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Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace

4.18  ·  Rating details ·  420 ratings  ·  61 reviews
A provocative look at how today’s trade conflicts are caused by governments promoting the interests of elites at the expense of workers

Trade disputes are usually understood as conflicts between countries with competing national interests, but as Matthew C. Klein and Michael Pettis show in this book, they are often the unexpected result of domestic political choices to ser
Hardcover, 288 pages
Published May 19th 2020 by Yale University Press
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May 20, 2020 rated it really liked it
Shelves: nonfiction
This book deserves a mass-market push that it seems to not be getting. Instead, it's probably being read by people like me who are already familiar with the arguments from Pettis's writing but want it in book length. In terms of difficulty for the laymen, it lies somewhere between a book digestible enough for someone who doesn't remember their high school economics and an academic treatise for the economics PhD. That is to say, I found it cogent and surprisingly brief, but it does not seek to en ...more
When the United States imposed sanctions on government officials in the City of Hong Kong for their enactment of a draconian "National Security Law" earlier this month (August 2020), the largest banks in China complied. For all of the hollowing out of the capacity of the current administration in the past four years, for all of its missteps, blatant corruption, and pie in the sky plans, it shows only the dollar is still almighty if Chinese banks must comply.

For all the dollar's strength as a gl
Jul 23, 2020 rated it really liked it  ·  review of another edition
If you read enough debates about the poor pay practices of various big box retailers, a simple question eventually comes up. “If you don’t pay your workers more than a minimal wage, how are they going to be able to afford the stuff you sell?” That is a good place to start in considering “Trade Wars are Class Wars”.

Trade politics is just about always messy and the closer one looks the more political it appears. Formal rational economic models seem out of place. If one has followed recent gyration
David Childers
May 31, 2020 rated it liked it
This is basically an exercise in balance of payments accounting, with some financial history thrown in. The main thesis is that the functional distribution of income determines savings rates, which determine the current account balance, and that political economic forces which have redistributed income away from workers, have been the major drivers of recent patterns of global imbalances. The focus is placed on Germany, where high national savings is attributed to policy changes post unification ...more
Jul 16, 2020 rated it it was amazing
A refreshing book with some unusual arguments:

1. Trade wars happen because manufacturing jobs have moved from advanced to developing countries such as China and Mexico. Trade unions become powerless. Blue collared workers lose their jobs. Poor people overdose themselves with opioids or commit suicide. Civic societies disappear. They vote for populists like Trump. So Trump start trade wars.

2. This is possible only because of inequalities in exporting countries like China and Germany. Their worke
Jamie Pastore
Jun 01, 2020 rated it it was amazing
Really enjoyed the mix of history, policy, politics, economics, and finance that this book was able to pack in without being overly long or dense. The ability to simply and clearly explain why intra-nation distribution of resources affect the rest of the world is done exceptionally well by the authors and made for very enjoyable reading.
Sep 17, 2020 rated it it was amazing
Alarmingly, the trend in which we see workers handing over their hard earned money to the wealthy elite, is far from a national crisis. It's a global crisis. You would think that if each country has its own laws and policies, you would see very different outcomes. But, it seems that laws and policies in individual countries only serve to globally make the poor poorer and rich richer. It can be confusing to think about because we all know that even some poor people in America today are able to ea ...more
Jul 28, 2020 rated it really liked it
Shelves: economics
Summarizing my thoughts/takeaways from the book:

Capital flows lead, and not follow, current account flows. Meaning an EM fad ends up forcing a Brazil or India to run deficits just from pure accounting. EM countries realized this through multiple painful experiences and started sterilizing these flows to prevent sudden stops. Can't blame their action but this artificially kept domestic wages low. When wages are low, capitalists are not forced to innovate i.e. increase productivity. For the Americ
Amy David
The authors put forth a very important thesis: trade surpluses are not some grand accomplishment by a country making itself critical to the world economy, but rather the result of austerity measures that strip workers of their purchasing power. They explain how domestic class war underpins global trade war, and the continuing negative effects we can expect from such policies.

The problem is that this book is far too technical for a layperson, and I wish it were as accessible as it's portrayed by
Yannick M
Jun 05, 2020 rated it it was amazing
Great book. Not only does it argue its thesis well, you'll also learn a lot about the history and present of international trade and finance. Very readable and not longer than it needs to be. ...more
May 24, 2020 rated it it was amazing  ·  review of another edition
What an excellent overview of State current account balances and how this is deeply intertwined with the question of inequality. After a quick overall historical approach describing the growth of global trade and finance, the authors provide a deep dive on the trade situation in China, Germany, and the US in each describing the status with respect to their historical and current day drivers for international trade flows (the German chapter amazing, but I’m biased in living here). Naturally this ...more
Aug 01, 2020 rated it it was ok
Disappointing in its execution of a well-reasoned and argued premise. Instead of an examination of trade wars and a detailed analysis of the class wars existing in the societies discussed by the authors, the book focuses on international economic/financial history and national accounts of economic policymaking decisions of the 20th and 21st century. The 'trade wars' aspect of the book is confined to brief allusions to the current trade conflict between the United States and China and the somewha ...more
Peter Verboven
Dec 27, 2020 rated it liked it
It took me three days to decide whether to give three or four stars to this book. Up until I started the very last chapter, I was firmly convinced no to go any higher than three at all. But those final few pages managed to make me reflect on many things I have held self-evident for so long, they changed my appreciation for the entire book.

