Steel

It goes without saying that steel is an important material in the global economy as it is used in construction of countless items every day. The price of steel will then affect the global economy as a whole by changing the costs of production which changes the amount of good which get manufactured in the world. For comparison, oil reserves are in multiple locations around the world, no one country has an absolute advantage in oil reserves. The United States has the largest amount currently (according to the latest information from the Energy Information Administration) with just over 15% of global oil production in 2014. No one country has an absolute advantage over oil production and the improvements in technology which have allowed fracking to be less expensive over the last two years has been one major advantage in decreasing oil prices along with the increase of Saudi oil production.

Steel is similar to oil in that it has reserves around the world, but the demand for steel has dropped significantly over the last few years, leaving China with its large subsidies for steel production as producing over half the world’s steel, a significant difference from 10 years ago. The United States government is calling now for China to end its steel subsidy which will increase the ability of other countries to produce more steel profitably.

If China follows the United States’ demands and decrease their production of steel we will see the price of steel rise, which will protect the 150,000 Americans currently working in steel. If American steel production decreased as a result of China’s exports to the United States the question of how many American jobs will be lost is currently under debate. An increase in the cost of steel would directly affect construction by making it less profitable to build new buildings, which employs over 6,000,000 Americans. Keeping the cost of steel low means we can make more buildings which employs people in construction, and even just a 5% drop in American construction workers from an increase in the cost of steel would be twice the number of Americans currently employed in steel production. On top of the effect to Americans employed in construction, another 1.5 million Americans are employed in car manufacturing which uses steel as a factor input and would decline if the cost of steel were to increase because more expensive cars will lead to fewer cars being bought.

This puts American politicians in a place of choosing who we support more or don’t. We can protect our steel workers or we can protect our auto and construction workers. Instead of the politically popular choice of lambasting China for increasing production it would be more beneficial for American workers to ensure we have programs available so people in industries which have a decrease in employment can go get retrained to work in industries which are not as vulnerable to imports. By helping more people become specialized they will get better wages and have more job security. We will also end up with a higher GDP. This does cost the American government money in the short term, but the increase in GDP will mean that we can have higher tax revenues in the future which will help the program pay for itself. Paying to subsidize steel production will not have the same long-term positive effect on GDP.

References

EIA
BBC
World Steel
Statista iron ore by country
Forbes
Auto Alliance

The Evil of Mao

The 20th century saw several horrible events, Adolf Hitler, Joseph Stalin, Pol Pot, the Young Turks genocide in Armenia, and other smaller events under a million dead, but no one in the 20th century came as close to one man in terms of the total number of lives lost as a result of the action of Mao Zedong. Hitler killed up to 14 million people (including over 70% of all Jews) in the Holocaust, Stalin killed over 11 million people through famines in the USSR, Pol Pot killed a quarter of all Cambodians (over 2 million), and half of all Armenians were killed in the Turkish genocide by the Young Turks. Add up all these numbers (which is 30 million approximately) and you still don't come close to the total number of people killed as a result of one man, and that tyrant's name was Mao Zedong.

The 30 million people killed by Hitler, Stalin, Pol Pot, and the Young Turks is about 2/3 of the total number of people killed by starvation by Mao Zedong during the Great Leap Forward. As information has been released, recent estimates have concluded at least 45 million people died as a result of the famine brought on by the decisions of Mao Zedong. For these 45 million deaths the economy actually shrunk, failing in every way.

45 million people dying (0.6% of the global population and 3% of China) should be enough for a man to be seen as a monster by anyone with a soul, but this is not all that Mao Zedong committed. China has supported the dictatorship in North Korea since its founding and if it weren't for China's support of Kim Jong Song it is likely that Korea would not have been divided for long. Because of Mao Zedong's actions, and the actions of the government which follows in his footsteps of supporting the world's largest prison has given the government of North Korea the support it needs to keep from tumbling under internal pressure. They continue to support North Korea to this day by returning refugees and allowing exports of weapons to the tyrant.

For all of these reasons, there is no other person in the history of the world I am aware of who comes close to Mao Zedong in terms of his absolute destruction of human rights and inhumanity. There are certainly people who have tried and are rightfully detested and hated around the world for it, such as Hitler and Stalin, but no one else has been able to succeed as well as he did for almost 70 years.

China is the world's largest in one way

The IMF today announced China now has the world's largest economy in terms of purchasing power, but jumping to the conclusion that China is number one also needs to take into account a lot of other factors:

1. In terms of the raw size of the economy calculated by real GDP they are still only around $10 trillion versus America's $17 trillion.
2. China and the United States have roughly the same distribution of income. This will have long-term effects on the power dynamics of China's government and access to opportunity.

