Notes from Trade Wars are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace

p. 12 George Washington and Alexander Hamilton … The United States, they decided, would have to become economically self-sufficient to guarantee its newfound political indeendence… To use the language of Ricardo, Ameicans would have to make both cloth and wine, regardless of what any economic theory might suggest… Under the right conditions, the new United States could transform itself into a manufacturing superpower – but those conditions needed to be created by a strong state to encourage the market to create the right sort of manufacturing capacity.”

p. 13 “the goal was to promotr entrepreneurship and investment. Hamilton believed that the guaranteed domestic market would make it easier for Americans to start new businesses in what were then the high tech industries of textiles, nails, glassmaking, and gun-making.”

p. 16 “in 1941, List expanded his ideas into The National System of Political Economy, a mix of theory, history and reporting mean to give statesmen in what he hoped would become the new German nation. His thesis was that “free competition between two nations which are highly civilised can only be mutually beneficial in case both of them are in a nearly equal position of industrial development.” A country such as Germany, which was less developed but “possesses the “mental and material means ” to become wealthy, should insyead avoid free trade and “strengthen her own individual powers”.

p. 28 “American exports of goods to Canada and Mexico are worth about as much as US exports of goods to the European Union, China, Japan and Korea combined. Much of the value of US exports to its neighbours, however, comes from elsewhere. A seatbelt for an American-made care or light truck, for example, might have its fibers manufactured in Mexico, woven and dyed to take advantage of abundant water, sent back to Mexico to be sewn up, and then installed somewhere at a plant in the United States.”

p. 29 “The increasing importance of these global value chains means that conventional bilateral trade data no longer do a good job of measuring the actual value created by workers and machines in each country. .. For the United states, imports are overstated by about 16% while exports are overstated by about 20%. Chinese imports and exports are both overstated by about 30%.”

p. 30 Qhwn the US income tax was introduced in 1913, it assessed nothing on money earned abroad. Nobody seemed to mind until the 1950s when American companies started agreessively relocating parts of their businesses to foreign countries to exploit lower tax rates. By the early 1960s, this was starting to have a meaningful impact on the tax base.”

p. 31 “Everything changed in 1996 with Treasury DEcision 8697. The new rule, which came to be known as ‘check-the-box’ by practitioners, was supposed to make things sipler for tax filers and make life easier for Internal Revenue Service examiners. Instead, it opened up massive loopoles in the corporate tax code. Among other things, income from royalties and licences could now be treated the same as income from foreign factories. The IRS quickly recognized tsome of the implications and proposed a new rule … but political interference blocked any fix.”

p. 32 “As foreign sales rose in importance and large US companies got better at profit shirting, their effective tax rate dropped from a bit over 35% in thre mid-1990s to about 30% by the early 2000s to about 26% by the mid-2010s. Although the tax law passed at the end of 2017 lowered the effective corporate tax rate below 20% and more or less replaced America’s worldwide system of corporate taxation with a territorial system, it did not remove the incentives for profit shifting.”

p. 104 Unfortunately for China, the choices of the past few decades have become politically entrenched. It is easy for an antidemocratic authoritarian regime to suppress workers’ rights and shift spending power from consumers to large companies. Stalin did it, after all. The problem is that years of state-sponsorred income concentration creates a potent group of ‘vested interests’… that will fiercely resist ant reforms that would shift spending power back to consumers. Any successful adjustment process will require a new relationship between the government, the people and the elites.”

p. 222 From a certain perspective, the United States – and the United Kingdom, Canada, and Australia, all of which play a similar role in the global economy — therefore resembles the importial colonies of Europe in the late 19th century. Back then, subject peoples were forced to buy Europe’s excess production in exchange for taking on unneeced debt. Remarkably, a similar situation exists today. Instead of violence, however, the modern regime depends on the English-speaking countries’ political commitment to open markets. This is a choice, but in democracies, the people have the option to change their mind.”

p. 223 “addressing trade imbalances through tariffs is likely to be ineffective at best and harmful under certain conditions. That is why it matters that capital controls are becoming increasinly popular, especially in other English-speaking economies. New Zeland recently banned all nonresidents from buying residential property. Australia limits foreign buyers to new homes, which has helped stimulate construction, and it taxes foreign purchases, although the rates vary state by state. Some local governments in Canada have begun taxing foreign purchasers of housing…. When the system was first constructed, the US exonomy was about equal in size to the entire rest of the world. Today, however, the United States makes up less than a quarter of global output. Compared to 70 years ago, the rest of the world is now three times bigger relative to the United States, which means that America has far less capacity to absorn the rest of the world’s savings imbalances. If the US share of the global economy continues to shrink, the burden imposed on Americans will continue to rise until … the system will break down. Yet no one in the American political mainstream has felt comfortable challenging this system until recently. This apparent surprise can be explained by America’s own class wars. After all, plenty of Americans have prospoered producing financial assets to accommodate the rest of the world’s excess savings.. inflates the incomes of the financiers… as well as their political clout.”

Interesting book, though still struggling to understand how it could be written now with _no_ reference I could find (and none in the index) to climate emergency and environmental limits.

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