Why it (sort of) makes sense for the US to impose tariffs

Nearly everyone wonders, “Why is Donald Trump crazy enough to impose tariffs on imports from other countries? How could this possibly make sense?”

As long as the world economy is growing rapidly, it makes sense for countries to cooperate with each other. With the use of cooperation, scarce resources can become part of supply lines that allow the production of complex goods, such as computers, requiring materials from around the world. The downsides of cooperation include:

(a) The use of more oil to transport goods around the world;

(b) The more rapid exhaustion of resources of all kinds around the world; and

(c) Growing wage disparity as workers from high-wage countries compete more directly with workers from low-wages countries.

These issues can be tolerated as long as the world economy is growing fast enough. As the saying goes, “A rising tide lifts all boats.”

In this post, I will explain what is going wrong and how Donald Trump’s actions fit in with the situation we are facing. Strangely enough, there is a physics aspect to what is happening, even though it is likely that Donald Trump and the voters who elected him would probably not recognize this. In fact, the world economy seems to be on the cusp of a shrinking-back event, with or without the tariffs. Adding tariffs is an indirect way of allowing the US to obtain a better position in the new, shrunken economy, if this is really possible.

The upcoming shrinking-back event is the result of too little energy consumption in relation to total world population. Most researchers have completely missed the possibility that energy limits could manifest themselves as excessive wage disparity. In fact, they have tended to assume that energy limits would manifest themselves as high energy prices, especially for oil.

The world’s networked economy doesn’t work in the simple way that most researchers have assumed. Too much wage disparity tends to lead to low energy prices, rather than high, because of increasing affordability issues. The result is energy prices that are too low for producers, rather than too high for consumers. Producers (such as OPEC nations) willingly cut back on production in an attempt to get prices back up. The resulting shortage can be expected to more closely resemble financial collapse than high prices and a need for rationing. Trump’s tariffs may provide the US a better position, if the world economy should partially collapse.

Let me try to explain some pieces of this story.

1. Energy is needed to power the world economy. This fact has been missed by politicians and most economists. 

Economist Steven Keen recently developed a graphical explanation of the role energy plays in the world economy. In his graphic, he shows that workers need food (an energy product) just as machines need some sort of energy product to operate. In Steve Keen’s words, “Labor without energy is a corpse: capital without energy is a sculpture.”

Figure 1. Graphic by Steven Keen, depicting the role of energy in the economy. Energy in the form of food is necessary for human labor, just as energy (in one of its many forms) is needed for physical transformations that make the activities underlying GDP possible. These physical transformations necessarily lead to both the desired products and multiple types of waste.

In fact, there is a physics reason why energy consumption is needed in the economy. Energy “dissipation” is needed for the physical actions underlying GDP. For example, transportation requires a physical movement of people or objects. This can only happen with the use of energy. Even the use of heat or of electricity requires energy dissipation.

2. China’s huge growth in energy consumption since it joined the World Trade Organization (WTO) in December 2001 is truly amazing. It has changed the world order in a few years.

China’s energy consumption ramped up very quickly after joining the WTO in late 2001. At the same time, the energy consumption of the US and the EU stagnated, as manufacturing moved to China and other Emerging Markets.

Figure 2. Energy Consumption for the United States, China, and European Union, based on data from BP’s 2018 Statistical Review of World Energy.

As the shift in energy consumption occurred, jobs shifted elsewhere. Also, the competition with China and other low-wage countries tended to hold down wages of workers whose jobs could be shifted overseas. When we look at labor force participation rates for the US, we see that these seem to have turned down about the same time that China joined the WTO. This suggests that workers started leaving the workforce about the time competition with China ramped up.

Figure 3. US Labor Force Participation Rate, in chart prepared by the Federal Reserve of St. Louis.

3. China is now facing a problem with Peak Coal. Its level of coal production is barely sustainable because of depletion and low coal prices. 

Figure 4. China energy production by fuel, based on BP Statistical Review of World Energy 2018 data. “Other Ren” means Other Renewables. This includes wind, solar and other renewables, such as wood burned for fuel.

If China is to manufacture goods and services for the world economy as well as its own people, it needs a growing supply of cheap-to-produce energy. China’s largest source of energy is coal. China’s coal production hit a peak in 2013 and has been on a bumpy plateau, or falling, since. The problem has been a combination of (a) a higher cost of coal production, because existing mines are depleting, combined with (b) coal prices that do not rise high enough to make production from these mines profitable.

Of course, if coal prices were to rise higher, China would have a different, but equally serious problem: The cost of finished goods created for the world marketplace would be quite a bit higher, making it difficult to export them profitably. If customers’ wages rose at the same time coal prices rose, there would be no problem. The problem could be described in some sense as growing mining inefficiency because of coal depletion. Unfortunately, the world economy does not reward a shift toward inefficiency.

4. With Peak Coal occurring in China, it makes little sense for the United States, the European Union and others to depend as heavily on China as in the past.

The economy of every country today is built on debt. If the world economy is growing, this debt pile can rise higher and higher. If interest rates can be brought ever lower, this also helps the pile of debt rise higher and higher.

China’s economy also uses increasing debt to sustain its economic growth. If the economy of China should slow down or start shrinking because of energy limits, debt defaults could start overwhelming the system. Uprisings from laid-off workers might become difficult to quell. The situation could easily spiral out of control.

Economies around the world depend on China for many manufactured goods. In fact, for many minerals, China’s usage amounts to over half of the world’s consumption. This arrangement doesn’t really make sense because (a) China cannot really be depended on for the long term because of coal depletion, (b) jobs that pay well in Advanced Economies are being lost to China and other Emerging Markets, and (c) the level of concentration of manufacturing in China puts the world system at risk if China has any kind of adverse shift in its economy.

