Hm. The share of national income that goes to workers vs capital is roughly the same in Canada, Germany, and the US (used to be about 60% but dropping since 2000). But the share of GDP going to workers in Mexico is far, far lower, and is even lower than in China. So if domestic demand is based on worker wages and countries with lower return to their workers are net exporters bc their domestic demand is lower, Mexico should be exporting more than China, and Germany should be roughly the same as the US and Canada.
Your theory regarding domestic demand reflecting worker wages given owners of capital don't spend it all makes sense, but that doesn't seem to support that explanation for Germany being a net exporters bc their workers are paid roughly the same share of their national GDP as in the US and Canada. It really seems that in Germany's case they just must prefer saving to consuming (relatively). And how to explain how much Mexico is importing, when their workers are doing terribly as far as share of GDP?? Are they all just in tons of debt and buying on credit or something?
Labor race to the bottom is certainly apparent globally, given worker share of income is falling rapidly in every country since 2000.
I agree we should be taxing capital gains on foreign investment in the US and have a massive amount of wiggle room prior to the point we might have to worry about insufficient capital or investment flows. But frankly we should also be taxing it more domestically, since capital is taxed at only half the rate of labor, and theres no evidence that tax rates on capital have any effect whatsoever on investment rates, which have been steady at around 20% despite massively fluctuating capital gains rates historically.
These are thoughtful points. However the focus on labor share of GDP misses a crucial point about what's driving the competitive advantages and BOP outcomes.
Labor's share of national income appears similar (around 60% in the US, Canada, and Germany), but what matters is whether workers' compensation reflects their *productivity*. It's the productivity share of GDP that matters. That's where the hukou and hartz systems take their toll.
Two countries could both allocate 60% of GDP to labor, yet if one country's workers are more productive and don't see wages that reflect that, they're effectively **underpaid relative to what they produce**. This results in a consumption gap, and results in an export/trade competitive advantage to the country underpaying labor relative to what it produces.
What I mentioned about harming domestic demand when you undermine the wages of labor isn't a theory, it's empirical: workers consume a much larger amount of their income than capital/the wealthy. This necessarily harms domestic consumption when you undermine their wages relative to their productivity and instead allow it to disproportionately flow to capital/the wealthy.
You then export that weak domestic demand onto other nations when you can't sell it at home.
To illustrate: on a GDP/worker basis, Chinese workers are around 20% as productive as US ones. If they earned around 20% of the wage that'd be fine and not a competitive advantage. But they don't, they earn 10-15%. This is a major difference.
The average German worker is around 85-90% as productive as the US one, yet his wage is 75-80%. Same manipulation.
Both China and Germany have productivity-income gaps relative to the US and it allows their persistent surpluses to exist: the average Chinese worker produces about a fifth of what an American worker does, but consumes an even smaller fraction of that output. Same for Germany.
That's what encourages this toxic global race to the bottom and allows large, persistent trade imbalances (which should not consistently exist without a manipulation occurring). It's mechanical, and byproduct of industrial policies that end up impacting trade and BOP outcomes.
While I agree with your overall analysis. You fail to mention that by artificially suppressing their wages these countries are essentially subsidizing the consumption of Americans. This means that Americans are able to afford more goods than they otherwise would be able to.
Therefore, I don't see how the current system is inherently detrimental to US interests. It's more of a mixed bag.
oh it's mentioned, just not in this essay. because that's not relevant to the macro framework being discussed in here regarding BOP deficits, surpluses, and tariffs.
I think a problem you have ommited is the dumping of goods, warm bodies and fentynl via México and Canada to game the trade agreements. If a friend is willing to damage you for their own gain they are no friend. Canada and México failed this metric in monumental manner.
When they act like friends we treat them as such.
The sellout/financialisation by our own elites is another aspect that was not covered. The loss of American production has made many rich.
This is a complex topic. You have an interesting perspective. I consider all of the countries pulling us down (middle class) are not on our side. México and Canada are less bad then China but they are still a net negative to the American middle class. Helping themselves while helping China that is harming us is not acceptable.
ty for reading. I didn't omit that, I addressed that in the very first paragraph: this is purely a trade analysis framework. it has nothing to do with any drug/immigration topics (unless the immigration is analyzed for its wage-suppression techniques). this is a direct analysis regarding only the balance of payments and exporting/importing dynamics.
