Located about 6,940 miles west of Washington, DC, and aligned roughly on the same latitude, is Beijing, the heart of China. Here resides Xi Jinping, the nation’s paramount leader. As reported by Forbes, Xi stands as one of the most powerful and influential figures globally.
Xi is undoubtedly a shrewd leader. He knows how to connect with his citizens, offering them the promise of the “Chinese Dream,” which they eagerly embrace, much like fairgoers devouring boysenberry funnel cakes.
Xi also understands the importance of strategic actions. He has laid out his vision for global supremacy through the Belt and Road Initiative, garnering unwavering support from his people.
Yet, not all is well for Xi…
After years of unwavering loyalty and effort, Xi rose to prominence within the Communist Party of China in 2016, earning the esteemed title of core leader. It must have been a realization of unfulfilling irony as he faced a brash New York figure like President Trump on the global stage.
What could be more disappointing for a leader from a culture that values “saving face” than having to grapple with Trump?
Trump is notorious for his unrefined behavior, often preparing for political encounters like dressing for a brawl, while Xi prefers a more diplomatic approach like settling disputes at the poker table.
Trump’s antics and the fervent support among his followers create a challenging scenario for Xi, who, to maintain his dignity, finds himself in a messy situation with Trump. This escalating trade war presents the perfect battleground for such a clash.
We’ll explore this further shortly, but first, let’s take a brief detour for some insights…
Understanding Government Intervention
In 1850, the French economist Frédéric Bastiat penned a concise essay titled, “That Which is Seen, and That Which is Not Seen.” In it, Bastiat uses the parable of the broken window to illustrate the visible and hidden consequences of government intervention. He highlights how some effects of a law or policy are immediately observable, while others unfold over time, remaining unseen—a principle that certainly applies today.
The belief in government benevolence through forced philanthropy, along with the disregard for the far-reaching implications of such actions, persists in our current landscape. For instance, rent control often leads to a shortage in new housing developments, further aggravating the very issue it aimed to resolve—affordable housing.
Local governments frequently respond with misguided solutions, such as mandating low-income units in new projects, which discourages developers from investing and amplifies the lack of affordable housing. After years of misguided efforts, cities now face increasing homelessness and a scarcity of affordable options.
Consider the situations in Santa Monica or San Francisco, where the results of well-intentioned policies have led to dire sanitary conditions. San Francisco’s response to its human waste problem includes the introduction of 18 staffed public restrooms, known as pit stops, since 2014, with plans for five more.
In one notable example, a software engineer even mapped the exact locations of human waste across the city. This tool serves residents and visitors alike, showcasing the tangible chaos that government solutions can create.
Can you fathom the absurdity?
The Foundations of an Economic Crisis
At both national and international levels, governments often propose new solutions to address the fallout from prior interventions. This tendency leads to an endless cycle where new government solutions spawn even more issues. Recently, for instance, President Trump announced a $12 billion “short-term” stimulus plan aimed at assisting US farmers impacted by his own trade tariffs against China, which impose duties on around $34 billion worth of American products and agricultural goods.
According to Zero Hedge, the support package will include direct payments, food purchases, and trade development, all authorized under the Commodity Credit Corporation Act—eliminating the need for Congressional approval. Further details are anticipated by Labor Day, as shared by USDA Secretary Sonny Perdue and top officials.
However, many farmers are rejecting Trump’s solution. They do not wish to be reliant on welfare, understanding that free handouts can undermine their own ingenuity and industriousness.
It’s crucial to remember that these trade tariffs emerged as an answer to concerns surrounding trade deficits—deficits caused by fiat money policies and unlimited debt issuance, which the government instituted in place of a more disciplined gold standard. Each layer of response to previous solutions obscures unseen repercussions, escalating the economic consequences.
In the USA, Trump’s tariffs provoke adverse effects, which he counters with farm subsidies. Conversely, in Beijing, Xi also possesses strategies to employ. While China may exhaust its capacity to impose tariffs on U.S. imports before the U.S. can do the same on Chinese goods, Xi has embraced a classic state strategy: currency devaluation.
Since April, the yuan has depreciated almost 8 percent against the dollar. Is this a mere coincidence or a retaliatory measure in response to Trump’s trade war?
In time, clarity will emerge on these issues. Regardless of the outcomes, the strategies being employed by Trump and Xi, akin to friends wrestling in the mud, promise to fulfill the criteria of a major economic disaster.
Sincerely,
MN Gordon
for Economic Prism
Return from All the Makings of a Major Economic Fiasco to Economic Prism
