:06:43.240 in the interest of sort of Western research institutions, but 0:06:43.279 --> 0:06:47.520 for example, Western financial institutions, specifically steel companies, and they're 0:06:47.600 --> 0:06:52.160 sort of like allied China Hawk, you know, sort of 0:06:52.360 --> 0:06:54.800 like academics to have the number be as high as possible. 0:06:55.160 --> 0:06:56.960 You will also see numbers from people who are tied 0:06:57.000 --> 0:07:00.320 to Chinese government, and when I say tied to, kind 0:07:00.360 --> 0:07:02.160 of in a loose ideological sense, in the same way 0:07:02.160 --> 0:07:05.000 as the Chinahawks are of the Chinahawks tend to actually 0:07:05.000 --> 0:07:08.159 be more directly connected to the US government. Their numbers 0:07:08.200 --> 0:07:12.840 are probably also too low. But I don't want to 0:07:13.720 --> 0:07:17.160 give you the impression that I have a extremely certain 0:07:17.280 --> 0:07:21.040 understanding of what the exact number of millions of tons 0:07:21.080 --> 0:07:25.400 of XSDEO production is happening. What we can sort of 0:07:26.160 --> 0:07:30.280 agree on is that there does seem to be some 0:07:30.520 --> 0:07:34.200 kind of overcapacity in the Chinese economy, right, and this 0:07:34.280 --> 0:07:37.360 is something that the Chinese Communist Party also agrees on. 0:07:38.080 --> 0:07:41.760 If you go back to a document that really really 0:07:41.840 --> 0:07:45.040 few people in the US have ever seen to have 0:07:45.120 --> 0:07:50.680 heard of, which is the wonderfully titled Opinions of the 0:07:50.720 --> 0:07:54.440 CPC Central Committee and the State Council on further promoting 0:07:54.440 --> 0:07:58.160 the development of Ecological Civilization, which was one of the 0:07:58.160 --> 0:08:02.080 founding documentary Chinese Environmental Police and the ideological sort of 0:08:02.320 --> 0:08:05.560 underpinnings of this thing called ecological civilization, which is the 0:08:05.600 --> 0:08:09.320 basis of Chinese environmental policy. One of the things that 0:08:09.360 --> 0:08:16.200 they mentioned a lot is specifically overcapacity. Right, they are 0:08:16.400 --> 0:08:20.120 actually very concerned about the overcapacity of steal from an 0:08:20.120 --> 0:08:24.880 ecological perspective. And this is sort of fascinating because we'll 0:08:24.920 --> 0:08:29.040 be looking at some scholars later who are favorably quoted 0:08:29.160 --> 0:08:33.680 in Chinese state media's sources describing how there isn't actually 0:08:33.720 --> 0:08:38.000 overcapacity because states say different things in different places, and 0:08:38.080 --> 0:08:41.840 this is in fact extremely common. But there does seem 0:08:41.880 --> 0:08:44.160 to be some kind of overcapacity, and the Chinese government 0:08:44.520 --> 0:08:48.160 was to some extent making attempts to reduce it during 0:08:48.240 --> 0:08:51.120 this sort of period of trade war. Now, the other 0:08:51.200 --> 0:08:54.559 issue we're talking about overcapacity is that overcapacity is an 0:08:54.600 --> 0:08:58.920 extremely political issue. Now, right, It's extremely weird because try 0:08:58.960 --> 0:09:02.880 to seal overcapacity is like my most niche thing that 0:09:02.960 --> 0:09:06.920 I've studied. I've had like a paper on this sitting 0:09:07.559 --> 0:09:10.800 in a drive on my computer for over half a decade. 0:09:10.920 --> 0:09:15.760 I have never brought it out until now, but it's 0:09:15.760 --> 0:09:18.520 become an extremely political topic because the different theories of 0:09:18.559 --> 0:09:23.880 stealover capacity have become a basis for a lot of 0:09:24.000 --> 0:09:28.560 genuine trade policy. Now. I think a very very interesting 0:09:29.640 --> 0:09:32.600 book at Chinese stealover capacity is from the book Understanding 0:09:32.679 --> 0:09:36.280 China's over Capacity. She's written by two Chinese economists that 0:09:36.360 --> 0:09:39.120 I think is a really interesting literature survey. This This 0:09:39.160 --> 0:09:42.720 is fround By twenty eighteen. But I think what's interesting 0:09:42.760 --> 0:09:48.640 about it it's from before the period where everyone in 0:09:48.720 --> 0:09:51.880 the West had sort of decided