5. The whole idea of buying fuels from other countries only works as long as there is enough to go around. 

Many people are of the opinion that if there is not enough fuel of a particular kind, fuel prices will rise, and the market will continue to operate normally. There are at least two reasons why this doesn’t make sense:

Reason #1. The issue underlying rising costs of fossil fuels is nearly always depletion. For example, with coal mines, the coal closest to the surface in the thickest seams is extracted first. As this is depleted, deeper coal in thinner seams can also be extracted, but the cost tends to be higher. When depletion takes place, it is nearly always possible to extract more of the given fuel if some combination of more human labor and more technology (powered by energy) is used. Of course, adding labor and/or technology leads to a higher cost of production. 

But the prices of commodities are not determined based on the cost of production; prices are determined in the marketplace. They reflect the quantity of finished goods and services made with these commodities, that consumers (in the aggregate) can afford. Extracting coal or another fuel in what is essentially a less efficient manner doesn’t add to what consumers can afford. The combination of flat prices and higher costs leads to unprofitable producers–precisely China’s problem. Producers tend to cut back on production.

We can see that higher energy prices don’t lead to higher wages by looking at what happened when oil prices rose a few years ago in the US. We see that higher oil prices led to lower average wages because of recession.

Figure 5. Average wages in 2017$ compared to Brent oil price, also in 2017$. Oil prices in 2017 dollars are from BP Statistical Review of World Energy 2018. Average wages are total wages based on BEA data adjusted by the GDP price deflator, divided by total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

Reason #2. If we look back at the timing of Peak Coal in the UK and in Germany, it looks very much as if depleting coal supply was one of the causes of both World War I and World War II. Governments know that energy supplies are required to operate their economies. If they cannot get enough energy products internally or through trade, they will fight other countries for access to supplies.

Figure 6. Image by author.

Economists, sitting in their ivory towers, have not stopped to think through the obvious. Their standard supply and demand curve does not work for energy because an adequate supply of cheap energy is needed for both the demand for goods and services (coming from wages workers earn) and the supply of goods and services. Once affordability becomes a problem, because too many people have low wages, the prices of fuels stop rising. It is the fact that prices don’t rise high enough that causes the “peaking” of oil, natural gas, and coal production. Extraction stops, even though there seem to be plenty of resources still available with current technology.

6. A major energy issue today is the fact that China and India have run through their own energy supplies and now need to import energy from outside their countries to supplement domestic supplies.

As shown in Figure 4 (above), China’s coal production stopped rising in 2013, keeping the total amount of energy it produces close to flat. To compensate for this shortfall, China has started to import oil, coal and natural gas. The difference between the thick black line and the top of the “stack” of types of energy produced in China (in Figure 7 below) represents the quantity of fuel that it has needed to import. Clearly, this quantity has been increasing.

Figure 7. China energy production by fuel plus its total energy consumption, based on BP 2018 Statistical Review of World Energy data.

India’s coal supply is not yet decreasing, but it is running into a similar problem. It needs to import more and more energy products from abroad, as its energy consumption (thick black line) rises above its energy production “stack.”

Figure 8. India’s total energy consumption compared to its energy production by type, based on BP 2018 Statistical Review of World Energy. “Other Ren” includes wind, solar, and other commercially traded renewable types of renewable energy, such as geothermal.

7. Worldwide, there is a growing need for imported fuels of many kinds.

Figure 9 shows the imports needed for five major areas of the world. In this analysis, the European Union is treated as a single unit. Thus, in this analysis, the imports it receives are only those from outside the European Union, taken as a whole.

Figure 9. Required energy imports for five major areas of the world, based on the difference of energy consumption and energy production shown in BP’s 2018 Statistical Review of World Energy.

We can see from Figure 9 that the European Union and Japan have been major importers of fuels for a very long time. India and China have only in recent years become energy importers. At the same time, the US is becoming more and more energy sufficient with its own fuel production.

Figure 10 shows the ratio of imported energy to total energy consumption for these five areas.

Figure 10. Percentage of energy imported in 2017 in Japan, India, the EU, China, and the US. Imports calculated as the difference between Total Energy Consumption and Total Energy Production based on data from BP 2018 Statistical Review of World Energy. The European Union is treated as a single unit. Thus, energy imports are those from outside the EU.

The US is clearly in a better position than other countries/groups shown, with a smaller share of energy imported in Figure 10 and a declining trend in imported energy in Figure 9. Japan, the EU and India are all subject to substantial risk if available imports should fall.

8. The ramp up of “clean energy” to date has proven to be a major disappointment. The quantities added are far below what the IEA believes is needed.

Partial confirmation of this statement can be seen by observing the tiny orange “Other Ren” bands on Figures 4, 7, and 8 for China and India, which include wind, solar, and other non-hydroelectric renewables. China is the largest user of wind and solar in the world, yet its use of these devices provides only a tiny portion of its total energy consumption.

We have known since the 1950s that fossil fuel supply would eventually become a problem. Academics, with their focus on making models, have been able to come up with hypotheses regarding what might act as substitutes. But these models tend to miss a lot of things, including the following:

  • Adverse events, such as Fukushima for nuclear.
  • The need for electricity storage and extra long distance transmission lines, as wind and solar usage are ramped up. The cost-benefit analysis is much less favorable with these added.
  • Issues that affect only some installations, such as workarounds to keep long-distance transmission lines from starting fires in dry areas, or the high cost of underground transmission lines.
  • The best sites are taken early.

It is not until the actual experience arrives that we see how these substitutes are working in practice. If we think back, the nuclear promise of producing electricity that was hoped to be “too cheap to meter” hasn’t really panned out. In fact, many Advanced Economies are cutting back on their use of nuclear.

