Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace
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- Create Date：2021-07-18 09:53:27
- Update Date：2025-09-06
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- Author：Matthew C. Klein
- ISBN：0300244177
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Summary
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 serve the interests of the rich at the expense of workers and ordinary retirees。
Klein and Pettis trace the origins of today’s trade wars to decisions made by politicians and business leaders in China， Europe， and the United States over the past thirty years。 Across the world， the rich have prospered while workers can no longer afford to buy what they produce， have lost their jobs， or have been forced into higher levels of debt。 In this thought-provoking challenge to mainstream views， the authors provide a cohesive narrative that shows how the class wars of rising inequality are a threat to the global economy and international peace—and what we can do about it。
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 serve the interests of the rich at the expense of workers and ordinary retirees。
Klein and Pettis trace the origins of today’s trade wars to decisions made by politicians and business leaders in China， Europe， and the United States over the past thirty years。 Across the world， the rich have prospered while workers can no longer afford to buy what they produce， have lost their jobs， or have been forced into higher levels of debt。 In this thought-provoking challenge to mainstream views， the authors provide a cohesive narrative that shows how the class wars of rising inequality are a threat to the global economy and international peace—and what we can do about it。
Reviews
Michael
，
This book was not at all what I was expecting。 The basic argument is that too many countries have prioritized the consumption and export habits of specific elites leading to bad outcomes for the entire world。 There's a ton of really fascinating economic and politival history in here was pretty well explained。 There's good explanation of why bilateral trade deficits are meaningless， as well as why some specific countries economic statistics are heavily distorted （mainly because of tax advantage f This book was not at all what I was expecting。 The basic argument is that too many countries have prioritized the consumption and export habits of specific elites leading to bad outcomes for the entire world。 There's a ton of really fascinating economic and politival history in here was pretty well explained。 There's good explanation of why bilateral trade deficits are meaningless， as well as why some specific countries economic statistics are heavily distorted （mainly because of tax advantage flows to e。g。 Ireland）But I think I need to revisit this at some time soon to better understand the argument and implications。 。。。more
Andrew
，
Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace， by Matthew C。 Klein and Michael Pettis， is an interesting book that looks at financial flows within and between countries， and in particular， flows of goods and services related to as nations current account balance。 The authors argue that governments and businesses alter the flow of financial movements to suit their needs， to the detriment of the lower classes within a nation。 The aut Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace， by Matthew C。 Klein and Michael Pettis， is an interesting book that looks at financial flows within and between countries， and in particular， flows of goods and services related to as nations current account balance。 The authors argue that governments and businesses alter the flow of financial movements to suit their needs， to the detriment of the lower classes within a nation。 The authors examine China， Germany， and the United States particularly closely， showing how much each nation alters their own countries' well-being and those of others to keep the elite in power and flush with cash。 Each nation trades with others， leading to current account balances。 Although much has been said about China and the US' trade imbalances over the last few years， the reality of the situation is much more complicated。 The life cycle of a product or service is no longer straightforward。 China imports parts from Taiwan， Japan， and South Korea to build iPhones at a Foxconn plant， for example， and exports the finished product。 The software and corporate services often come from the United States， and that is where most of the profits go。 They are then funneled through shell companies in Ireland to pay lower corporate taxes。 Who really made the product？ How do we account for the trade flow？ Which country received the profits？ China is a nation with a current account surplus - where they often export more than they import， resulting in a net gain in finances。 In China， the government has an incentive to keep wages and household spending power low to ensure the CCP remains in power; their mandate， after all， is the rapid increase in living standards that has accompanied China's reforming and opening up face in the 1980s and into modern times。 Although living standards have markedly improved for all Chinese during this time， the government has kept the number of financial flows reinvested in wages and spending power low。 