what they think caused 0:09:53.000 --> 0:09:56.839 Chinese steal over capacity, and so you can go back. 0:09:57.120 --> 0:09:58.600 You know, it's not just useful to sort of go 0:09:58.679 --> 0:10:01.960 back in time and look at the other theories that 0:10:02.000 --> 0:10:04.720 were sort of floating around academia before a few of 0:10:04.720 --> 0:10:09.600 them got specifically selective for ideological purposes. Now I mentioned earlier, 0:10:09.640 --> 0:10:11.400 we'd be talking about some economists. You don't think that's 0:10:11.440 --> 0:10:14.360 Chinese steel over capacity is real, that's these people. I 0:10:14.440 --> 0:10:16.320 think that part of their thesis is not very good. 0:10:16.760 --> 0:10:20.000 I think their survey of the literature on overcapacity, though, 0:10:20.280 --> 0:10:27.400 is very good and one of the very interesting arguments 0:10:27.440 --> 0:10:30.360 they make this doesn't argue with a couple of other economists, 0:10:30.640 --> 0:10:34.520 that has sort of disappeared from the literature is in 0:10:34.760 --> 0:10:39.240 argument about, Okay, so there's steel production that's happening that 0:10:39.280 --> 0:10:42.360 doesn't need to happen. I think it's pretty fair to 0:10:42.400 --> 0:10:45.640 say that something is over capacity if it's producing a 0:10:45.640 --> 0:10:48.080 bunch of steel that sits there in rots because no 0:10:48.080 --> 0:10:50.679 one can sell it, which is a thing that happens 0:10:50.760 --> 0:10:54.320 with Chinese steel. And one of the most interesting theses 0:10:54.400 --> 0:10:56.760 that has really been abandoned, even though I think it 0:10:56.800 --> 0:11:00.800 is actually to a decent extent explanatory of a lot 0:11:01.080 --> 0:11:06.360 of very very weird stuff that happens in Chinese policy 0:11:06.400 --> 0:11:11.240 circles and a lot of just very baffling investment decisions, 0:11:12.200 --> 0:11:18.000 is specifically something about local caudras and their performance incentives. So, okay, 0:11:18.000 --> 0:11:20.800 something that's very important to understand about the structure of 0:11:20.880 --> 0:11:25.320 the CCP is that Chinese government institutions are sort of 0:11:26.040 --> 0:11:28.760 run by these caudras, right, and so if you are, 0:11:28.800 --> 0:11:31.480 for example, I don't know, you are the mayor of 0:11:31.520 --> 0:11:35.880 a mid size city, right, you get performance evaluations and 0:11:35.960 --> 0:11:38.880 those sort of yearly performance evaluations sometimes there's less frequents 0:11:38.880 --> 0:11:42.800 than that, but those those performance evaluations rank you at 0:11:42.840 --> 0:11:46.640 sort of how good you're doing your job. And obviously 0:11:46.760 --> 0:11:49.240 there's political maneuver rank here too, But if you do 0:11:49.320 --> 0:11:51.199 a good job of hitting your targets, this is your 0:11:51.200 --> 0:11:53.840 path to advance upwards in the party and be moved 0:11:53.920 --> 0:11:57.720 from you know, like sort of running a small city 0:11:57.840 --> 0:12:01.920 to like being brought into caudra in larger cities, and 0:12:02.559 --> 0:12:04.280 you know, moving your way of the party, moving to 0:12:04.400 --> 0:12:08.720 national positions. These evaluations are extremely important. You can also 0:12:09.160 --> 0:12:11.839 get sort of busted down if your evaluations suck. Again, 0:12:11.880 --> 0:12:15.280 there's also why politics are too, but these evaluations actually 0:12:15.280 --> 0:12:20.120 do matter. And one of the issues with these evaluations 0:12:20.160 --> 0:12:23.559 and these are also policy making implementation tools, right, you know, 0:12:23.840 --> 0:12:27.320 the central government can decide what kinds of policies they 0:12:27.320 --> 0:12:30.160 want to pursue, and then they can use these codure 0:12:30.160 --> 0:12:33.400 evaluations to make people at the sort of local level 0:12:33.400 --> 0:12:35.840 who are usually semi autonomous in ways that I think 0:12:36.360 --> 0:12:39.720 is not very well understood in the West. These countra 0:12:39.760 --> 0:12:44.960 evaluations are ways to try to ensure that Chinese sort 0:12:44.960 --> 0:12:48.800 of local and provincial government policy kind of aligns