With respect to “renewables,” (including hydroelectric, wind, solar, and others) the amount of new generation added each year seems to have hit a plateau. It may be that the additional need for storage and transmission lines are already slowing the growth of renewables.

Figure 11. IEA Renewable Net Capacity Additions as of May 2019. Source: Chart from India Times.

The IEA has started pointing out that far more energy investment is needed if sustainable development goals are to be met–about 300 GW per year, instead of the current 177 per year in additions, on average, between 2018 and 2030.

9. Donald Trump and his advisors have sensed that the current economic system is not working because of too much wage disparity. If the economic system is destined to break in one way or another, Trump can influence which way the break will occur by the imposition of tariffs.

Trump and his advisors no doubt recognize the importance of a cheap, available energy supply. They also realize that energy is an important enough factor of production to fight over. Furthermore, many past wars have been resource wars. Tariffs are, in some sense, a step toward a resource war.

One of the immediate problems at hand is too much wage disparity. Strange as it may seem, excessive wage disparity can be a sign of inadequate energy supply because in a networked economy, high prices of commodities and low wages of workers are almost “mirror images” of each other. High commodity prices tend to cut off consumption of commodities (such as oil or coal) by prices of finished goods that are too high for consumers.

Excessive wage disparity works in reverse: It sends prices of commodities (such as coal and oil) too low, cutting off production because prices fall too low for producers of these commodities. Production falls because producers cannot make a profit. When wage disparity is very high, a large share of workers have very low wages, leaving them unable to purchase more than a small amount of high-priced goods (such as cars and homes) made with commodities. It is this low “demand” that holds down commodity prices.

Figure 10 shows that wide income disparities were issues both at the time of the Great Depression and in recent years. Commodity prices have been relatively low each of these times. The problems didn’t look like shortages; they looked like gluts because of issues related to lack of affordability.

Figure 12. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez.

The US has raised tariffs in the past. One time was immediately before the US Civil War. Tariffs were again raised in 1922 and 1930, when wage disparities were at a high level.

Unfortunately, there is a significant chance that major parts of the world economy will start collapsing, with or without Trump’s tariffs and the trade war, because energy supplies worldwide are not growing sufficiently. In fact, some of these energy supplies are purposely being removed by producers, such as Saudi Arabia, because prices are too low.

By putting tariffs on some goods, Trump is providing a substitute for the missing high oil prices needed to slow the growth of globalization, if the issue of ever-increasing wage disparity is to be solved. The tariffs tend to raise the value of the US dollar relative to other currencies, making the cost of commodities (including fossil fuels) cheaper for US consumers than for other consumers around the world. The tariffs tend to encourage new investment in US production of many types, at the same time that they make investment in other countries, such as China, less appealing.

All of these changes indirectly give the US an advantage if there should be a partial collapse of the world economy. With the benefit of the tariffs, perhaps the partial collapse would leave some combination of countries, including the US and Canada, mostly unaffected. There might be other groups remaining as well. Weak economies, such as Venezuela, Cuba, and Haiti, would likely be pushed aside. Even Europe and Japan would likely have major problems.

Conclusion

Most observers have missed the point that excessive wage and wealth disparity can be a sign of serious energy problems, just as high prices can be a sign of short supply. They have also missed the point that coal supply is very important, just as oil supply is very important.

In the real world, when there is not enough to go around, wars are a definite possibility. A trade war is a somewhat reduced version of a war. Trump and his advisors, whether or not they understand the real situation, seem to be trying to guide the US to as good an outcome as possible, in the current situation of excessive wage disparity.

The underlying issue is likely the Limits to Growth problem modeled in the 1972 book, The Limits to Growth, by Donella Meadows, et al.

Figure 13. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil,” with dotted line added corresponding to where I see the world economy to be in 2019.

As resources become depleted, it becomes increasingly difficult to maintain economic growth. Industrial output per capita (for example, the number of new cars or number of smartphones per 1000 people) starts falling. The 1972 computer simulations did not consider wages or prices, only physical quantities of various items.

Now, as we can see how the limits are playing out in the real world, it appears that the most prominent manifestation of the world’s low resource problem is excessive wage disparity–an issue most people have never considered as being related to shortages of resource supplies. Few people have stopped to think that goods made with energy products are equally unaffordable whether the problem is prices being too high, or wages of most people being too low.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,341 Responses to Why it (sort of) makes sense for the US to impose tariffs

  1. Brian Hanley says:

    There is another factor. We have enough uranium to last 125,000 years at least. (250,000 years by other estimates, I cut it in half.) Nuclear should have replaced coal and oil by now. But fossil fuel interests have fought nuclear since the 1950’s, starting with Rockefeller’s backing of the linear no threshold (LNT) standard for radiation. (Which has long been established to be wrong.) Standard Oil gave a $200,000 grant ($1.2 million in today’s dollars) to David Brower to start “Friends of the Earth” (FoE) which Brower used to take over the Sierra Club and reverse its stance on nuclear power. in the present day, we have Mark Z Jacobson at Stanford who has been entirely funded for his career from oil money given through a cutout non-profit.

    In addition, by curating stories, and helping to instill an anti-nuclear bias in the the journalism profession, needless regulations, over-regulation, endless legal challenges, slow-walking of everything to draw out processes, and political opposition has raised the cost of nuclear power tremendously. (By the way – I wrote a book on radiation and how to treat its biological effects. All physicists I know of, and even many physicians are ignorant of what radiation does, and how it affects us.)