Infrastructure investment has boomed， to the point of a financial bubble。 Subways to nowhere， empty housing complexes， mega-malls with no shoppers - we have all seen the stories around 2013/2014， and this was the result of the Chinese elite investing in the infrastructure boom that was being encouraged by Chinese banking and financial regulations。 Rather than using the excess cash flow of China's financial boom in the early 2000s for wage increases， the government invested in construction projects。 Alongside this， China has purchased many billions in foreign-exchange reserves from the United States， much of it in Mortgage-Backed Securities （pre-2008） and US Treasury Bills。 China has realized that its wild investment in domestic infrastructure is unsustainable， and the authors posit that the push to the Belt and Road Initiative is a move to ensure that China can use its current account surplus somewhere; and that is to invest in infrastructure in other nations。 In Germany， similar issues abound。 Germany also traditionally carries a current account surplus。 In Germany， profits from the surplus are spent on infrastructure outside of Germany。 Germany actually possesses a lower median income than other comparable nations - South Korea and Canada are both higher by almost $10000 a year， for example， as of 2021。 There is also a massive infrastructure gap in Germany。 As of 2019， German municipalities faced many billions of dollars in infrastructure deficit。 There are many stories of bad roads， and closed bridges。 This problem is reportedly being addressed in 2021 with a new infrastructure spending fund。 Even so， the history of German finances is tied to a fanatical liaison with fiscal prudence and austerity。 Germany has been obsessed with achieving what they call "the black zero" or a balanced budget。 This comes at the expense of infrastructure， wages， and living standards for many in Germany， and as will be seen， in Europe。 Instead of investing at home， German banks up to the Euro-Crisis had loaned money out to other banks， namely in Spain， Ireland， Italy， and Greece。 These countries all experienced a massive boost in infrastructure and housing prices， which all， of course， came crashing down as the illusion vanished。 Far from being profligate spenders， many of these nations， in particular Spain， had rather healthy economic indicators。 The problem was the massive and destabilizing influx of cash that could not be balanced by a central bank in Spain， due to its membership in the Eurozone。 Germany has sought to export its prudentials to other nations， and the narrative in Germany seems to be heavily in favour of other Europeans being profligate spenders， and Germans having conquered finance。 Both China and Germany are heavily connected to the third main actor in this book - the United States of America。 As the reserve currency of the world， the US sought to set itself up as the guarantor of the post-WWII era， much to the chagrin of the Europeans， and in the modern world， China。 The US can and does abuse its power frequently， often using sanctions as a form of economic warfare that other countries are compelled to follow， regardless of how it affects the well-being of households in each nation。 The US has also historically controlled the IMF and World Bank in some form and sought to export its business-focused financial system to other nations， often through predatory conditions on loans from said organizations。 Domestically， the US has seen a downturn in domestic production since the year 2000， as businesses moved manufacturing operations overseas to increase profits。 Businesses have also created subsidiaries in tax havens to funnel profits and avoid paying US taxes。 This has led to many issues in the US， including stagnant wages， infrastructure gaps between regions， and much more。 Even so， the US has often floated high on stock and real estate bubbles。 Sure， many of those have crashed， but the authors argue something different。 The US has been able to implement a very unequal system that favours the elite due to its reserve currency status。 Nations are continuously buying and selling US T-bonds and other US assets。 Famously， this is what caused the 2008-recession， as Europeans and the Chinese poured money into MBS， and US banks， due to deregulation， were able to make those products available by offering loans to everyone they could， and creating fradulant investment vehicles to satisfy customer demand。 This book argues that trade wars are class wars。 In short， that the elite in a country look for places to dump surplus cash， and it is almost never in areas that will improve domestic wellbeing to its maximal point。 Instead， banks look for easy and guaranteed profits - look at Germany lending money out at a low interest rate instead of investing in infrastructure。 Or China building phantom towns instead of raising wages。 The authors also argue that the US Dollar as the reserve of the world leads to many issues in the US， which includes a great interconnectedness with other financial centres， and a constrained ability to make financial decisions autonomously， for risk of global financial catastrophe。 It also leads to poor decision making， as politicians and financial elite push to deregulate， save on taxes， and dismantle welfare。 An interesting read through and through， and an eye-opening perspective on global financial flows and how they are interconnected。 。。。more