Klein and Pettis built the entire tome around the notion that trade wars are not conflicts between countries, but rather the inevitable result of structural in
Oliver Kim
Sep 11, 2020 rated it it was amazing
Probably the most cogent short economics book to come out in the last couple of years. Leans a bit technical for mass appeal -- the analysis is couched very much in the standard economese of current account surpluses and deficits-- but the conclusions are nothing if not radical. Think of it as the international complement to Piketty's Capital.

Pettis and Klein argue that domestic imbalances -- namely, the suppression of wages and social spending in favor of capital -- are the primary drivers of i
Jason Bailey
Jul 01, 2020 rated it it was amazing
There are two dominant views about international trade. The first, the simplistic econ 101 view, is that trade is always good because it allows countries to specialize and, through comparative advantage, grow the pie for all. The second, personified currently by the claims of Donald Trump, is that trade is a war of country vs country that governments should fight to win, and that currently China is "eating our lunch."

Both views are wrong, as shown in this brilliant book. The reason countries lik
Keith Wheeles
Timely and well-supported, reaching a conclusion I have been grappling with in examining income inequality (and its impact on domestic consumption - the key driver of a market economy).
'The thesis of this book is that rising inequality within countries heightens trade conflicts between them.'
It examines the impact of income inequality not only in the US, but in China and Germany. The key difference in the way this impacts those three countries is that the US currently possesses the world's reser
Jan 01, 2021 rated it it was amazing
Remarkable book that sheds light on the myriad connections between international economics/finance and public policy issues that shape the world around us which transcend borders. Policies implemented domestically, especially by countries of greater economic power in their respective spheres of influence (US, Germany, China, Japan), have subtle but resounding impacts on other countries and the daily lives of their citizens: distribution of wealth, unemployment, access to credit, healthcare and o ...more
Jun 28, 2020 rated it it was amazing
Shelves: economics-etc
This book was a real eye-opener. The authors explain how capital flows wreak havoc all over the world. Two mechanisms are central to the book. First, countries in which capital owners reap more of the rewards of productivity improvements than workers end up with excess savings (because the rich save a bigger chunk of their income). Second, these excess savings flow to other countries, pushing down interest rates and spurring consumption on imports. The countries receiving these inflows rarely ma ...more
Elizabeth Lim
Oct 20, 2020 rated it really liked it
the bads: i've clearly forgotten my econ degree (in fact this is JC-level econs) because i definitely glossed over a lot of the heavy economic mechanisms and explanations. also bad, i think the title is a little click-baity, there is some relationship to inequality (wealth hoarded by business owners leads to less salary for workers and less consumption and thus trade surpluses --> which mean deficits for others), but not as strong as i would've liked

the goods: some compelling theses to add to yo
Oct 29, 2020 rated it it was amazing
This is an extraordinary book. It offers an extremely clear and accessible description of how the modern world economy works, focusing on how conditions within countries--most notably the ongoing struggles between workers and owners--shape trade and financial flows between countries. The authors argue that rising inequality in countries like Germany and China is the fundamental driver of trade imbalances in the world today: because German and Chinese workers are paid much less than their product ...more
John Calhoun
Aug 21, 2020 rated it liked it
This book argues for the following thesis: “Trade war is often presented as a war between countries. It is not: it is a conflict mainly between bankers and owners of financial assets on one side and ordinary households on the other — between the very rich and everyone else.”

In essence, Pettis & Klein contend that surplus countries like China, the EU, or Germany intentionally transfer resources from their "99%" to support their "1%," such that those countries have tons of money saved because rich
Richard Marney
Oct 21, 2020 rated it really liked it
A fresh, thought provoking analysis of the link between inequality within countries and global (trade and financial) imbalances. The “war” referenced in the title is a form of a class struggle between capital and labour (the economic elite and the less affluent) rather than a clash of conflicting national interests in the narrow area of international trade. The authors use China and Germany as examples of increasingly unequal countries whose capital-intensive, export-oriented economic models hav ...more
Dec 15, 2020 rated it really liked it
Good book, interesting thesis - basically trade deficits are a result of internal political decisions - if you muck around with markets and create inequalities, your local demand drops, and you export. It's kind of intuitive, but IMO it's hard to connect the dots all the way down to micro decisions - appears to wave away a good deal of complexity, but I guess that's just how macroeconomics works (which is why I never liked it). The German example is the clearest. Pretty different view of macroec ...more
Joe Rigodanzo
Nov 10, 2020 rated it it was amazing  ·  review of another edition
Proactive and convincing. Changed my perspective, especially on Germany’s policies. The book has broadly three parts, plus a conclusion: (1) History and Theory (2) China (3) Germany and (4) the United States.