    Germany (Energiewende) has implemented the exact program of the “Green New Deal” for almost 20 years now. That program has been trumpeted, and articles have been regularly placed breathlessly saying that solar in Germany is producing more than Germany requires. (In peak of summer, but they don’t say that.) The fossil fuel industry in Germany has shut down nuclear plants so that with all the huge subsidy of solar and wind intermittent power supplies, Germany has not cut its CO2 production over the last 15 years. With the most recent shutdown, CO2 will rise. Germany has opened new coal mines to meet demand for coal. And electrical power rates have risen 50%.

    The USA, with all of its subsidies to solar and wind, has done exactly the same thing. Just like in Germany, politically, it has been the putative “liberal good guys” the Democrats, who give lip service to global warming that have shut down nuclear. As a result, there is zero decrease in CO2 production for all that money spent on renewables. Liberal legislators install “renewables” language into law, forcing the law to not allow CO2 production to be taken into account.

    What I am getting at here is that fossil fuel fighting tooth and nail to keep its market share by killing nuclear power is creating the incipient crash in multiple ways. It is creating a near future economic emergency. And it is forcing the global warming machine to continue to roar forward unabated. It is lining politicians pockets with cash so they can get elected again and again. And so the machinery rumbles on into crisis.

    • Our problem isn’t running out of fuel, it is keeping prices high enough. Uranium has had a low-priced problem for a very long time.

      Intermittent electricity and the strange pricing for intermittent electricity seems to me to be a big factor that has been driving down the prices of all types of electricity production, including nuclear. Fossil fuels are doing poorly as well, because of low prices.

      A big issue with nuclear is that it cannot be a stand-alone fuel. For one thing, nuclear power plants are designed so that if they go down, they need a charge from outside to restart them. For another, the whole system of building them, dismantling them, and also building and maintaining transmission lines requires fossil fuels. So nuclear is just an add-on to fossil fuels. Fossil fuels seem to be leaving us, so nuclear may not be an option, even we could overcome other hurdles.

      • Tsubion says:

        To be fair…

        You wouldn’t need that many fossil fuels to keep the nukes online and they could be produced as a side benefit of the electricity made.

        If most transportation became electric then there would be suplus oil for all the other uses. The higher cost could be subsidised to keep things going unless of course the cost became so prohibitive that all oil extraction ceased.

        This is where cheap enough production of synfuels would help even the balance.

        The problem remains consumers being able to afford the output of the economy. 25,000 steel industry workers in UK set to lose their jobs. How do you keep consumers in the money if they’re all unemployed? How do you keep the economy growing when the goal is to automate most jobs?

      • DJ says:

        What does it take to build a nuclear plant? 5 years for the decision, 5 years for the building (and 5 years for the delays).

        Nuclear now provides 4% of global energy.

        What an investment to scale up nuclear to 50% or 100% or 100+% (we need growth!). And it takes about 10 years before the first plant starts paying off.

        (And by investment I don’t mean printed money.)

        • You are right. It takes a whole lot of cement and rebar and other things to build the huge nuclear plants. Then you need to keep power supply available from outside indefinitely, so that the power plants can ramp up again, if they go down. You need to keep uranium supply available, and you need to figure out what to do with the spent fuel. You can theoretically reprocess it, but this is an energy-intensive process as well.

          All of the fossil fuel supples needed to support these efforts must be taken away from other uses, such as growing food, heating homes, and building schools. The Limits to Growth model predicted that a major factor pushing the economy toward collapse was the fact that there would not be enough resources to use both for (1) all of the new resource investment (including energy, cement, iron, copper, etc.) and (2) other functions needed to sustain the still-growing world population,

          • Tsubion says:

            I wonder what uses up more cement and rebar…

            A new nuclear power plant?

            Or a new tunnel for high speed rail?

            Or a million bases for new wind turbines?

            Or a few more ghost cities in China?

            Or another record breaking hydroelectric dam?

            The requirements for a nuclear power plant are puny compared to these but I guess if you need thousands of them to save the world then it kinda does throw a spanner in the works.

            Would you rather we build lots more coal and gas plants using lots and lots of concrete?

            Lets just wait for Keith to finish crunching numbers so we can throw up some sats and breathe a sigh of relief.

            • DJ says:

              I still believe it is not a 50-year old oil company conspiracy, but problem is a large upfront investment, long time (several election cycles) until it even starts paying back, politically impopular.

              And not very fun: blowing enormous amount of (other peoples) cash on a bridge, new city, olympic games, space project etc is a monument over yourself, building a nuclear plant just makes half population hate you.

    • Tsubion says:

      Good comment.

      Realistically, and taking into account the inertia from all the anti nuclear propaganda of the past hundred years, how long do you think it would take to roll out enough nukes to replace coal and oil?

      Looking at the above graphs, renewables and nukes hardly make a dent in the energy mix at present. One has long been demonised and the other is being pushed as our saviour but it doesn’t really make any difference to the overall picture.

      I feel that world leaders will have to reach much higher levels of emergency before any drastic measures are taken or changes in energy mix are made if even possible.

      The problem I think is keeping things functional long enough for practical, rational solutions to be implemented. This doesn’t appear to be happening. Quite the opposite in fact.

    • JT Roberts says:

      This isn’t some conspiracy against nuclear perpetrated by fossil fuels. Nuclear is a fossil fuel extension. It merely adds efficiency but doesn’t replace fossil fuels. As Gail brings out nuclear can’t exist without fossil fuels. One very big problem is Natural Gas combined cycle is so cheap and efficient that nothing can compete unless heavily incentivized. As a business person where would you put your money in an industry fraught with regulations and popular dis approval or install a couple cheap gas turbines with quick pay back. Nuclears day is behind us it’s two complex and the system needs simple.

      • Tsubion says:

        Industry should obviously go with the cheapest option taking into account the full cycle from extraction to managing waste.

        Do you think natural gas could replace coal plants in the near future?

        Gail has mentioned previously that the same problems would start to be experienced with natural gas if it became the primary source.

