I have recently listened to a podcast by Peter Schiff concerning the China - US trade war. Schiff to me is an interesting chap; he always puts an interesting spin on things. However, from time to time his rhetoric is very predictable. I knew going into the podcast that he would be pessimistic about the US situation, however I think he may have gone too far with this analogy. I'm paraphrasing here, but it's almost word for word, I'm just condensing:
To understand who would "win" the trade war between the US and China, let's imagine a simpler model. Suppose there is an imaginary island that has 4 people on it: 1 American and 3 Chinese people. Let's say they have to survive on this island somehow. One Chinese person is tasked with going out and fishing. Another Chinese person is tasked with foraging for fruits and other edible plants. The third Chinese person is tasked with preparing and cooking the food. So what does the American do? Well, he simply eats! Now he doesn't eat everything, he leaves enough for the three Chinese people to sustain themselves, but the American does get the lion's share. This illustrates the precariousness of the US economy; should the Chinese ever decide to kick the US off the island, they have the skills they need to survive. And by analogy, the Chinese can win the trade war since they are making a lot of useful things whereas America's economy is primarily consumption.
It sounds kind of absurd when simplified this way, but I think Schiff has made some excellent points (in a rather humurours way to boot). Let us concede that trying to predict who will "win" the trade war (might be more a lose/lose) is a very speculative matter, so let's cut Schiff some slack. It's not easy to take a risk and stake one's reputation. With that said...
Question: Are there any glaring errors in this analogy? Is there a way to make the analogy more realistic?
My personal critique:
- The notion that the Chinese do all the work so the American can gorge himself and get hardly anything in return for themselves seems over the top. When America consumes Chinese products, China is getting USD in return, which is the world reserve currency and they can use that to buy or invest in anything in the world. Surely that's worth something. Of course, it's true that the RMB has been climbing the currency rankings in the past few years, but still, there are limitations on RMB denominated options.
- There are certain sectors that America is adept at. America has a powerful agriculture sector that produces much of the worlds wheat and a handful of other crops.
That's what I have so far. I would like to find other errors in Schiff's analogy. If possible, I would like to improve on his analogy and make it more realistic.