If you are American and looking for the reasons why American manufacturing has declined, consumption and debt has skyrocketed, and stocks / treasuries are in higher demand than ever then this is your book.

If you’re curious about how inequality manifests itself very differently in China and
Dec 28, 2020 rated it it was amazing
A macroeconomics masterclass! I would highly recommend this book to anyone interested in understanding global trade and it’s implications. At this moment one of my life’s side quests is to understand how the US got to be the superpower that it is today and this book gives some very important knowledge upon the topic, it also gives perspective on how different countries developed and how China and Germany have got to were they are today. On the down side, it’s somewhat difficult to read if you ar ...more
Oct 04, 2020 rated it it was amazing
Okay, so I thought this was the best economics book that I’ve read so far this year.

While I still need to think about whether I agree with the books central premise - that inequality within a country gives rise to global imbalances - I did find the chapter on why Germany runs a current account surplus to be particularly fascinating.

The chapter on China was less revelatory-nothing particularly memorable. Its emphasis on the Houkou system though, the absence of health care and safety nets, did mak
Fukky Tantang
Oct 06, 2020 rated it it was amazing
Short summary of the book:

Countries have persistent current account surplus because there is a lack of domestic demand. Lack of domestic demand is caused by lack of income growth among the population since majority of the profit is kept by big businesses. This surplus is then exported to countries with persistent current account deficit as investments. These investments can cause booms and busts in the "deficit" countries. In the US, the foreign capital coming in is used to fuel consumption via
Benjamin Huber-Rodriguez
Clearly these folks know what the fuck they are talking about but this is a pretty technical analysis with a lot of numbers and values and a lot of requirement to carry over knowledge of terms, concepts and statistics from previous sections. I bet if I studied economics in an academic setting I woulda got more out of it. As is, I think that although their thesis is well organized and presented, they don't tie the story together with real life stories like the best economics books do. It's all ve ...more
X Li
May 27, 2020 rated it liked it
Recently there has been a spate of books taking readers on a historical tour of the economics field in order to reconstruct the theoretical or philosophical foundations of a social science that is increasingly being democratized by insights derived from data. The casting of economics as a fundamentally analytical science may seem like old news for those who have always viewed economics as a rational sport, but is interesting in light of the other big wave in the field - the rise of the myriad of ...more
Jun 29, 2020 rated it it was amazing
Very dense in places and could possibly be improved by reordering the chapters and add more diagrams and charts.

Nevertheless a really enjoyable read that was really insightful into how the global financial system functions

Core takeaways would be how inequality raises a nation's overall savings rate and that inbound capital controls and very tight lending restrictions make more sense for smaller economies like Australia and New Zealand than more classical economic theory would suggest.
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Matthew C. Klein is the economics commentator at Barron's. He previously wrote for the Financial Times, Bloomberg, and The Economist, and was once an investment associate at Bridgewater Associates. ...more

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126 likes · 31 comments
“The innovation of the high-savings development strategy is that consumption is squeezed to pay for productive investment in infrastructure and capital goods, rather than to pay for elaborate monuments and the military. Done correctly, this investment raises ordinary people’s living standards even as their share of economic output declines. The high-savings model is therefore the original version of trickle-down growth.” 0 likes
“With investment levels so high and already being misallocated on a massive scale, the central government might have preferred higher consumption. But China’s myriad institutional constraints, which we will discuss in more detail later in the chapter, meant that consumption could not have grown quickly enough except through a surge in household borrowing. Unsurprisingly, given what the Chinese leadership had just seen occur in the United States, there was no interest in a similar experience. That is why the government chose to focus on boosting investment. The most straightforward response to the global financial crisis was a massive boost in infrastructure and housing investment to offset the decline in foreign spending. This simultaneously magnified China’s long-standing imbalances while shifting them inward. China was able to sustain growth even as its current account surplus fell at the cost of a nearly unprecedented surge in Chinese indebtedness. Unproductive investments have failed to pay for themselves.2 The danger is that the Chinese government, having reached the limits of its ability to generate rapid growth through debt-funded investment, will once again attempt to shift the costs of its economic model to the rest of the world through trade surpluses and financial outflows. The only way to prevent this is to rebalance the Chinese economy so that household consumption is prioritized over investment. That means reversing all of the existing mechanisms transferring purchasing power from Chinese workers and retirees to companies and the government—reforms at least as dramatic and politically difficult as the reforms implemented by Deng Xiaoping beginning in 1978. Unfortunately for China, the choices of the past few decades have become politically entrenched. It is easy for an antidemocratic authoritarian regime to suppress workers’ rights and shift spending power from consumers to large companies. Stalin did it, after all. The problem is that years of state-sponsored income concentration creates a potent group of “vested interests”—Premier Li Keqiang’s preferred term—that will fiercely resist any reforms that would shift spending power back to consumers. Any successful adjustment” 0 likes
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