The Global Trade War in One Tweet. Dunking on Finance. Inflation Gets a Makeover – It’s New! The Meme Machine. Plus more! #224
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Grüezi!
1️⃣ How One Tweet Illuminates the Global Economic War
The Trade ‘Tug-of-War’ and who’s to blame.
Sometimes one little exchange can offer a lens for understanding the ongoing global economic war, particularly between the US and China.
Michael Pettis thinks China “pushes” world trade out of balance through high savings rates and export-led growth. (He says the same about Germany.)
The average Chinese consumer might not get to enjoy as high a standard of living as they could. They work hard, but don’t get to buy as much with their money.
High savings mean less domestic spending. This keeps local prices and wages lower than they might otherwise be. This helps make exports cheaper in global markets.
Excess savings often get invested in productive capacity for export industries, further boosting their competitiveness. The government can use savings in state-owned banks to give cheap loans to exporters.
The savings also often lead to a weaker currency, which makes exports even cheaper.
Meanwhile, people in countries like the US end up buying lots of Chinese products, but their own factories might shut down because they can’t compete.
So in Pettis’s argument, countries like China are the problem.
But Tooze says why is the blame so one-sided? Deficit countries like the US “pull’ trade out of balance through high consumption and a willingness to run trade deficits.
This trade ‘tug-of-war’ is at the heart of the global economy. As the FT’s Gideon Rachman notes, China is leveraging its economic relationships, and the US its military alliances.
Push strategy: 128 countries now trade more with China than with the US. China’s Belt and Road Initiative, with over a trillion dollars in 140+ countries, shows how to leverage savings to win global influence.
Pull strategy: The US focus on security alliances and limited economic initiatives shows its struggle to directly counter China’s economic influence.
The upshot?
China’s export-driven policies are winding up developing countries, while the US military is stretching thinner.
And meanwhile in the Global South, some countries are playing the US and China off against each other, adding a twist to the simple push-pull model.
⏩️ America is fighting the wrong trade war.
2️⃣ Why Finance is a Zero-Sum Game
John Lanchester’s broadside on the money markets.
Reviewing three new finance tomes, novelist John Lanchester pens a polemical critique of modern finance –“For Every Winner a Loser.”
His arguments?
Finance isn’t about helping businesses grow. It’s about gambling. Only 3% of UK banks’ assets are loans to firms producing goods and services. The rest? Financial institutions betting against each other.
It’s a zero-sum game. “The total value of all the economic activity in the world is estimated at $105 trillion... The value of the financial derivatives which arise from this activity – that’s the subsequent trading – is $667 trillion.”
The smartest minds are making billions... for what? Jim Simons’ Renaissance Technologies averaged 66% annual returns over 30 years.
“The main impact on the world of Jim Simons, both a deeply brilliant man and a good person, was to make enough money for his Renaissance colleague [Robert Mercer] to get Donald Trump elected president.”
Toxic culture. Ray Dalio’s Bridgewater featured constant surveillance, public humiliation, and a ‘Politburo’. One employee video was titled “Pain + Reflection = Progress.”
Lanchester is a great writer and his piece is a tour de force.
BUT.
Finance is also about risk management, liquidity and price discovery.
The world’s richest people are in tech.
Voters and governments make the rules on inequality.
Toxic cultures are everywhere. See Amnesty International and Save The Children.
⏩️ The FT investigates the finance career of prominent finance critic Gary Stevenson.
3️⃣ This Is Not Your Father’s lnflation
Inflation has had a 21C makeover.
US inflation just hit its lowest point since early 2021. John Cassidy looks at how inflation has changed. The backgound?
“After four decades of globalisation, the US economy is less prone to inflation spirals... It’s more open to foreign competition, and labour unions are much weaker.”
Old Inflation
Excess Demand: Too much money chasing too few goods, leading to price rises.
Employee Power: Workers wanting higher wages to keep pace with rising prices, leading businesses to raise prices further, creating a self-perpetuating cycle.
Printing Money: Governments borrowing or spending too much, busting their currencies.
New Inflation
Supply Shock: The Pandemic and Russia’s invasion of Ukraine caused massive disruptions, creating shortages and pushing up prices.
Corporate ‘Greed’: Some corporations saw an opportunity to raise prices more than they needed.
Policy Paralysis: Central banks were slow to react, assuming inflation was temporary.
⏩️ What else might boost inflation? Tax cuts.
4️⃣ The Meme Machine
The factory farm that produces trolls.
VSquare has a deeper dive into the ‘Russian Digital Army’ tasked with churning out disinformation.
The scale of disinformation production is astonishing. A leaked report claims that in the first four months of 2024, the SDA’s bot army, dubbed the “Russian Digital Army,” generated 33.9 million comments. They also claim to have produced 39,899 “content units” on social media, including 4,641 videos and 2,516 memes and graphics.
The Digital Army playbook? These are the key narratives:
“Liberals and globalists spread fear and want us to panic.
“We must fear war, climate disasters, viruses, a Russian attack.
“Through fear, they seek our submission.
“They aim to exploit contradictions around family values, LGBT rights, and the economic uncertainty caused by the war in energy and agriculture.”
Sound familiar?
⏩️ Germany’s ‘Süddeutsche Zeitung’ has more.
5️⃣ Who Recycles Disinformation?
Those cartoons and talking points pop up in the likeliest of places.
Elon Musk sharing a Kremlin-created meme. Who else shares them? Accounts like Sonja van den Ende’s.
Sonja’s profile tag-line – “News you don’t hear in the media” – is straight out of the ‘Russian Digital Army’ manual.
It works for over 30k followers…
⏩️ Meta has finally got around to banning the Kremlin’s influence network, RT.
6️⃣ The Politicians Parroting Putin’s Propaganda
Don’t worry – they’re not in hock to the Kremlin, they’re just cynical
Who else is happy to push Kremlin-cosying conspiracies? Politicians like Canada’s Pierre Poilievre. That screenshot is from one of his recent campaign emails.
Canada has a big Ukrainian diaspora and it is a prime target for Kremlin disinformation.
The phrase ‘You’ll own nothing and be happy’ was culled from the World Economic Forum’s video archive some four years after it appeared, and repurposed on 4chan to attack ‘globalists.’
Although Poilievre had been happy to sit down with WEF officials in his former life, he seized on it and it still features in his campaigning. I also wrote about it at the time, for Canada’s Globe and Mail and talked about it to a sceptical CBC.
Well, now the CBC is reporting on Russian disinformation.
But Poilievre’s campaign is still recycling it.
There’s nothing wrong with real political debate. But surfacing Kremlin-crafted talking points from the information swamp… You would hope for better.
⏭ Search for #factoryoffakes on Twitter/X to find out more.
7️⃣ An Experiment
A ham-fisted attempt to talk you through last week’s newsletter...
⏭ Let me know what you think below...
If you enjoy this newsletter – please recommend it!
Best,
Adrian