Donald Trump has decided to declare China a currency manipulator, impose yet more taxes on Americans with the temerity to buy what they wish from where they wish. The obvious truth that tariffs are a change in the terms of trade, that therefore the yuan exchange rate should change being missed. So too the point that China hasn’t in fact intervened to cause the yuan to fall but stopped intervening to prop it up. Not doing anything is a pretty strange manner of actively causing something.
But beyond this is the simple foolishness of looking at trade from a production point of view. By chance an obituary offers a little story:
One evening in 1948 Rex Richards, a young Oxford scientist, found himself at High Table talking to a distinguished American guest. His fellow chemist, Linus Pauling, was soon to win not one but two Nobel prizes.
Richards told Pauling of his interest in the new field of nuclear magnetic resonance (NMR), a process in which nuclei of atoms emit a discernible electromagnetic signal when themselves subjected to a magnetic field. The phenomenon had first been observed by physicists. “I’d quite like to have a go at that,” he said, “but all my physicist friends say I’ll never make it work.”
“The one thing I’ve learnt in my life is never to pay any attention to what the physicists say,” Pauling replied.
“So,” Richards recalled, “I thought, ‘Well, why not?’ ” The decisive turn his career took that evening was to lead to work that greatly influenced the development of new applications for NMR. Perhaps the most familiar use of NMR is in the form of magnetic resonance imaging: medicine’s MRI scan.
That it was actually a pair of physicists who developed the actual MRI machine is just a little bit of fun here.
The point about trade being. The secret at the heart of one of these machines is a crystal - some 5 or 10kg - of lutetium oxide. Made by the same process, but otherwise in an entirely unalike manner, as we all used to grow copper sulphate crystals in stinks class. It is this which turns the changes in a magnetic field into variations in electrical current - it’s piezo magnetic we believe the phrase is - that can then be used to paint an image on a screen.
Two decades back these crystals were made in a factory in Texas. Pretty much all of them for the world - the plant used some 2 tonnes of lutetium a year, about 90% of global consumption at the time. There wasn’t anyone else using much of the stuff so no other production line.
At which point, what’s the important thing here? That some few jobs were located in Texas? Or that the world got cured by access to MRI machines? Or, more accurately, some subset of the world got diagnosed by them? Access to the machine is, we would submit, rather more important than who has made it. Which is indeed the point about trade. We gain access to what is made is the point of it. At which point trade wars over where things get made become redundant, positively harmful even, don’t they?