Canada and Mexico are allies in this trade war for the simple accounting reality they make the US deficit smaller: I was pretty clear on the terms through which I see them as allies, and it's only in this way. in the ways you're describing, I agree with you, they're not friends.
think of it this way: they're allies in global trade in the same way the USSR was with the US in WW2. does that mean they're friends through and through? no, of course not. but there are more serious enemies to be dealt with right now, and they are helping you in that fight. once the greater foe is taken care of, then we can deal with the more trivial matters.
germany and china are creating your structural issues, because they are draining your supply chains with their perversions and creating your deficits in the process: the accounting is what it is, and globalism demonstrates this. they're why detroit is gone, and why supply chains have left. you deal with them to fix your real problems.
The American system of Clay, Lincoln worked fine. Let’s give it another try. Neither Canada nor Mexico are our friends, their resentful vassals. China of course is an opponent.
You’re correct that these policies are religious. Every public policy in America is religious, it always has been.
It would incorrect to think it’s possible for trade to be granular, no more than immigration or any public policy. We are an enormous Federation, the policy must be stark, simple and enforced. Never more than now, we have been betrayed too long and traitors did too well from selling us out.
Regardless of this essay’s merits it will not age well, this world you posit will be impossible as the revelations of corruption pour forth from DOGE. Remember tomorrow is February 6th, the last day for Federal workers to take a package. How long after that does anyone think it will take for the real DOGE bombs emerge from the Treasury payments system. People will hang for the crimes of many over time.
Money and groceries are secondary to survival- or even revenge.
I appreciate the reply. I think we actually agree, we see the same problems, you just don't see how what I'm laying out is in service of fixing them.
that world you cite, the one of Clay, Lincoln, and the like: they abided by these laws of economic reality too. what I'm saying applies back then as well. in fact they understood this much better than we do, which is precisely why they didn't suffer from the same situation. they deployed the defenses I'm discussing here. balance of payments financial law: ignore it at your own peril.
these are not new concepts I'm covering. this essay is edgy the same way Nassim Taleb is when he reminds us of Black Swans or "skin in the game": these are ancient truths that modernity has simply forgotten because it thinks it knows better. it thinks it can out-engineer basic rules of accounting. some financial concepts are natural law in a similar way that gravity is. I use the term "financial physics" for a reason.
it's this kind of narrative-driven reasoning you're using, the kind I reference in the essay, that avoids the BOP reality of why we're in this situation, and allows it to persist. the labor policies of china and germany are cancerous, we must address them, it’s unequivocally wreaking havoc on us back home.
supply chains haven't left the US because USAID funds trans ballets in Ireland. Detroit is not eviscerated because of George Soros slush funds. you don't deal with the real enemy here you'll never fix anything.
that we're talking about DOGE speaks to this: it's not a serious answer to this issue. it definitely helps, however the US budget deficit is approaching 1.8 TRILLION dollars annually as of 2024, germany and china alone run over a half trillion surplus, and have created major second-order effects for us domestically. we are playing with big-boy numbers here, and need adult, mechanical solutions to rectify it. I love what Elon is doing, but exposing waste and corruption mathematically does not solve this issue.
the strategy of the Bug is a perverse one that is made easier via the efficiencies of modern technology and globalism. you do not fix Hukou manufacturing manipulations or Hartz-tier problems, the kind that have gutted your entire manufacturing sectors, with "Elon is firing a lot of bureaucrats and cutting waste" answers. the math is what it is.
and Canada and Mexico are allies in this war, the same way the USSR was with the US in WW2. does that mean they're warm-and-fuzzy friends through and through? no, of course not. but there's more serious enemies to be dealt with right now, and they are helping you in that fight. once the greater foe is taken care of, then we can deal with the more trivial matters.
oh dear indeed. getting hung up on the world "adult" and going on a series of strange tangents that have almost zero bearing on the nature of what I'm saying would typically just get ignored from me.
but since this essay is genuinely valuable for those who want to understand a real international problem and how to address it, I'll reply to this from a meta standpoint: readers who come across this comment, this is why the above is both a distraction, and more importantly allows this problem to persist with selectively curated narrative-style politicized reasoning (how basically every politician approaches it):
- no one said math people should be in charge. what a silly strawman. math doesn't tell you what you should value or work towards, but it DOES tell you when something is wrong, and whether or not your solution stands in contrast to hard reality.
here's a simple example of when you should accept military strategy from a physicist, not a general:
> "they have a nuclear weapon. if they detonate it you are going to lose if you fight a nuke with guns and grenades because *explains how nuclear fission works*
> "don't listen to this nerd! he knows not the will of man and nature of political and military strategy! we can overcome this nuke with the will to triumph and by getting better guns."