        • Natural gas has a low price problem (relative to what producers need) right now. The natural gas that is co-produced with oil comes almost free, but gas produced by itself (often from Eastern shale) does not. The bond ratings of gas companies are pretty poor today, and not projected to get any better unless natural gas prices go up. The exporting to other countries plan is a plan to try to create a shortage, and in that way force prices up. I wouldn’t count on it to work. The price of transporting gas is LNG to other countries makes LNG an inherently inefficient way of transporting gas. It also tends to release methane into the atmosphere, aggravating the global warming problem.

          Of course, natural gas is only available in good supply in the US and Russia (and this, for only as long as the whole economic system stays together). Don’t count of India or China to go to natural gas. Natural gas can be expensive because of the large amount of pipeline needed to transport it; the actual plants for burning it are cheap. Natural gas prices tend to be terribly unstable, because it is hard to have enough of it year around, without a lot of storage. I would think this by itself would discourage widespread use.

          This is an IEA graph of world electricity generation by source for the year 2016. Nuclear was 23.1% of the total then, compared to 38.3% for coal. Natural gas has a whole lot of growing to do to make up for coal, on a worldwide basis.

          • Lastcall says:

            I saw that article, and was going to send it to someone who enthuses about nuclear power; but meh, it won’t change his (engineer) beliefs, so why bother.

          • Tsubion says:

            Yep. Silly.

  2. Rodster says:

    The other day I was thinking to myself with all of the huffs and puffs of this so called tariffs war is that if China really wants to get back at the US all China has to do is tell Apple they will have to find another mfg for their gadget toys. Then I read the same idea in a couple of tech websites.

    There are already growing backlash in China with people not wanting to buy Apple products. This whole Huawei BS has little to do with security and much to do with the US realizing that it’s now on the back foot of 5G technology. If the Government wasn’t so busy spending $1 Trillion on it’s war machine maybe they could have spent money just like the Chinese government on building their high tech sector.

    And really the US claims it’s about China stealing American jobs but they never admit that it’s US Corporations that have screwed over the American worker just to pad their profits. Apple is the biggest offender. So China was just there to oblige, now the US is crying foul. Too damn bad.

  3. Harry McGibbs says:

    Another fascinating article, Gail.

    Huawei is taking a beating in the news today:

    “In the latest event in the quickly moving saga that is Huawei’s technology export blacklisting by the United States Government, the BBC has published a report this morning claiming that IP vendor Arm has “suspend business” with Huawei and its subsidiaries. If this is correct, then it would represent a massive setback for Huawei’s hardware development efforts, as the company and its HiSilicon chip design subsidiary rely heavily on Arm’s IP for its products.”

    https://www.anandtech.com/show/14373/report-arm-suspends-business-with-huawei

    “The BT-owned mobile operator EE will turn on the UK’s first 5G network on 30 May in six cities, but has dropped Huawei phones from its launch plans. Britain’s largest mobile phone network said it would switch on 5G initially in London, Cardiff, Edinburgh, Belfast, Birmingham and Manchester.”

    https://www.theguardian.com/business/2019/may/22/ee-drops-huawei-phones-from-5g-network-launch-lineup

    • Harry McGibbs says:

      And insufficient commodity prices plus competition from China have just killed off British Steel:

      “British Steel has been placed into compulsory liquidation, putting up to 25,000 jobs at risk.

      “The insolvency process, first revealed by Sky’s City editor Mark Kleinman, followed a failure by British Steel’s owners, Greybull Capital, to secure additional funding from the government.”

      https://news.sky.com/story/british-steel-insolvency-plan-places-thousands-of-jobs-at-risk-11726024

    • The whole 5G Network strikes me as an expansion that can’t really happen. Perhaps my impression is wrong, but this change gives greater capacity and speed at higher cost. There are a few users who truly need this, but there are a lot of users that don’t need the higher cost.

      We have a “tapped out” set of general customers who cannot tolerate a higher charge for a faster network. If it were free, fine, but it is not. I am sure the more dollars pays for fossil fuels and various other things. But the amount customers can afford is based on wages and on wage disparity. Unless a way is found to only charge those who truly need to 5G capcability (autonomous car owners, with their subsidized cars), I think this upgrade will never go anywhere.

      The cost of the upgrade does not seem to match with what the general public can afford to pay. In a sense, internet access is a commodity. People will not pay for a high-priced commodity if they cannot afford it.

      • JT Roberts says:

        I agree and the phone companies will start having problems if people aren’t buying their upgrades. It’s likely they will stop supporting older technology to try to force people forward but will likely find people dropping out and changing to prepay and simpler contracts.

      • Tsubion says:

        Households today are certainly more heavily burdened with monthly bills and subscriptions and taxes than ever before.

        The only trend that I think might make this switch to higher network cost possible is the ditching of other services that have been and continue to be made obsolete by the newer systems.

        For example, people may drop their expensive cable subscription and a few other dedicated services in favor of a 4G or 5G package that includes all their desired services through the internet.

        More and more, everything we use and pay for becomes wireless data and therefore a basic smartphone will be able to handle most requirements by tethering to bigger screens and keyboards when necessary. At least, that’s the idea.

        I can see how households would reduce other expenses in favor of maintaining the latest and greatest communication technology. This has now become something seen as preferential to other activities.

        With the current situation unfolding, the ideal would be for every country to roll out their own infrastructure and systems but alas, we live in a global marketplace, and I don’t think it’s possible to go back.

      • Ed says:

        I am seeing 5G antenna on electric poles around town. Here 100 miles north of NYC.

        • I really haven’t read much about 5G at this time. From what little I have read, it looks a lot like a “build it and they will come” story, when the cost is too high for the benefit for 90% of users.