with 0:12:49.000 --> 0:12:53.720 national party policy and the waiting on these examinations is 0:12:53.800 --> 0:12:56.600 such that it has very, very weird effects. And what 0:12:56.640 --> 0:13:00.560 I'm specifically talking about here is that GDP numbers are 0:13:00.840 --> 0:13:05.040 very very important to these CAUDRA evaluations, and it matters 0:13:05.280 --> 0:13:10.480 that it's specifically gross domestic product because GDP is a 0:13:11.080 --> 0:13:15.360 very very weird number, and there's a lot of stuff 0:13:15.520 --> 0:13:19.559 you can do to sort of juice GDP numbers that 0:13:19.840 --> 0:13:27.040 aren't really necessarily beneficial to an economy. So you can 0:13:27.120 --> 0:13:31.480 have a bunch of firms that are basically unprofitable or 0:13:31.559 --> 0:13:36.040 doing something that's like not particularly economically or socially useful, 0:13:36.040 --> 0:13:39.800 and that can still boost GDP numbers. And one of 0:13:39.840 --> 0:13:41.600 the things that happens with this is that you can 0:13:41.679 --> 0:13:44.040 boost GDP numbers by making a shit tot of steel 0:13:44.320 --> 0:13:47.720 that nobody actually really wants or uses. And because of 0:13:47.760 --> 0:13:51.640 the priority that's set on GDP numbers specifically, and there's 0:13:51.640 --> 0:13:53.400 also a whole bunch of these sort of weird financial 0:13:53.440 --> 0:13:55.880 games that you can play. That's also played a major 0:13:55.960 --> 0:13:59.319 role in the way the Chinese housing bubble has played 0:13:59.360 --> 0:14:04.520 out and the way that the government has been unwilling 0:14:04.600 --> 0:14:06.079 to sort of you know, and when I say the 0:14:06.160 --> 0:14:09.079 government here I be in both the national governments and 0:14:09.200 --> 0:14:11.280 also sort of these lower level governments have been unwilling 0:14:11.360 --> 0:14:13.720 to sort of let a bunch of debt bubbles that 0:14:13.760 --> 0:14:17.800 they've accumulated pop because those things prop up GDP numbers, 0:14:17.840 --> 0:14:20.920 and the incentive on the local level is to keep 0:14:21.000 --> 0:14:24.360 these numbers up. This used to actually be one of 0:14:24.360 --> 0:14:26.280 the things that people would talk about when they talked 0:14:26.280 --> 0:14:30.160 about Chinese steel over capacity. But it's complicated, like you 0:14:30.200 --> 0:14:35.320 can't very very easily explain this to you know, like 0:14:35.360 --> 0:14:39.440 a right wing congress person and have them go, oh, yeah, right, 0:14:39.520 --> 0:14:42.720 this is unfair to the American market, and so it 0:14:42.760 --> 0:14:44.840 kind of has like fallen out of favor and sort 0:14:44.880 --> 0:14:48.080 of like the explanation to steal over capacity you see 0:14:48.080 --> 0:14:50.880 in places like the New York Times. But I actually 0:14:50.880 --> 0:14:52.520 think this is one of the things that does, to 0:14:52.520 --> 0:14:56.040 some extent cause Chinese steal over capacity. Now do you 0:14:56.120 --> 0:14:59.440 know what doesn't cause Chinese steal over capacity? That's right, 0:14:59.480 --> 0:15:02.479 it is the products and services that support this podcast. 0:15:13.320 --> 0:15:16.520 So I wanted to talk about the local quadra explanations 0:15:16.560 --> 0:15:22.080 because I actually think these are kind of important, and 0:15:22.280 --> 0:15:26.000 I want to talk about one other argument that's also 0:15:26.160 --> 0:15:30.760 not really used much that used to be a lot 0:15:30.840 --> 0:15:36.200 more common, which is an argument that Chinese economist makes 0:15:36.280 --> 0:15:40.800 that one of the reasons that there's overcapacity in Chinese 0:15:40.800 --> 0:15:45.120 steel production is that upwards wealth distribution leads to lower 0:15:45.200 --> 0:15:48.600 levels of consumption and thus over capacity. And so what 0:15:48.800 --> 0:15:50.520 what this basically means, And this is something that I 0:15:50.560 --> 0:15:52.720 think is actually also I think that's the best structural 0:15:52.720 --> 0:15:54.960 problem in in the Chinese economies, that the Chinese economy 0:15:55.080 --> 0:15:59.800 is extremely highly unequal and wages, you know, like they 0:15:59.800 --> 