the physicist shouldn't be dictating if the war should be fought to begin with or its goals, but he does dictate, with physics, what kinetic fights can and cannot be won and with what tools. you want to take a gun to a nuke fight and feel smart about it, you go right ahead. quote all the political theorists you want, doesn't change the nature of the result and why it works that way.
what I described in the essay fits this example to a T insofar as how trade must work between parties. math. if you don't understand the basics of trade accounting and financial physics of how they *must* reconcile, you won't get this analogy.
a couple other points to show how this person is either willfully mischaracterizing the essay because he dislikes accounting, or he just doesn't understand what's going on:
>"It seems Germany is … not a friend of yours?"
that he reads personal commentary, like me liking/disliking germany personally, out of this demonstrates no capacity to internalize this essay. germany deploys a mercantilist exporting strategy, I identified it and laid it out. this is how they achieve massive surpluses, creating deficits elsewhere. sorry this accounting is distressing to you. injecting nonsense like this is a means to distract. strange there's no issue with undermining the middle class!
this is part of that "human-readable narrative" that guys like this will always insist on overlaying onto things. everything is top-down to them, they see nothing from a bottom-up environment perspective.
>north korea comments
this is a very small economy that did roughly $1B in trade or so, like 70% w china. and yes, if you undermine labor with Hartz-style actions, you will gain competitive export advantage. you could get an even greater exporting advantage with slaves! it's the same idea man!
BOP/exporting dynamics don't apply to NK? what? there is nothing even here for me to address. he's just making things up and asserting them confidently.
most people genuinely simply don't understand trade dynamics like I've laid out here. because understanding the systemic nature of the machine is hard, and having a political opinion and narrative is very easy; so we get a deluge of the latter with zero comprehension of the former.
being an adult means addressing the actual problem, not window-dressing narrative vibes. look at the size of the surpluses, look at the size of your deficit, take a look at michigan while you're at it. figure it out.
lastly, what I'm doing here isn't economics, it's accounting; there's a difference, and must economists aren't that great at it.
Hm. The share of national income that goes to workers vs capital is roughly the same in Canada, Germany, and the US (used to be about 60% but dropping since 2000). But the share of GDP going to workers in Mexico is far, far lower, and is even lower than in China. So if domestic demand is based on worker wages and countries with lower return to their workers are net exporters bc their domestic demand is lower, Mexico should be exporting more than China, and Germany should be roughly the same as the US and Canada.
Your theory regarding domestic demand reflecting worker wages given owners of capital don't spend it all makes sense, but that doesn't seem to support that explanation for Germany being a net exporters bc their workers are paid roughly the same share of their national GDP as in the US and Canada. It really seems that in Germany's case they just must prefer saving to consuming (relatively). And how to explain how much Mexico is importing, when their workers are doing terribly as far as share of GDP?? Are they all just in tons of debt and buying on credit or something?
Labor race to the bottom is certainly apparent globally, given worker share of income is falling rapidly in every country since 2000.
I agree we should be taxing capital gains on foreign investment in the US and have a massive amount of wiggle room prior to the point we might have to worry about insufficient capital or investment flows. But frankly we should also be taxing it more domestically, since capital is taxed at only half the rate of labor, and theres no evidence that tax rates on capital have any effect whatsoever on investment rates, which have been steady at around 20% despite massively fluctuating capital gains rates historically.
These are thoughtful points. However the focus on labor share of GDP misses a crucial point about what's driving the competitive advantages and BOP outcomes.
Labor's share of national income appears similar (around 60% in the US, Canada, and Germany), but what matters is whether workers' compensation reflects their *productivity*. It's the productivity share of GDP that matters. That's where the hukou and hartz systems take their toll.
Two countries could both allocate 60% of GDP to labor, yet if one country's workers are more productive and don't see wages that reflect that, they're effectively **underpaid relative to what they produce**. This results in a consumption gap, and results in an export/trade competitive advantage to the country underpaying labor relative to what it produces.
What I mentioned about harming domestic demand when you undermine the wages of labor isn't a theory, it's empirical: workers consume a much larger amount of their income than capital/the wealthy. This necessarily harms domestic consumption when you undermine their wages relative to their productivity and instead allow it to disproportionately flow to capital/the wealthy.
You then export that weak domestic demand onto other nations when you can't sell it at home.