          • Tim Groves says:

            Part of the back story is that the cable manufacturing and installation industries have to keep rolling along, not to mention the concrete utility pole industry. We can’t simply close these industries down simply because we already have a large enough cable network. One solution is upgrading the world from G3, to G4 and then G5, with each new network requiring years of fruitful work.

            • Tsubion says:

              According to the Internet… 5G is to fry our brains and testicles.

              And the Internet is always right.

  4. This article has my thinking going in multiple directions. The basic message seems to be that any sort of change from previous policy is constructive for those countries that can keep going. I agree that Trump likely has no idea that his policies have the implications posited in the article. Parts of the world will lose early, others later.

    Very sad that this is the route we are taking. It will cause enormous suffering.

    • There are a lot of things we don’t understand. Historically, there have been a very large number of collapses that affected some part of the world. Economies were not as interconnected as they are today, so a collapse mostly let other areas expand. They also allowed soil in an area to rest, if it had had its nutrients depleted. More jobs were available for a new generation, after epidemics led to the death of a lot of older workers. Recently, the biggest collapse we have had has been the central government of the Soviet Union in 1991. The collapse of the Soviet Union seemed to reduce the pressure on energy prices, essentially until China joined the WTO in 2001.

      With our highly complex economy, it is not clear to me that there really can be economies that are survivors. For example, there is too much dependence on computers today, and these require very complex supply lines from around the world.

      We know that the tendency of economies is to self-organize to dissipate as much energy as possible. How this will happen in the future is not clear. Maybe there are some parts that can continue to operate in a reasonable manner. We are fighting against micro-organisms as much as anything else. Dense urban populations seem like they would be problematic, especially if sanitation cannot be maintained. There are many of these issue that perhaps need to be considered.

      • Tsubion says:

        https://www.semiconductors.org/global-semiconductor-sales-down-15-5-percent-in-first-quarter-of-2019/

        Do you think that the chinese (fake) economy will collapse soon under the pressure of a weak global economy (fairytale castles in the air)?

        Micro-organisms are killing the citrus trees around here to the point where they are no longer sold in the garden centres. Some kind of fungus causing curled leaves with raised bumps and white patches on the wood.

        Whenever heavy fog rolls in from the sea, all the local plant life takes a hit. There’s a metallic smell in the air. I wonder if it’s sea pollution evaporating.

        • Tim Groves says:

          There are lots of different kinds of air pollution; some natural and many others that people have created or aided. I remember there was a story of a strange metallic smell wafting past the Houses of Parliament in London last autumn, and it wasn’t from Guy Fawkes Night fireworks.

          Let me related a personal story. Over 30 years ago I was living in a condominium in central Osaka, where smog from road traffic was and still is a major problem. I bought a flowering plum tree and tended dotingly it in a big pot on the balcony. For three years, early each spring it put out fresh baby leaves and a few flowers, but by May or June these mostly shriveled and died, not due to drought but due to something in the air. It was miserable to see it. The tree barely clung to life and didn’t grow any larger during those three years of balcony life.

          But the story has a happy ending. I moved to the countryside far from the urban smog and several miles from the nearest main road, and planted this tree in the back garden. It immediately began growing at a brisk pace and these days is three times my height, provides a beautiful display of off-white blossom every March, hundreds of little plums about now, and ample summer shade for the plantain lillies. The only problem is I have to prune the thing every year to stop it growing into a monster.

          • Tsubion says:

            The Greys are terraforming the planet to suit their needs. It’s not fungus. It’s nanotech terraforming dust. Soon planet earth will look like the Greys home planet and they’ll be sipping pina coladas by the pool and giving each other high fives on a job well done.

            We had our chance… but in the end we were just too dumb to realise what was really going on.

            Good to hear that your tree is doing well.

  5. i don’t think the don is bright enough to work out all this stuff—unless he’s an OFW lurker of course—always a possibility

    others may be advising him though

    certainly taking out Iran from the oil market jacks up the revenue for his buddies

    he certainly seems to be convinced that infinite growth is possible, and his actions prove he cares nothing for what might happen to people in general as a result of his actions

    he is also convinced that the USA is self-sufficient in every respect

    like many others, he remains convinced that money will proof him personally against all misfortune.

    The founding fathers wrote in a brilliant set of checks and balances, they could never have foreseen

    a—resources reaching a finite limit + 7.5bn pop.
    b— a sociopath as POTUS at the same time.
    c religion overwhelming common sense and scientific reality

    Remove “a” from the equation, and b & c don’t matter.
    Factor in collapsing resources/infrastrucure, and B and c become critical

    • Tsubion says:

      What if religion achieves the desired outcome by accident?

      I don’t personally advocate for this method but rabid head-chopping can reduce the population considerably and the cost of machetes is fairly reasonable compared to other methods of population reduction.

      The universe has never cared about common sense or anthropocentric concerns, only scientific reality.

      Humans developing strong imaginations and mythmaking skills leading to modern day religions deciding our collective future are just as much a part of scientific reality as reptiles performing ritualistic dances for each other.

      Embrace the madness Norman!

      The more mad you are, the better everything gets. Trust me!

      • Actually, “scientific” models have become today’s new religion. People think that they have found the truth when they put together a model based on what little they understand of a process. This is a nice way of creating myths to base your religion on.

        • Tim Groves says:

          Thank you! Thank you, Gail! I’ve been saying this for the past 20 years, but everyone I say it to looks at me as if I need to be put in a straight jacket and given an enema. Its such a relief to know that somebody else understands. 🙂

        • Tsubion says:

          Agreed!

          Computer models predicting what will happen in a hundred years time requires a leap of faith that I’m not prepared to make!

      • but would anyone notice?

