Bannon on China — stripped down critique
Steve Bannon gave an interview that’s an hour long. (Steve Bannon’s Warning On China Trade War (w/ Kyle Bass)).
1. Bannon says that China is doing “Barbarian Management” on us and this is bad. Of course they are. But why isn’t Bannon after Saudi Arabia with his axe? Saudi Arabia is a completely tyrannical state, and has perfected the art of post-facto bribery or our politicians and high officials directly.
2. He says there is a trade war in which China is undermining us with intent. But this is the same strategy that Japan used to become a stable economy. Same strategy that South Korea used. Same strategy that Vietnam is also using. It’s just what nations do as they develop. China is larger, with a deeper pool of people. They are doing it within the government they have after watching the disaster in Russia unfold after shock treatment.
3. He says that the USA is Jamestown to China’s Great Britain. He says this after saying that they buy our soybeans and other agricultural products. So, China buying our soybeans harms our nation? Somehow we are doing BAD if WE buy Chinese products, but they are doing GOOD if they buy ours and we lose when they buy theirs? And since we are buying China’s goods in hugely greater volume, that makes us Great Britain to China’s Jamestown in that metaphor. This segment just doesn’t make sense.
4. He says that China forced Apple to produce its products in China. Um, no. Just wrong. Jobs went to China because China could do what Steve Jobs needed done and fast. Period. The robotic manufacturing lead time in the USA was just too long. Manufacturing must be agile, and America couldn’t deliver that. (I used to do factory automation, and I know how this happened.) Since then, the relationship has developed, and Apple has stayed because China has continued to advance, and innovate very fast and hard.
5. Before China the USA was sending industrial plants to Mexico. I know this directly from automating a plant for Ford in the 1980’s. This is just what happens when capital is free to move but labor is not. Capital goes where the labor is cheaper. With a large, educated workforce, China has prospered more than Mexico which has a less educated (but improving) and less capable government.
6. By cutting off ZTE from parts suppliers in the USA, we hurt American manufacturers who don’t have a market for their parts anymore. How does that make sense? BTW — Trump isn’t enforcing that on ZTE. That’s hokum for the masses. Doesn’t Bannon know this?
7. He says that Trump has set up the basis for a Western system to balance China by concentrating on Japan (which was the 1980’s bad guy who cut into car sales and TVS and stereos), and Germany. Ok. So, who is going to buy these products? Our products can cost 10 times what comes out of China. I see that in my sourcing. I could maybe do double and stay here. But 10 times? I just can’t justify that. And that’s a lot of tariff. If we put on 900% tariffs, there will be smuggling and loopholes.
8. He says that China can’t respond to Trump. But China has responded. The Trump administration is already backing down, delaying until after Dec 15th so that Americans won’t be angry about high prices for Christmas presents. China has announced a boycott on American ag products, and then had to back off a bit, and bought some soybeans, but not as much. This is hurting the midwest — again — the very people Bannon says he wants to help. His claim is just wrong. One thing Chinese are not is stupid or incompetent.
9. China’s reckless building of credit? But, Xi has been calling on the USA to slow down our reckless creation of new credit money. China has been a consumer of our debt. Their internal situation doesn’t matter much. In addition, since all money in the modern world is debt money, (1 to 1 accounting identity between debt and credit money) there is no creation of all the money required to raise people out of poverty without creating massive amounts of debt to create it. So China is receiving the credit money we create in trade payments and buying our debt with it as savings. And China is making its own debt/credit expansion in order to have more money internally.
10. He is dead right about the lack of accountability in the financial elites. Obama did that. He is the first banana republic president in history. They used it for what is essentially theft. They had access to the money spigot to buy and retain real things and committed massive fraud to line their pockets.