To illustrate: on a GDP/worker basis, Chinese workers are around 20% as productive as US ones. If they earned around 20% of the wage that'd be fine and not a competitive advantage. But they don't, they earn 10-15%. This is a major difference.
The average German worker is around 85-90% as productive as the US one, yet his wage is 75-80%. Same manipulation.
Both China and Germany have productivity-income gaps relative to the US and it allows their persistent surpluses to exist: the average Chinese worker produces about a fifth of what an American worker does, but consumes an even smaller fraction of that output. Same for Germany.
That's what encourages this toxic global race to the bottom and allows large, persistent trade imbalances (which should not consistently exist without a manipulation occurring). It's mechanical, and byproduct of industrial policies that end up impacting trade and BOP outcomes.
While I agree with your overall analysis. You fail to mention that by artificially suppressing their wages these countries are essentially subsidizing the consumption of Americans. This means that Americans are able to afford more goods than they otherwise would be able to.
Therefore, I don't see how the current system is inherently detrimental to US interests. It's more of a mixed bag.
oh it's mentioned, just not in this essay. because that's not relevant to the macro framework being discussed in here regarding BOP deficits, surpluses, and tariffs.
it warrants its own essay: https://thedosagemakesitso.substack.com/p/mid-range-jumpers-for-the-middle
in fact, maybe two of them: https://thedosagemakesitso.substack.com/p/touching-soul-touching-senses-the
I think a problem you have ommited is the dumping of goods, warm bodies and fentynl via México and Canada to game the trade agreements. If a friend is willing to damage you for their own gain they are no friend. Canada and México failed this metric in monumental manner.
When they act like friends we treat them as such.
The sellout/financialisation by our own elites is another aspect that was not covered. The loss of American production has made many rich.
This is a complex topic. You have an interesting perspective. I consider all of the countries pulling us down (middle class) are not on our side. México and Canada are less bad then China but they are still a net negative to the American middle class. Helping themselves while helping China that is harming us is not acceptable.
ty for reading. I didn't omit that, I addressed that in the very first paragraph: this is purely a trade analysis framework. it has nothing to do with any drug/immigration topics (unless the immigration is analyzed for its wage-suppression techniques). this is a direct analysis regarding only the balance of payments and exporting/importing dynamics.
Canada and Mexico are allies in this trade war for the simple accounting reality they make the US deficit smaller: I was pretty clear on the terms through which I see them as allies, and it's only in this way. in the ways you're describing, I agree with you, they're not friends.
think of it this way: they're allies in global trade in the same way the USSR was with the US in WW2. does that mean they're friends through and through? no, of course not. but there are more serious enemies to be dealt with right now, and they are helping you in that fight. once the greater foe is taken care of, then we can deal with the more trivial matters.
germany and china are creating your structural issues, because they are draining your supply chains with their perversions and creating your deficits in the process: the accounting is what it is, and globalism demonstrates this. they're why detroit is gone, and why supply chains have left. you deal with them to fix your real problems.
The American system of Clay, Lincoln worked fine. Let’s give it another try. Neither Canada nor Mexico are our friends, their resentful vassals. China of course is an opponent.
You’re correct that these policies are religious. Every public policy in America is religious, it always has been.
It would incorrect to think it’s possible for trade to be granular, no more than immigration or any public policy. We are an enormous Federation, the policy must be stark, simple and enforced. Never more than now, we have been betrayed too long and traitors did too well from selling us out.
Regardless of this essay’s merits it will not age well, this world you posit will be impossible as the revelations of corruption pour forth from DOGE. Remember tomorrow is February 6th, the last day for Federal workers to take a package. How long after that does anyone think it will take for the real DOGE bombs emerge from the Treasury payments system. People will hang for the crimes of many over time.
Money and groceries are secondary to survival- or even revenge.
I appreciate the reply. I think we actually agree, we see the same problems, you just don't see how what I'm laying out is in service of fixing them.
that world you cite, the one of Clay, Lincoln, and the like: they abided by these laws of economic reality too. what I'm saying applies back then as well. in fact they understood this much better than we do, which is precisely why they didn't suffer from the same situation. they deployed the defenses I'm discussing here. balance of payments financial law: ignore it at your own peril.
these are not new concepts I'm covering. this essay is edgy the same way Nassim Taleb is when he reminds us of Black Swans or "skin in the game": these are ancient truths that modernity has simply forgotten because it thinks it knows better. it thinks it can out-engineer basic rules of accounting. some financial concepts are natural law in a similar way that gravity is. I use the term "financial physics" for a reason.