0:16:03.080 have risen to some extent, but they're not rising anywhere 0:16:03.120 --> 0:16:05.400 near you know, like we've everyone in the US have 0:16:05.440 --> 0:16:08.240 seen that famous charge of productivity versus like labor gains, 0:16:08.920 --> 0:16:12.480 right like wage gains versus prouctivity increases. Wages in China 0:16:12.520 --> 0:16:15.240 have gone up. They have absolutely not kept pace with 0:16:15.880 --> 0:16:20.600 sort of productivity growth, and they also absolutely like have 0:16:20.680 --> 0:16:24.240 not kept pace with the amount of the profit being 0:16:24.280 --> 0:16:27.000 produced that is going to a very very small number 0:16:27.160 --> 0:16:31.560 of capital owners. And this actually creates a structural problem. 0:16:31.600 --> 0:16:33.920 And this is we're seeing a very similar structural problem 0:16:33.960 --> 0:16:37.640 to this in the US, where there is a lot 0:16:37.680 --> 0:16:43.080 of consumption that if that money wasn't just all going 0:16:43.440 --> 0:16:47.480 to a bunch of rich people, people would actually be 0:16:47.920 --> 0:16:51.160 spending it on things, And particularly in Chinese context, the 0:16:51.240 --> 0:16:52.960 argument was that if if there was a better distribution 0:16:53.040 --> 0:16:56.160 of wealth, people would buy more houses, and this would 0:16:56.200 --> 0:16:59.040 actually reduce over capacity because suddenly a bunch of the 0:16:59.080 --> 0:17:02.280 slack capacity will be being used to like build houses, 0:17:02.560 --> 0:17:06.440 except people can't afford the houses. And this is a 0:17:06.440 --> 0:17:08.800 structural problem that like economists sort of note about for 0:17:08.800 --> 0:17:11.479 decades and decades, which is that China has been for 0:17:11.520 --> 0:17:13.480 a very long time. The whole thing was that they 0:17:13.480 --> 0:17:16.240 were trying to transition into a consumption economy, which is 0:17:16.240 --> 0:17:18.440 to say, they were trying to transition into an economy 0:17:18.960 --> 0:17:22.080 that was fueled by its own internal consumption. The US 0:17:22.160 --> 0:17:24.040 is to a large extent sort of kind of works 0:17:24.080 --> 0:17:26.399 like this, where you know, you want to increase the 0:17:26.480 --> 0:17:28.480 level of consumption and the amount of stuff that people 0:17:28.520 --> 0:17:30.800 in your country are buying, and this is this is 0:17:30.800 --> 0:17:33.440 a way to sort of like create a middle income country, right, 0:17:34.000 --> 0:17:35.960 And China has historically not been able to do this 0:17:36.000 --> 0:17:37.400 and haven't been able to do this because they won't 0:17:37.440 --> 0:17:40.600 raise wages. But you know, if they won't actually raise 0:17:40.840 --> 0:17:46.400 wages enough to increase people's consumption levels. Then you're left 0:17:46.440 --> 0:17:50.600 for structural overcapacity because demand is being lowered because people 0:17:50.680 --> 0:17:54.760 don't have any fucking money. Now, this is another argument 0:17:54.800 --> 0:17:57.480 again and I think is also probably correct that is 0:17:58.040 --> 0:18:01.280 very much not talked about anymore because the argument that 0:18:02.160 --> 0:18:05.679 is used in sort of understanding what's going on with 0:18:05.760 --> 0:18:10.880 Chinese seel capacity is about the Chinese subsidization of state 0:18:10.880 --> 0:18:14.520 owned enterprises at the expense of sort of private firms. 0:18:14.920 --> 0:18:16.959 And the argument here basically said, the state is propping 0:18:17.000 --> 0:18:21.360 up a bunch of unprofitable enterprises and they're they're holding 0:18:21.840 --> 0:18:25.240 sectors of the economy that should be you know, taken 0:18:25.240 --> 0:18:28.520 over by more efficient private firms, but they can't because 0:18:28.520 --> 0:18:32.640 they're being subsidized by the government. And this is sort 0:18:32.680 --> 0:18:37.639 of true, but this became a massive geopolitical argument because 0:18:37.960 --> 0:18:40.000 the argument from the American side, and when you hear 0:18:40.040 --> 0:18:42.359 anyone talking about steal of capacity, now this is the 0:18:42.480 --> 0:18:44.679 argument that you hear right which that China