Other things about China's economy I must point out:

1. China's GDP was 44% from industry in 2013. It has been in the 40s since about the 1980s, which shows that their economic growth has been unusually even across all industries. This is probably due partially to keeping their currency artificially deflated by printing lots of currency to keep it cheap relative to the US dollar, which is probably the largest dispute between the two countries today. This is very different from the narrative that we often hear about China. (IMF)
2. Their GDP per capita PPP is currently around $13,000 while the US is around $54,000. There is no question that the US beats China on this metric and it is going to take a long time for China to catch up to us on this. GDP matters for geopolitics, but China won't be a really serious contender for being the world's strongest power until their GDP per capita gets above the middle income stage, which is where it is right now. (IMF)
3. Leaving inequality aside, and using statistics that sidestep this issue, America currently has the 4th highest median household income (which controls for inequality) in the world at around $31,000 (World Bank), while China's median household income is around $4,600 (27000 RMB) which shows a massive difference in the income of people in the United States and China. China has a long way to go to meet us on this mark. http://econweb.tamu.edu/gan/Report-English-Dec-2013.pdf
4. When it comes to Household final expenditure per capita the United States is currently around $31,000 and China is at $1,300. China is rapidly rising and hopefully will continue to rise in the future. (World Bank)
5. They rank 91st on the Ease of Doing Business Index, the United States ranks 4. The best city in China to start a business is Hangzhou and it takes an average of 31 days to start a business, which is close to the national average, versus an average of 5 days in the United States. The amount of capital you need to pay in on average is 71% of national income in China versus 0% in the United States. This has a very real effect in the ability of entrepeneurs who are not well connected and already wealthy to start a business.
6. The rate of poverty in China below $5 a day remains above 50%, though the rate of poverty under $1.25 a day has plummeted from around 63% in 1992 to 6% today (adjusted for price inflation). China has come a long ways in the reduction of poverty and there is still a long ways to go in its reduction still. The trend however is towards less poverty.
7. China currently has large problems with corruption, ranking at number 80, while the United States ranks at number 19. This is a deep threat to the economic and social stability of China. http://cpi.transparency.org/cpi2013/results/

IMF data: https://www.imf.org/external/datamapper/index.php

http://www.newsweek.com/chinas-economy-overtaekes-us-worlds-largest-276104

So the future of the global economy is going to see China continue to grow, and this will be a good thing for people in China. The following policy changes would fix or at least start to fix the current problems:

1. Make it easier to start a business. This will immediately increase the demand for workers, push wages up, which will decrease their GINI coefficient, which will increase their multiplier, which will in the medium run increase their GDP growth again.
2. Open up private banking to increase investment opportunities.
3. Bring back the state health care system.
4. Increase access to education in rural areas.
5. Repeal all restrictions on migration around the country to increase the ability of people to seek out new economic opportunities.
6. Implement trial by public jury to separate the courts from the political process. This will help reduce corruption.

There is still enough room for development of the political and economic situation to merely say that China has overtaken the United States is rather silly, and misses most of the picture. Hopefully China will continue to develop and see it move forward even further.

Given that China has a population over 4 times that of the United States it was inevitable that they would someday overtake us in one GDP metric or another soon, and is actually a good thing because it allows their economy to grow so their GDP per capita can start to approach a developed level, and hopefully continue to see a rapid decrease in poverty along with other problems.

America loves Hong Kong and China

We are currently witnessing what could be the largest revolution in the history of the world in China, with the people of Hong Kong finally standing up against the government of China's illiberal policies. China currently ranks at 181 out of 201 nations and self-governing territories, while Hong Kong ranks at 18, higher than the United STates. But since Hong Kong is part of China and the Chinese authorities are trying to implement one of the worst human rights records in the world in one of the most free areas in the world. This of course is leading to trouble for the Chinese authorities because the people of Hong Kong don't want to be under such a government like all other people in the world.

This however will hopefully not stay isolated to Hong Kong, since the rest of China has a similar situation of not having free, fair, and open elections. I am hoping that in the next week or two we will see the student rebellion expand to other cities in China which will scare the dickens out of the Chinese government. If the military realizes that they have the same interest as the students who will lead the protest then the emperor will have no clothes, and the Communist Party will fall. I hope this will happen so the people in China will see an improvement in their situation in the near future and the Republic of China will return to the mainland (which currently ranks at 43).

This is the latest chapter in the long struggle between the Confucian leaders of China who claim obedience to the government as one of the highest values and the Mohist faction which has survived 1500 years of persecution by the Chinese government and is one of the earliest if not the earliest form of liberalism in the history of the world. It is currently prevalent in Taiwan and hopefully the students across China can make it dominant in the political sphere.

America loves China.