Olan McEvoy
，
Klein & Pettis' book is an extraordinary achievement in synthesising important strands of research into political economy and international economics。 They combine a deep understanding of the literature on rising income & wealth inequality， the financialisation of the real economy and the class struggles in import/export nations， and provide a novel interpretation of recent trade conflicts as the manifestation of countries' internal class conflicts。 The argument is a fairly simple theoretical cl Klein & Pettis' book is an extraordinary achievement in synthesising important strands of research into political economy and international economics。 They combine a deep understanding of the literature on rising income & wealth inequality， the financialisation of the real economy and the class struggles in import/export nations， and provide a novel interpretation of recent trade conflicts as the manifestation of countries' internal class conflicts。 The argument is a fairly simple theoretical claim， but which is backed up by mountains of evidence on both the largest surplus and deficit countries in the world economy。 It could be summarised as: with increasing trade openness and interdependence of economies， no country's economic position can be understood solely by looking at its internal dimensions or its bilateral trade relationships - instead， we must look at its place in the world economic system， and how its internal class settlement reflects its economic relationship with the rest of the world。 By using this thesis to examine the past 50 years of economic history （although they do go into previous periods in the first few chapters too）， we are able to see that rising income & wealth inequality as the result of class domination in large surplus countries such as Germany and China have greatly distorted the world economy， including by causing a saving's glut which contributed to the US's financial crisis。 Klein & Pettis stress that we cannot understand these relationships as conflicts between China and the US， or between Germany and deficit countries in Europe， but as a manifestation of the dominance of the hyper rich and their preferred political-economic settlement which depresses domestic consumption， increases savings by transferring wealth upwards and increases exports。 The US， due to its status as the producer of the world's reserve assets （dollars and treasury bills）， manages to do something even stranger due to its place in the world system - it has wildly increase its income & wealth inequality whilst becoming the world's biggest deficit country。 It is through the spread of global finance that the savings of countries such as China have been transferred to the United States， which is then relied on to prop up world demand and consumption。 This situation is neither beneficial to most people in the United States or China， but is particularly beneficial to their elites。 Klein & Pettis end the book with a call for the reform of the global economic order along the lines of John Maynard Keynes' call for a world reserve asset - the bancor - at the Bretton Woods conference in 1944。 However， due to this being a work by a finance professor and an economic correspondent， it lacks any proscription of a political strategy for any sort of left-liberal alliance to achieve this new order。 The brevity of the books concluding chapter where it offers proscriptions to solve the class wars （and thereby solve the trade wars） is its weakest point - even if I would broadly agree with what is outlined in it。 Overall， the book is an excellent read and combines deep knowledge of international finance and trade， domestic politics and class composition， as well as a sense of the urgency and injustice of the situation which is often missing from books about economics or political economy。 The book avoids getting in to unnecessary details which would put off the non-trained reader， so I really would recommend this to anybody who wants to understand what is really behind the 'trade conflicts' which have been shaking the world for at least the past decade。 。。。more
Steve Dragon
，
A good book， most of it is fairly interesting and deals with relevant topics through historical and contemporary examples that make sense and are then drawn out into general theories with evidence that they are general theories。 There were bits that I felt were too speculative， but the overall argument seems pretty well-phrased and worth thinking about。
Robert
，