is flooding 0:18:44.720 --> 0:18:47.639 the world with cheap steel because there's a whole bunch 0:18:47.680 --> 0:18:50.040 of like Chinese state owned industries or just like Chinese 0:18:50.080 --> 0:18:52.080 businesses are just getting money from the Chinese government to 0:18:52.080 --> 0:18:54.560 produce steel and they're pumping cheap steel to the rest 0:18:54.560 --> 0:19:00.920 of the world. And this is not really I mean, 0:19:01.000 --> 0:19:03.919 like kind of this is happening, but it's also not 0:19:04.160 --> 0:19:09.480 the reason why there's large scale steal over capacity. And 0:19:09.640 --> 0:19:13.000 of course the argument is that China isn't competing fairly 0:19:13.040 --> 0:19:15.760 in the market, like this is very silly. Markets have 0:19:15.840 --> 0:19:20.800 never worked without large scale state quote unquote interference, Like 0:19:20.880 --> 0:19:24.400 American companies also get extremely high level subsidization et cetera, 0:19:24.400 --> 0:19:28.040 et cetera, cy all of US COREGN policy. But you know, 0:19:28.440 --> 0:19:33.080 this is the political imperative that's behind a lot of 0:19:33.840 --> 0:19:37.119 the rhetoric coming out of steel producers and out of 0:19:37.119 --> 0:19:39.840 the American right about why there should be terroriists on steel. 0:19:41.119 --> 0:19:46.320 Now there's a problem though, which is that all of 0:19:46.359 --> 0:19:52.720 these arguments are very specific to China. Right. The argument 0:19:52.760 --> 0:19:54.840 is that there are specifically steal over capacity in China 0:19:54.840 --> 0:19:59.240 because it's something structurally specifically wrong with the Chinese economy 0:19:59.359 --> 0:20:01.879 that's like ma it not a free market, and because 0:20:01.880 --> 0:20:05.359 of that, China's like unfairly competing global market. And this 0:20:05.400 --> 0:20:07.359 is why there's so much of a capacity of Chinese steel. 0:20:08.280 --> 0:20:12.760 This is wrong. There are individual parts of this where yeah, 0:20:12.800 --> 0:20:15.119 like there are things where there is excess capacity being 0:20:15.200 --> 0:20:19.520 produced by quadre evaluations and by to some extent like 0:20:20.200 --> 0:20:28.280 so we subsidization. However, Comma, there's a problem. And the 0:20:28.400 --> 0:20:33.239 problem here is that overcapacity and overcapacity and steel is 0:20:33.240 --> 0:20:35.960 not just a Chinese phenomena. It is a global phenomena. 0:20:36.040 --> 0:20:37.960 It has been a global phenomena for a long time, 0:20:38.280 --> 0:20:40.640 and it is largely a product of the fact that 0:20:41.160 --> 0:20:45.160 we do not live in a global economy that can 0:20:45.280 --> 0:20:51.560 actually support the amount of production capacity that exists in 0:20:51.560 --> 0:20:54.920 the world. This has been a problem really since the 0:20:55.040 --> 0:20:59.640 seventies and arguably even since the sixties, where as countries 0:20:59.640 --> 0:21:02.600 rebuild from World War Two, and as some some sort 0:21:02.600 --> 0:21:05.600 of developments in global capital that we're going to be 0:21:06.240 --> 0:21:11.640 sort of like talking about soon happens that the product 0:21:11.880 --> 0:21:14.359 of all of this is that production has and this 0:21:14.440 --> 0:21:17.200 is this is kind of the thing that the sort 0:21:17.240 --> 0:21:21.120 of fascist right kind of intuitively understands. Production has become 0:21:21.240 --> 0:21:24.800 zero sum. Right, It's very difficult to increase production in 0:21:24.840 --> 0:21:28.600 one country without having it, you know, affect production in 0:21:28.680 --> 0:21:30.840 the countries. There isn't enough demand in the market to 0:21:30.880 --> 0:21:45.680 sort of like fuel all of these things. So why 0:21:45.960 --> 0:21:49.240 is there not enough demand to fuel the amount of 0:21:49.240 --> 0:21:51.800 supply that would be that would be necessary to make 0:21:51.840 --> 0:21:56.439 there not be over capacity. The answer to this, in 0:21:56.560 --> 0:21:59.679 sort of marketing theory is that, as they sort of 0:21:59.680 --> 0:22:04.160 put it, overproduction and under consumption are doubly constructed. I'm 0:22:04.160 --> 0:22:05.840 going to