USA: Systemic Crisis in Manufacturing​

 

By the beginning of Donald Trump's presidency, the situation in the US economy was quite bad. The vast majority of production of various goods went abroad, first to Mexico, then to China and other "third world" countries. The USA labor makes up a lion's share of the cost of goods: wages and benefits in the American industry are high. In Mexico and China labor costs less. As a result, goods produced over there by the same technology and from the same materials are much cheaper than those made in America. Even huge costs of transporting goods pay off. American manufacturers have become uncompetitive.

 

For some period, America produced “high-tech”, but nowadays there are practically no goods reasonable for domestic production.

 

When in 2001 an American reconnaissance aircraft made an emergency landing in China, the following joke became very popular. "When Chinese experts finally got access to secret American intelligence equipment, they were terribly disappointed: all the electronics were Made in China." Every joke has a fraction of a joke...

 

As a result, the United States is becoming a society good for services and consumption of goods produced somewhere. This, of course, is an exaggerated picture, but the scale of moving the production from the USA overseas continues to grow. Unemployment, especially under Obama rule, got out of hand. Nearly half of the country's able-bodied population received “welfare” benefits by the end of Obama’s reign.

 

Dependence of the United States on the supply of goods is enormous. In 2002 the experts claimed that interruption of supplies from China for 2 weeks, e.g. due to strike of seaport workers in California, could bring a complete collapse of the country.

 

Trump promised to return production to the United States and provide jobs for people. To achieve this, American industries should become competitive. It should be profitable for businesses to restore the domestic production rather than transferring it abroad. Such a mission seems impossible to accomplish.

 

Analysis of the Situation

 

Let's analyze this situation.

 

The original intent was that the country produces goods, they enter the distribution network and become available to people. The unexpected problem arose: the purchasing power of Americans began to drop due to rising unemployment. This problem arose because producing the goods abroad is less expensive. When production transfers overseas, the population's wellbeing reduces.

Trump tries to improve the situation by setting high tariffs on imported goods. The idea of ​​such a corrective action seems to be simple. Domestic goods cannot compete with imported ones because those have lower prices; it is assumed that domestic producers could compete if prices for imported goods were artificially increased.

 

However, historical experience and knowledge of human psychology shows the opposite. As soon as the state raises import tariffs, domestic producers immediately raise their prices to the same level. They stop any attempts to reduce costs and improve the quality of their goods which could make their products competitive. The preferential conditions created for domestic producers deprives them of any incentive to increase their competitiveness. How come?

 

There is another disadvantage of tariffs: counter-tariffs for export from America are introduced in response. As a result, American manufacturers become uncompetitive in the global market: high prices plus tariffs!

 

The worst consequence of introduction of tariffs is the rampant price increases. The prices of imported goods pulled up by the tariffs cause a chain reaction in all affected sectors: prices there are also rising. Ultimately, prices for almost all goods rise, and after them prices for services rise, too. Result is overt: the purchasing power of population drops, while manufacturing remains uncompetitive  due to the lack of incentive for intense intellectual work. The attempt to "restore purchasing power" by raising salaries leads, on the one hand, to further price increases and reduction of competitiveness. On the other hand, it leads to inflation, either explicit or hidden. At the same time, the purchasing power of the population continues to fall steadily.

 

The mission remains the same: to provide the population with goods, increase the purchasing power of the population and enhance the competitiveness of industry. The situation in which the country finds itself could be described as follows: it is necessary to involve the population in production, but this is hindered by cheaper production abroad; attempts to set high tariffs on imported goods are designed to improve the situation. The government formulates its Mission as follows: to provide the population with goods, while increasing the purchasing power of the population and increasing the competitiveness of domestic goods. But this Mission, in the current situation, seems impossible.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"Mission: Impossible" is one of the main signs of a systemic crisis. All systemic crises contain at their core an impossible mission, but not all impossible missions lead to a systemic crisis.

 

The scope of systemic crisis depends on the scope of the Mission. If the Mission concerns the state, then the systemic crisis associated with impossibility to accomplish it cannot have a “small scale”. It rather involves the entire state. Quite possibly, it might also involve other countries economically connected with the state-in-crisis. Here, we are talking about a unique country whose hegemony is recognized throughout the world. If the United States fails to accomplish this mission, the crisis could hit the entire world.

 

Perhaps, this systemic crisis has already begun. Other countries are challenging the hegemony of the United States. Economies successfully competing with the US economy have appeared on the global market. Perhaps these are signs of an aggravating systemic crisis within the US economy. If so, then the forecasts of approaching global financial crisis may well come true ...

 

The search for opportunities to accomplish this “impossible” mission is an attempt to see if there is a chance to prevent or at least overcome both systemic and financial crises.

Trade Wars and Systemic Crises | Financial and Systemic CrisesObvious Opportunities to Accomplish the Mission

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Len Kaplan

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Phone:

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