I enjoyed this a lot more than I thought I would。Three main points:（1） This book seems to be a part of a emerging new consensus that is rejecting the economics orthodoxy which prevailed in the US from 1980 to 2020。 Specifically:-Deficits are not bad-Government debt is not dangerous-Unrestricted free trade is not necessarily good-Low taxes and low regulation are not necessarily a panacea（2） The main argument is that trade imbalances cause economic inequality and are the result of specific governm I enjoyed this a lot more than I thought I would。Three main points:（1） This book seems to be a part of a emerging new consensus that is rejecting the economics orthodoxy which prevailed in the US from 1980 to 2020。 Specifically:-Deficits are not bad-Government debt is not dangerous-Unrestricted free trade is not necessarily good-Low taxes and low regulation are not necessarily a panacea（2） The main argument is that trade imbalances cause economic inequality and are the result of specific government policies and not some inevitable result of "the invisible hand of the market"。 Therefore we should not blame American workers for being lazy and entitled or attribute an innate "thriftiness" to Chinese culture， the behaviors of both Americans and Chinese are results of policy decisions by both the US and Chinese governments。（3） The "hard" fiscal and monetary policy currently being pursued by the EU （and especially Germany） is actually depressing domestic European demand and causing trade imbalances with the US。 Yet we always talk about China but rarely about Germany！So what is to be done？（1） There needs to be a new kind of international trade consensus to stop countries from pursuing such imbalanced policies。 i。e。 China and Germany should stop pushing exports so much at the expense of their own people。（2） Individual countries should adopt policies to redistribute the benefits of global trade and boost domestic demand。 For example-Massive Infrastructure spending can increase economic productivity， but also boosts domestic employment and redistributes income from the wealthy to poorer people。-Generous social safety nets accomplish the same thing。Poor people spend any additional money they get which in turn further boosts the economy， by contrast the rich are more likely to invest additional income into financial assets， which only causes asset prices to go up， but does not increase domestic demand。This book is obviously very timely considering what we've gone through in the past year and the ongoing trade war with China。The ideas in this book （and others like Stephanie Kelton's "The Deficit Myth"） seem to offer a plausible way forward and it looks like the current administration is thinking along very similar lines。 。。。more
Matthew Barnett
，
Listened to the audio book while distracted。 So I didn't learn anything。 I need to actually read it。 Listened to the audio book while distracted。 So I didn't learn anything。 I need to actually read it。 。。。more
Michael Ting
，
Parts of this book were dry and over technical and will not appeal to those that aren’t economic wizards - even for someone with a background in economics， reading paragraph after paragraph about rates， current account deficits， savings and consumption is difficult。 However this book is worth picking up solely for its China and US chapters
Larson Cole
，
Ignorance was bliss。。。 I haven't had a good night of sleep since reading this。 Some random takeaways: wtf is Germany doing？？？ Deng Xiaoping was lit （excluding the human rights issues）USD is 'too big to fail'President Lincoln， in his Annual Message to Congress on December 8， 1863， called for government assistance。 “I again submit to your consideration the expediency of establishing a system for the encouragement of immigration。"-> an open US is the best US-------I don't really buy Klein's argumen Ignorance was bliss。。。 I haven't had a good night of sleep since reading this。 Some random takeaways: wtf is Germany doing？？？ Deng Xiaoping was lit （excluding the human rights issues）USD is 'too big to fail'President Lincoln， in his Annual Message to Congress on December 8， 1863， called for government assistance。 “I again submit to your consideration the expediency of establishing a system for the encouragement of immigration。"-> an open US is the best US-------I don't really buy Klein's argument that the US is a victim of the current trade system。 。。。more
Wick Welker
，
Wealth inequality abroad causes wealth inequality domestically。I do not have a strong business or economic background and I struggled through the first half of this book with some dense economic history that was over my head。 However， by the end of the book， I started to see the light at the end of the tunnel and finally get what these authors are trying to teach the reader。 Their argument， as I understand it， is as follows:1。 Trade deficits are when a country imports more than it exports， trade Wealth inequality abroad causes wealth inequality domestically。I do not have a strong business or economic background and I struggled through the first half of this book with some dense economic history that was over my head。 However， by the end of the book， I started to see the light at the end of the tunnel and finally get what these authors are trying to teach the reader。 Their argument， as I understand it， is as follows:1。 Trade deficits are when a country imports more than it exports， trade surplus is the opposite。 Deficits typically can occur when there is domestic investment opportunity and surpluses when growth is stagnant or the working class is underpaid and consumption is suppressed。 Neither state is inherently good or bad， it all depends on the global financial context。2。 The US runs a massive trade deficit， countries like Germany and China run enormous trade surpluses。 If you live in a trade surplus country， you likely have poor standard of living because you are deliberately receive less wages as seen in China， where a worker gets 40% of their labor production， and in Germany where the median （not average） household income is dismal。 