read a quote from end Notes, volume two, 0:22:05.840 --> 0:22:07.080 and then we're going to explain a little bit what 0:22:07.119 --> 0:22:10.840 that means. The wage allocates workers to production and at 0:22:10.840 --> 0:22:14.600 the same time allocates the product to workers. So what 0:22:15.040 --> 0:22:20.720 that means is that under consumption and overproduction are in 0:22:20.760 --> 0:22:24.760 effect the same thing, right, Because the way that we 0:22:24.840 --> 0:22:28.480 allocate workers to what thing they're going to do, and 0:22:28.520 --> 0:22:31.439 at the same time allocate products to those workers is 0:22:31.520 --> 0:22:35.800 the wage, which is one thing. So overproduction and under 0:22:35.800 --> 0:22:40.040 consumption are the same thing, right, and they're caused by 0:22:40.320 --> 0:22:45.240 the same structural elements of the wage relation. Now this 0:22:45.320 --> 0:22:50.160 means that the Chinese capacity crisis is actually part of 0:22:50.480 --> 0:22:54.440 a larger crisis. Right. You know the thing about the 0:22:54.480 --> 0:22:58.119 double construction, you know of overcapacity and under consumption, right, 0:22:58.119 --> 0:23:00.600 the fact that they are really the two things unified 0:23:00.640 --> 0:23:03.600 in the fact that like your wage allocates what kind 0:23:03.640 --> 0:23:06.520 of production you're doing and what you can consume the 0:23:06.600 --> 0:23:10.359 fact that both those things combined are realized in this 0:23:10.440 --> 0:23:13.879 sort of secular crisis in what's called Marxist absolute general 0:23:13.960 --> 0:23:17.760 law of capitalist accumulation. So what the fuck is that 0:23:18.320 --> 0:23:22.560 the short version is? Over time in capitalist economies, there's 0:23:22.560 --> 0:23:25.600 supposed to be an increase of what's called the organic 0:23:25.640 --> 0:23:29.520 composition of capital. Basically, they're a composition of capital is 0:23:29.520 --> 0:23:32.800 a way to measure how much in the pro labor process. 0:23:32.800 --> 0:23:36.119 It's like fixed capital, variable capital, so it's like how 0:23:36.200 --> 0:23:39.800 much factory is there relative to the amount of worker 0:23:40.000 --> 0:23:45.200 there is. And Marxist thesis, which has generally been born out, 0:23:45.240 --> 0:23:47.160 although we'll talk a little bit about that more later, 0:23:47.680 --> 0:23:51.840 is that this composition is going to increase, and as 0:23:51.840 --> 0:23:55.159 it increases, accumulation also needs to increase in order to 0:23:55.160 --> 0:23:58.960 maintain employment levels. This is sort of accomplished by things 0:23:59.040 --> 0:24:02.320 like automation, which reduces the size of the labor force. 0:24:03.280 --> 0:24:07.280 And thus, to quote and notes again, as accumulation proceeds, 0:24:07.720 --> 0:24:11.399 a growing superabundance of goods lowers the rate of profit 0:24:11.880 --> 0:24:17.320 and heightens competition across lines, compelling all capitalists to, as 0:24:17.359 --> 0:24:21.440 Mark said, economize on labor. So basically, what this means 0:24:21.480 --> 0:24:24.480 is like, as capital gets turned into more capital and 0:24:24.560 --> 0:24:27.760 larger amounts of capital, this is the accumulation process. As 0:24:27.800 --> 0:24:31.760 this continues, right, you get this massive sort of increasing 0:24:31.760 --> 0:24:34.119 the amount of goods that are being produced. Eventually that 0:24:34.160 --> 0:24:37.760 lowers the rate of profit in a sector. And eventually 0:24:38.280 --> 0:24:40.080 what that does is, you know, in order to sort 0:24:40.119 --> 0:24:44.520 of economize on labor, capital increases the amount of automation 0:24:44.800 --> 0:24:46.560 reduces the amount of people that they need in the 0:24:46.640 --> 0:24:49.480 labor process. You know, this is what what's generally known 0:24:49.520 --> 0:24:52.200 as automation and the sort of crisis of people getting 0:24:52.280 --> 0:24:54.439 kicked out of their draws because of it. As this 0:24:54.520 --> 0:24:57.800 process is sort of generalized across sectoral lines across different 0:24:57.800 --> 0:25:00.800 parts of the economy, the relative to demand for labor 0:25:00.840 --> 0:25:04.119