11. He is wrong about China’s banking system. Because, as with every other sovereign currency, China cannot go broke. Just like the USA just pumped money into the system to take care of the crisis created, so can China. He’s just talking about the classical banking problem of valuation of assets. The more liquid a bank is, the less money it can loan, and so the less profitable and effective it is for development. No asset is 100% liquid. That’s just a malarkey idea. Yes, there are large real estate holdings that appear to be junk because they aren’t even used. But there’s an easy cure for that — just implement some kind of real estate tax to force owners to keep them productive or sell them to someone that will. Banks can do write-downs. Happens all the time.
Regarding banking, this trade war and rhetoric has caused Europe to start dumping the dollar.
12. I know for a fact from my patent attorney that, prior to Trump’s trade war, China’s patent system was enforcing patents obtained in China by Americans. This was an easier and cheaper process than in the USA. (I am still pursuing that patent in China.) This is how it goes. When a nation is desperate and has to do what’s wrong to survive, they do. When they get raised up and it becomes in their interest to do so, they come into the fold of enforcement.
13. I remember the arguments (because my parents talked about them, and it was in magazines) when Nixon went to China and Detente with Russia and China. I read about them later. (Kissinger opened up China by taking confidential data from the Kremlin on nuclear weapons to China, for instance.) It was clear by Nixon’s time that the USSR was definitely NOT rising, it was moribund and in trouble. That was one of the reasons Detente could happen. China was post-Mao. Bannon is just wrong about how that went.
14. Bannon’s ideas about what happened with Russia and how Russia was desperately short of dollars and that China is now in the same boat is just wrong. First, China, quite obviously has a surplus of dollars. We buy from them. We have a trade deficit? That’s what trade deficit means — they have a surplus of our currency. Second, Russia didn’t know how to run its bank properly. In Communism, banking was anathema, which was crippling. Russia does run their Central Bank properly now and is doing great.
15. Really? China is going to be the fall-guy if Trump loses? And Russia is going to be the fall-guy (again) if Trump wins? This is just silly. The real problem is the consolidation of news and media. The Russia nonsense is ridiculous. China is, of course, trying, but it’s not a lot.
16. South China Sea is pretty much over and done. I don’t think there will be a shooting war there. Speaking of reckless, that would be seriously reckless. See #18 below.
17. He’s come close on North Korea. It’s obvious that North Korea is China’s quasi pawn in the game of posturing with the United States.
18. If Trump gives China 72 hours to take down all their military hardware on those artificial islands, what will happen? Boom. North Korea will launch a missile, and Trump will have to come on bended knee to ask Xi for help in dealing with North Korea. I’m not sure why Bannon, who sees North Korea as China’s vassal can’t see this is obvious. That’s exactly what China did with Obama when Obama made noises about the South China Sea.
I think calling North Korea a “vassal” is incorrect. North Korea is a very, very dangerous attack dog right there on the border. North Korea has had missiles aimed at every Chinese city for a long time, and used that to get concessions. But, this army occupying land between China’s border and South Korea is how China is confident of keeping US troops at bay. China invaded and stepped into the Korean War because out troops were pushing to their border and could have quickly gone on and taken Beijing. China must have this guardian attack dog there on its border to keep the US away from its door.
19. I agree that Trump is trying to calm things down. This is Trump’s best feature, and it would be redeeming if he could have the backbone to stand up and declare sanctions over with Russia, for instance.
20. We promote organizations in Hong Kong, which is in China. So, yes, that is happening — right now. If you think it’s pure coincidence that the protests geared up at this time, after China started causing us pain in our trade war, I have a bridge to sell you.
21. The other side of those Confucius Institutes is that, you see, China and its people are not some monolithic block. Those institutes have to be staffed, and they become a conduit from the USA directly into the PLA. The same is true of all the students that come over here. It’s not nearly the problem for us that it is for China. Their people see how things really operate here, and get a taste for it. Cultural export is our strongest suit. That’s what brought down the USSR, not guns or even economic pressure. Russian people saw how we lived and wanted that. Same with China. We are schooling the next generation of elites in China who will go on to run the country. We want to continue to do that.
Overall, A for effort, but F for logic, with a couple of “nearly nailed it” spots thrown in. I listen to Bannon and I think he’s losing his marbles.