Countries with a surplus don't have enough investment opportunity within their own countries and thus invest abroad， typically in American assets and financial vehicles。 The US is an enormous sink of global surplus。 This sounds great， but the investment is happening at the elite level currently where the American finance sector is absorbing capital， not the US manufacturing industry， which is stagnant。 While a trade deficit may be the envy of advanced countries， the deficit currently benefits US elites， not average Americans because the capital is not reinvested into jobs， which are still abroad for cheap labor。3。 The consequence of global surplus running into the US is the creation of financial bubbles--a false demand for goods and services pushed by the banking industry。 The authors argue that this is the exact cause of the 2008 housing bubble: US elites pushing subprime mortgages on poor people who took on risky debt to ensure flow of foreign investments。 This enriched financial elites and bankrupted average Americas。 The current trade deficit of the US， while traditionally was used for infrastructure growth that helped stimulate the US in the 1970s， now only goes to the coffers of the elites for hoarding and investing。4。 The current trade imbalance directly contributes to wealth concentration at the top。 In trade surplus countries， like China， workers are intentionally subjugated to poor working conditions。 China suppress consumption with the Hukou system， basically making rural workers illegal immigrants in their own countries with oppressive rules that discourage them from moving more urban。 Unions are illegal in China to suppress wages。 On the other side of the coin， the US absorbs all this surplus and does not re-invest it into actual job growth for average workers。 This results in a very cozy relationship between all global elites: the Chinese elites make money off their American investments and American elites make money from hoarding and investing that surplus。 Everyone else is screwed over。 5。 Globalization is currently bad for the average person。 Globalization and open trade facilitates the bidirectional wealth concentration。 Getting out of the TTP and NAFTA were probably good ideas。 However， Trump's other acts of decrying the trade deficit and raising tariffs is puzzling and nonsensical。 The trade deficit is not inherently bad and starting a trade war simply shifted unemployment from steel manufacturing to farmers。 6。 The solution is to tax the rich--the global rich。 This would help redistribute wealth from the top and aid re-investment in infrastructure， manufacturing and job growth。 China must give surplus back to its workers， end the hukuo social system and tax their high earners。 Great read！ 。。。more
Christoph Monschein
，
very technical
Nishant Yamujala
，
A brilliant balance of payments analysis of global trade and how class wars， and policy decisions in countries like China and Germany lead to a glut of exports， exports that are then absorbed by the rest of the world。 The book also outlines the reasons why we have to abandon metrics like trade defecits when evaluating global trade flows。 The solution isn't tariffs， but to pressure exporting countries to increase domestic consumption。 A brilliant balance of payments analysis of global trade and how class wars， and policy decisions in countries like China and Germany lead to a glut of exports， exports that are then absorbed by the rest of the world。 The book also outlines the reasons why we have to abandon metrics like trade defecits when evaluating global trade flows。 The solution isn't tariffs， but to pressure exporting countries to increase domestic consumption。 。。。more
David
，
*The book integrates many different strands of research， history， and insight into a coherent narrative on how the global economy works*Rather than seeing the global savings glut （a la Ben Bernanke） and inequality （a la Amir Sufi and Atif Mian） as separate sources of credit expansions and financial crises， Klein and Pettis see the two as linked （inequality causes the global savings glut）*The two authors provide ample historical examples but I think the most compelling are their narratives about *The book integrates many different strands of research， history， and insight into a coherent narrative on how the global economy works*Rather than seeing the global savings glut （a la Ben Bernanke） and inequality （a la Amir Sufi and Atif Mian） as separate sources of credit expansions and financial crises， Klein and Pettis see the two as linked （inequality causes the global savings glut）*The two authors provide ample historical examples but I think the most compelling are their narratives about China and Germany， particularly China*The structure and argumentation of the book is muddled though*It is not clear what assumptions are needed to believe their story*It is not clear what claims are accepted facts and what are speculation*The argument is not segmented into clear parts*The book gets diverted on these long， pedantic historical tangents that don't neatly map into the main argument*The book would have been much better if it defined its scope and explained what questions it cannot answer （e。g。， What level of inequality prevents financial crisis and trade distortions？ How would a country know when it no longer has productive investment opportunities？ When is global finance pushed into a country and when is it pulled？ Why would the US continue to have the world reserve currency if it is so clearly harmful？） 。。。more
