GET READY FOR the Great Trump-Xi Depression. The White House is pursuing two stupid policies, trying to reduce the United States' "balance of payments" with China and trying to protect "intellectual property" from China's thievery. These policies are leading to a crash in the Chinese economy, which has been grossly ill-managed under President Xi Jinping. International knock-on effects were already apparent last autumn, even as the trade deficit ballooned and Americans benefited from Chinese theft.
"Balance of payments" is a silly way of talking, right from the get-go. Are you concerned about your balance of payments with your grocery store? You give Kroger cash and it gives you goods. Worried? I thought not. After all, you have a balance of payments surplus with your employer, right? Hope so. And your scary-sounding deficit with Kroger is good for you. In exchange for money, the store provides healthy food such as oatmeal, walnuts, olive oil, and blueberries. (Try it: I just lost 30 pounds that way, a good deficit.)
The talk of national balances is silly in itself, because the national balance is the result of individual voluntary deals between Harry in New York and Tatsuro in Tokyo to buy a Toyota, say, or Laura in Bloomington and Chenli in Shanghai to buy a Lenovo. Worrying about the balance of trade caused great pain from so-called "stop-go" macroeconomic policy in Britain and in Holland in the 1950s. Growth was reduced by gormless fretting about national hoards of gold.
And "our" deficit in the international balance of trade with China is not alarming even if there's no offset from other trades, because the overall balance of payments, including IOUs, has to balance. It's just accounting. If you spend more than you earn, someone is giving you a loan. If the U.S. imports computers from China more than it exports soybeans to China, "we" have to provide nice-looking IOUs--for example, engraved portraits of Ben Franklin that cost 12.5 cents each to print. For one of Ben's portraits we get $100 worth of computers. Pretty good, eh?
It's what happened to Japan in the 1970s, the other time we became deeply worried about deficits with East Asian people. (Funny how we never worry if the deficits are with British or Dutch people.) The Japanese then, like the Chinese now, bought assets such as Rockefeller Center, usually dollar-denominated. The assets, like the railways in Kenya and the crazy central Asian railway that China is buying now, turned...