    • Tim Groves says:

      Norman, you may very well think you can see inside Trump’s head, and your diagnoses may be correct. But to his base…

    • Tim Groves says:

      On the other hand, Norman, as a Brit, I absolutely wince when I see these barnstorming rallies—beginning with the opening music. But you’ve got to admit the Don performs brilliantly at these events—better even than Reagan. It’s standup comedy, self parody and rallying the troops all rolled into one.

      • Very Far Frank says:

        And yet when the economic collapse comes along Tim, you’ll be right there with them, as it is in your interests to do so.

        • Tim Groves says:

          Very true, Frank. I can see why these people are such enthusiastic supporters of Trump and I don’t blame them for it. A generation of politicians sold out American workers on the altar of globalism, remember?—that rising tide that lifts all boats. They’ve been left on the beach as the economic tide has gone out, taking their prosperity and their self confidence with it. Most of them are not expecting miracles, but they are hoping against hope for a change of direction that finally benefits them and their communities and puts the breaks on that downward slide so many of them have grown accustomed to.

  6. philsharris says:

    Gail
    Your overall argument seems very strong.

    Just a thought about electricity, especially where generation, even China’s small slice, is buffered by hydro. Two thirds to half of all that coal (China) is dissipated as ‘waste’ heat at the power stations, whereas renewable electricity has relatively little loss. China has been able to afford new UHVDC long distance connectors (low losses) to both feed and stabilise the regional AC grids. Of course electricity is costly when it is used to produce local heat, but for machinery electric motor-energy efficiency is much better than that of a diesel drive. Admittedly if batteries are needed, then overall efficiency drops significantly, but cable-linked drive, for example, trains, trams, trolleys make better use of the energy than if they are driven by ICE motors, or batteries. My point is that the graph possibly underrates the value of renewable electricity. That big chunk of hydro confers (will confer) an efficiency on the intemittent sources?

    A further thought, China (and Russia) seem to be able to afford nuclear power and to now export the technology. The ‘equations’ may work better in China. It does not seem clear yet whether America can afford shale light-tight oil, even when mixed with heavy oil from Canada and Venezuela. The EU? Prosperity has been very unevenly spread these last decades and ‘growth’ has ceased to ‘raise all boats’, and Germany looks as though it will not afford its renewables ‘Energiewende’. The balance of advantage globally looks set to shift, as you suggest.

    best
    Phil

    • The data I am using in the graphs I show are from BP. Both BP and EIA “gross up” the electricity from wind and solar, so that their value is given as the amount of fossil fuel energy that would have been needed to be burned to produce that much electricity. So I wouldn’t worry about my figures being too low. (IEA uses the other approach however. It makes life confusing.)

      I think that there was graft involved in the big Chinese installation of solar. I am not sure I could find the article(s) now, but the allegations were that China overproduced solar, and at least one public official took bribes to install the non-salable solar in China. This official was supposedly fired.

      With respect to heat in China, they have been big users of co-generation. The Chinese would put coal-fired power plants in the middle of cities, and pipe the waste heat to homes and businesses. There would be set start dates and cutoff dates. (I know when I was there, the cut-off date was March 15. If you were using co-generated heat, you didn’t have a lot of control over the quantity. The classroom I taught in went from too hot to too cold literally overnight.)

      From what I can figure out, China has been trying to cut back on the cogeneration to try to help with the smog problem. The substitute is building electric power plants at a distance, running cables to the city, and having the people heat their homes with heat pumps. This sounds like a great solution, but it is very much more expensive for families because the prior cost was close to zero. It was waste heat. Now it has to be generated. Efficient, but not in comparison to the prior approach.

      • philsharris says:

        Gail
        I did not know that about BP and EIA data!
        Thanks.
        Do you have a link for the way they do this?
        The required multiplication factor varies from country to country and on the particular preponderance of primary energy source – NG for example with more efficient generation averages about 50% of the energy coming out as electricity, whereas for coal it can be as little as 25 – 30%?
        The use of district heating (DH) schemes piping the waste heat has been advocated in parts of Europe where it has historically been neglected. The old Soviet-style apartments had it of course – with lttle or no user-control.
        I have seen advocacy for DH schemes to be connected to large heat-pumps drawing on deep bore-holes cutting down total capital costs, The idea is to reduce costs by adapting legacy DH structures as well as integrating with new-build at relatively small initial cost. This depends very much on the kind of city you live in!

        I still maintain my point that fundamental advantage and disadvantage will play out differently in different places. I have been amazed at what China has been able to afford over such a short time, a lot of it apparently very inefficient; whole under-used cities have been quoted.

        China has a large emerging internal market with a population 4 to 5 times the size of the USA, and ‘economies of scale’ can still reduce unit-costs, even ‘energy-costs’ per unit. The ability, however, for a large firm to expand into other markets that can afford its product, which it can make in vast bulk, has been at least until recently a profitable strategy. We will see what happens to Huawei for example if they get seriously hemmed in! (A Trump strategy). And life gets strange in connected markets – here in GB for instance https://www.theguardian.com/technology/2019/may/05/the-huawei-incident-points-to-a-deeper-lesson-for-great-britain
        best
        Phil

        • The way BP and EIA counts electricity, as well as the way IEA counts electricity, is something I have worked out from various reports, by comparing amounts to converted amounts. The EIA shows its calculation and conversion factors. BP gives enough information so that a person can back into them. IEA’s approach varies with the type of electricity but, again, this is something a person figures out from its reports. I have heard talks about the issue, and have needed to make adjustments to make one report comparable to another for a very long time.

          By the way, the practice of throwing away the waste heat after electricity generation is something we in the US have used in the US for years, but it is not the practice that has been used in China. As I mentioned before, they have been using cogeneration, so they actually use the waste heat for other purposes. (This is sort of a “communist” approach, which we in the West tend not to use. Sweden uses it to some extent. It is a very efficient approach.)