it's this kind of narrative-driven reasoning you're using, the kind I reference in the essay, that avoids the BOP reality of why we're in this situation, and allows it to persist. the labor policies of china and germany are cancerous, we must address them, it’s unequivocally wreaking havoc on us back home.
supply chains haven't left the US because USAID funds trans ballets in Ireland. Detroit is not eviscerated because of George Soros slush funds. you don't deal with the real enemy here you'll never fix anything.
that we're talking about DOGE speaks to this: it's not a serious answer to this issue. it definitely helps, however the US budget deficit is approaching 1.8 TRILLION dollars annually as of 2024, germany and china alone run over a half trillion surplus, and have created major second-order effects for us domestically. we are playing with big-boy numbers here, and need adult, mechanical solutions to rectify it. I love what Elon is doing, but exposing waste and corruption mathematically does not solve this issue.
the strategy of the Bug is a perverse one that is made easier via the efficiencies of modern technology and globalism. you do not fix Hukou manufacturing manipulations or Hartz-tier problems, the kind that have gutted your entire manufacturing sectors, with "Elon is firing a lot of bureaucrats and cutting waste" answers. the math is what it is.
firing gov employees doesn't bring supply chains back home. tariffing canada doesn't either.
and Canada and Mexico are allies in this war, the same way the USSR was with the US in WW2. does that mean they're warm-and-fuzzy friends through and through? no, of course not. but there's more serious enemies to be dealt with right now, and they are helping you in that fight. once the greater foe is taken care of, then we can deal with the more trivial matters.
oh dear indeed. getting hung up on the world "adult" and going on a series of strange tangents that have almost zero bearing on the nature of what I'm saying would typically just get ignored from me.
but since this essay is genuinely valuable for those who want to understand a real international problem and how to address it, I'll reply to this from a meta standpoint: readers who come across this comment, this is why the above is both a distraction, and more importantly allows this problem to persist with selectively curated narrative-style politicized reasoning (how basically every politician approaches it):
- no one said math people should be in charge. what a silly strawman. math doesn't tell you what you should value or work towards, but it DOES tell you when something is wrong, and whether or not your solution stands in contrast to hard reality.
here's a simple example of when you should accept military strategy from a physicist, not a general:
> "they have a nuclear weapon. if they detonate it you are going to lose if you fight a nuke with guns and grenades because *explains how nuclear fission works*
> "don't listen to this nerd! he knows not the will of man and nature of political and military strategy! we can overcome this nuke with the will to triumph and by getting better guns."
the physicist shouldn't be dictating if the war should be fought to begin with or its goals, but he does dictate, with physics, what kinetic fights can and cannot be won and with what tools. you want to take a gun to a nuke fight and feel smart about it, you go right ahead. quote all the political theorists you want, doesn't change the nature of the result and why it works that way.
what I described in the essay fits this example to a T insofar as how trade must work between parties. math. if you don't understand the basics of trade accounting and financial physics of how they *must* reconcile, you won't get this analogy.
a couple other points to show how this person is either willfully mischaracterizing the essay because he dislikes accounting, or he just doesn't understand what's going on:
>"It seems Germany is … not a friend of yours?"
that he reads personal commentary, like me liking/disliking germany personally, out of this demonstrates no capacity to internalize this essay. germany deploys a mercantilist exporting strategy, I identified it and laid it out. this is how they achieve massive surpluses, creating deficits elsewhere. sorry this accounting is distressing to you. injecting nonsense like this is a means to distract. strange there's no issue with undermining the middle class!
this is part of that "human-readable narrative" that guys like this will always insist on overlaying onto things. everything is top-down to them, they see nothing from a bottom-up environment perspective.
>north korea comments
this is a very small economy that did roughly $1B in trade or so, like 70% w china. and yes, if you undermine labor with Hartz-style actions, you will gain competitive export advantage. you could get an even greater exporting advantage with slaves! it's the same idea man!
BOP/exporting dynamics don't apply to NK? what? there is nothing even here for me to address. he's just making things up and asserting them confidently.
most people genuinely simply don't understand trade dynamics like I've laid out here. because understanding the systemic nature of the machine is hard, and having a political opinion and narrative is very easy; so we get a deluge of the latter with zero comprehension of the former.
being an adult means addressing the actual problem, not window-dressing narrative vibes. look at the size of the surpluses, look at the size of your deficit, take a look at michigan while you're at it. figure it out.
lastly, what I'm doing here isn't economics, it's accounting; there's a difference, and must economists aren't that great at it.