Sean Young
，
This was not the revolutionary read I expected it to be， but I learned an awful lot about the politics and economics of trade imbalances。 The key thesis - that the US can do little to change its trade deficit and the collapse in production that accompanies it - seems pretty reasonable， but I'm not an expert。 It makes a decent case and the policy recommendations seem to be in line with other things I've read， and thus I mostly agree with them （just being honest here）。I found the book a little bre This was not the revolutionary read I expected it to be， but I learned an awful lot about the politics and economics of trade imbalances。 The key thesis - that the US can do little to change its trade deficit and the collapse in production that accompanies it - seems pretty reasonable， but I'm not an expert。 It makes a decent case and the policy recommendations seem to be in line with other things I've read， and thus I mostly agree with them （just being honest here）。I found the book a little breathless， a massive amount of information being dumped on me at once （if you are already familiar with the economies of Germany and China this is probably not going to be so bad）。 I don't generally like long books but this one could have stood to be a bit longer， in particular I would have liked to hear the authors give a little detail of what trade *should* look like: they say that having a trade deficit isn't necessarily bad they make it sound bad。 I guess the ideal would be a world of what they describe as "rational investment": small imbalances that self-correct as prices rise in the surplus country， as described in classical economics。 Is this possible？ Generally when an economist uses the term "rational" it's a sign they're bullshitting， so I would have liked to hear more to reassure me that they were not。 。。。more
Acopatunru
，
A primer to appreciate the interlinkage of the worlds' economies。 And how to appreciate the system of balance of payments。 And how not to fall of the bilateral trade rhetorics。 Et cetera。 A primer to appreciate the interlinkage of the worlds' economies。 And how to appreciate the system of balance of payments。 And how not to fall of the bilateral trade rhetorics。 Et cetera。 。。。more
Ethan
，
I am fairly new to thinking of the problems of the global political economy in terms of current account and capital account metrics， so this was a very helpful book with all of its historical case studies （post-Mao China， 21st-century Germany， 19th-century Britain， and post-WWII United States） intended to illustrate Pettis’ proposed mechanisms for and consequences of having a current account surplus/deficit。 I still don’t know if I agree with or understand all of the underlying assumptions of th I am fairly new to thinking of the problems of the global political economy in terms of current account and capital account metrics， so this was a very helpful book with all of its historical case studies （post-Mao China， 21st-century Germany， 19th-century Britain， and post-WWII United States） intended to illustrate Pettis’ proposed mechanisms for and consequences of having a current account surplus/deficit。 I still don’t know if I agree with or understand all of the underlying assumptions of this perspective （e。g。， that there is a discernible limit on a nation’s productive investment capacity， which is determined by its legal and political institutions; or that nations with central planning have a lower productive investment capacity than nation’s with a market system for allocating credit; or that the sustainable level of a nation’s debt after 1971 is determined by its share of global GDP rather than， say， its military power） but it has been very fruitful to grapple with it。 In any case， eventually they endorse social-democratic policies that I agree with: adopting something like Keynes’ bancor system; establish capital controls on real estate in current account deficit countries; passing Baldwin and Hawley’s market access charge law; shifting US household debt to US government debt; increasing US federal spending on public transit， green energy， and industrial subsidies; eliminating China’s hukou system and barriers to trade unions; establishing progressive income taxation and a social wealth fund in China; raising the inheritance tax in Germany; and federalizing European fiscal policy through a new central euro area treasury。 。。。more
Laurent Franckx
，