          Clearly, if a country wants to be as efficient as possible, cogeneration is the way to go. The multiplier factor that EIA and BP use make reasonable sense in the US, if a person thinks wind and solar really replace electricity. I believe that without battery backup, intermittent wind and solar only replace fuel. Thus, the multiplier overstates the benefit in the West.

          When we go to China, we have a different situation. There, the waste heat (at least historically) has been used for heating homes and businesses, rather than being thrown away. The new intermittent generation only replaces the fuel that would be used to create this generation. The multiplier used by BP and EIA greatly overstate the benefit of wind and solar in China. In fact, without the multiplier, the comparison would already be high. All that happens is that the coal fired power plants need to be run for fewer hours per year. They still need the same staffing. They need to be ramped up and down more often, so that parts wear out more quickly. It is only a savings in coal that takes place. More electrical transmission is needed. It is this comparison that makes wind and solar look like a waste of time and money (except as an export industry for China).

          The article you linked to reminded me of the huge cutback in manufacturing that took place when interest rates were raised in the UK as well as the US (and elsewhere) in the 1980-1981 era.

          It was this run-up in interest rates that made new investments and purchases so expensive. It pushed down quite a few industries around the world, including, as the article mentions, those in the UK. Japanese autos were helped, because they were smaller and more fuel efficient. Nuclear power plants were helped (especially when they were cheaply constructed). With the changes around the world, the high interest rates pushed down oil consumption and oil prices. It is my belief that the resulting lower oil prices ultimately led to the collapse of the central government of the Soviet Union in 1991, because it was an oil exporter hurt by low oil prices.

          Countries with other, cheaper fuels have been able to ramp up industries using those fuels. The UK had oil and natural gas exports for a time, but now is without them. It has only been able to ramp up services. The financial services industry is based on the view that growth can continue forever. Energy extraction can continue to grow forever. It is based on false promises. But until it collapses, which is likely very close to the time of the overall collapse, it can make money on false promises.

  7. Ed says:

    I see figure two as telling. China has passed the US in energy consumption by a significant margin. China is now an enemy in a finite world.

    • You are right about Figure 2. China is way ahead by a big margin. The world economy needs China to keep growing, if the world economy is to grow. But with China’s coal problem, it is hard for China to really keep up growth. There have been some cutbacks that haven’t been too obvious to the rest of the world so far, but it is likely to have to get worse.

      China cut back on its recycling business in a big way at the beginning of 2017. (In fact, India has cut back as well, and there is some sort of wider agreement to require Advanced Economies to get permission from Emerging Market Economies before dumping material to be recycled at their doorstep.)

      China is reported to have cut back on its use of cement. This, of course, is used in building buildings and roads. We saw some reports of very shoddy construction recently.

      Also, China seems to have been a big exporter of urea made with coal, and has cut back on that.

      We know that China cut back on the amount of solar it would install in 2018. That is the reason the world solar installation amount is flat. There were at least some stories saying that the reason China was installing so much solar was because China had overproduced. Allegedly, the government was trying to help companies out by buying what they couldn’t sell abroad. One public official was fired for graft over this issue, according to one story.

  8. Gail, thanks for the article, and the willingness-openness to discuss concepts such as partial collapse and shrinkage, irrespective of how short lasting these mere stages might eventually materialize during deeper collapse scenario.

  9. SUPERTRAMP says:

    Hello and thank you for the new write up. Gail stresses that young people aren’t doing well…
    This comfirns it..
    The underemployment rate for recent college graduates is higher today than it was in the early 2000s. More people are working in jobs they’re overqualified for in order to make ends meet, taking jobs that don’t require a college degree. That’s despite a decade of low unemployment and economic growth and stock market highs.

    As of March, the underemployment rate for workers aged 22 to 27 stands at 41.3%, according to the Federal Reserve Bank of New York.
    More people who are entering the labor force today have a college degree compared to those who did back in the 1990s, making it harder for workers to distinguish themselves simply by having one.

    “That’s becoming the baseline,” says Chamberlain. “That’s part of the reason why we’re seeing this higher [underemployment] rate.”

    Colleges have also been slow to match the skills employers want as every field becomes more technical, says Chamberlain. In order to overcome the challenge of transitioning from school to a well-paying white-collar job, young graduates are compelled to start out underemployed.

    “That’s often the way careers go for young people,” says Chamberlain. “You just do anything to get in the door, and then once you’re inside you have a chance to informally network and find your real job inside the company.”
    With about one million people defaulting on student loans for the first time each year, being underemployed carries real risks for workers if they’re not earning enough to make their monthly payments. “Student loan defaults are almost always caused by people…not being able to get a decent-paying job after school,” Chamberlain says. “Being underemployed would be one of those reasons.”
    From Yahoo News

    • The problem is that the skills needed are changing rapidly. In the good old days, a person could have any old degree, and businesses would train you. If you go back far enough, a high school diploma was enough.

      Now, the expectation is that the young person will pay for the new skill. Of course, these skills keep changing, making a constant treadmill. The young person isn’t earning enough to begin with. Expecting the young person to keep getting retrained is ridiculous. It requires expending more of the person’s energy than the benefit he/she gets back!

  10. beidawei says:

    Would third World War solve anything, then? If so, who should it be with?

    • The question is whether such a war could avoid killing everyone off. Even a cold war may have the effect of killing everyone off. Or network sabotage.

      Regarding who is at war with whom, right now it is the United States versus China. These are the two big powers and there are not enough resources to go around.

      • Tsubion says:

        And dear old Russia is sitting quietly on the sidelines… watching everything like a hawk…

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