Foreign trade surpasses politicians’ vision of bilateral exchange

Beijing. One of the biggest mistakes of politicians is to limit foreign trade to a bilateral exchange, when in reality it is a systemic issue. Any sanction between the United States and China does not stop there – in the transfer of inefficiencies in internal demand from one economy to another –, it necessarily ends up affecting another part of that network, explains Michael Pettis, a finance specialist who for For two decades he has witnessed on the spot the rise of the Chinese economy and its rise to a global power.

Pettis, professor of Finance at Peking University, considers in an interview with The Day that Mexico and other developing countries in Latin America can benefit from the trade conflict that is taking place between the United States and China, but they must think about what their development model will be like, since currently the logic of competing in global trade is being implemented. cost of suppressing wages and weak currencies.

Trade surpluses ultimately imply that domestic demand, especially consumption, is not strong enough to absorb what is produced in one economy and hence is transferred to another in the form of exports; The country that buys the production also receives in some way the inflow of capital, which allows it to maintain a strong currency.

The simplest way to compete in global trade is not through productivity, but by lowering wages and deteriorating the participation of households in production; By doing this, countries reduce their contribution to global demand, but obtain a greater share of it, explains Pettis during the interview, held at his home, a meeting space for artists and musicians from the capital’s alternative scene, in middle of a hutong.

In a conversation that covers his main interests in China, music, art and global trade amid new geopolitical parameters, Pettis emphasizes that the measures announced by the next United States administration are not ideal, since they do not solve the underlying issue, because trade deficits also imply an influx of capital that serves to maintain a strong dollar and that is where some tariffs could be put into practice.

China has internal demand problems that are being transferred to other countries, explains Pettis, who has also forged an international role as an expert in trade ties between this country and the United States.

The Chinese economy suffers from high production without response from consumption. It is not only due to a high savings rate, but also because salaries have not risen in line with productivity, while the State and companies maintain their share of production at the expense of what may be left in families.

The low participation of households in production is the obverse of the quota that companies accumulate, so they are internationally competitive not necessarily because of their efficiency, but because workers subsidize production.

Increasing salaries implies that the State or companies lose part of their participation in the gross domestic product (GDP). Hence, this production must continue to be transferred via exports to other countries.

This excess production is received by the United States and indirectly by third countries such as Mexico, through which part of foreign trade is outsourced. In the end, Pettis believes, commercial exchange between countries requires reforming global trade along the lines proposed by Keynes in 1944 and making it more difficult for unbalanced economies to use the global trade system to export their internal problems.