You may be forgiven if you think from reading the title that this is a Marxist analyst of international trade。 It isn't。 Actually， it doesn't even mention Marx， and uses the famines under Stalin and Mao as illustration for the central thesis of the book。This thesis can be summarized as follows。First， the book starts with something that is completely uncontroversial for anyone who had a two hours cours about national accounting （even if it is something people often overlook）: any surplus （deficit You may be forgiven if you think from reading the title that this is a Marxist analyst of international trade。 It isn't。 Actually， it doesn't even mention Marx， and uses the famines under Stalin and Mao as illustration for the central thesis of the book。This thesis can be summarized as follows。First， the book starts with something that is completely uncontroversial for anyone who had a two hours cours about national accounting （even if it is something people often overlook）: any surplus （deficit） on a country's current account must be compensated by a deficit （surplus） of the same magnitude on its capital account。 Why？ Because （if we simplify somewhat and reduce the current account to the trade balance） a deficit on your trade balance means you spent more on imports than you earn from exports。 And you can only spend more than you earn if the rest of the world gives you credit （which means you import capital）。 Conversely， if you earn more than you spend， this means you give credit to the rest of the wold - which means that you export capital。Economists have often emphasized that a trade deficit is not necessarily a bad thing。 In a closed economy， your only source of funding for your investment is national savings。 If your investment needs are large and your savings small （the typical situation for a poor country， it makes perfect sense to have a trade deficit and let the rest of the world contribute to funding your investment。 Again， there is nothing controversial in this step。Where things get more complicated， is in the identification of causal links。 Is it trade imbalances that drive international capital flows， or is it international capital flows that drive trade imbalances？ And is it the policies of the trade surplus countries that determine global imbalances or the policies of the deficit countries？The second step in the book's argument pertains to those question， and is certainly more controversial than the first one: the authors claim that it is the internal policies of the large surplus countries （Germany， China） that are the driving forces。 According to them， it is surplus savings in Germany and China that have lead to massive capital inflows in the United States but also in the deficit countries in the EU。 Those capital flows were larger than the productive investment needs of those countries， and have led to housing booms that contribute nothing to economic growth - with the financial crisis of 2008 as outcome。This is a bold claim， but the authors carefully underpin their argument with a list of policies in Germany and China that （purposefully or not） reduce national consumption - actually， those policies are well known and have been discussed for quite a while， even before the financial crisis （remember Lawrence Summer's speech about the "glut of savings"）。I guess that the real controversy here lies in the representation of the deficit countries （including the USA） as passive actors that cannot do much except accommodate those capital inflows。 Putting the responsibility of global imbalances squarely with the surplus countries is， let's say， a daring claim。The third （and even more controversial） step in the book is the claim that the policies that lead to the surpluses in Germany and China are the result of measures that deliberately increase the share of capital income in GDP at the expense of income from labour （which are supposedly linked to someone's 'class' - hence the title）。Not surprisingly， the authors conclude that， in order to maintain the benefits from globaliZation， the surplus countries need policies that increase the labor share in national income - essentially， a social democratic call to action。I don't know whether this book will end up as an international bestseller as Thomas Piketty's work has。 It certainly deserves to do so - and not only because it is much more pleasant to read。 Agree or not with the arguments （and there's a lot that has made me frown）， but they are carefully laid out， and the authors refrain from any ideological saber rattling。Following the financial crisis， we have seen tonloads of criticisms of the current economic order， and proposals for reform。 This one stands out for the clarity of its argument， and for the concreteness of its policy proposals。 It is a welcome addition to the public debate， and deserves to be widely read。 。。。more
Dinesh Perera
，
Breaks down how large current account imbalances drive perverse economic outcomes。 The book explains a lot about the impacts of global capital flows in the recent context。
Edmund Wigley
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I place this book at the front of a line of new economic theories that look to rethink what money means and its workings at the international level。 My lasting impression from this book is another plea for governments to stop treating national finances as anything comparable to household/business finances and to turn the common belief around that in many cases it is not indebted countries which are to blame but those forcing their surplus reserves （often at the expense of their own population） o I place this book at the front of a line of new economic theories that look to rethink what money means and its workings at the international level。 My lasting impression from this book is another plea for governments to stop treating national finances as anything comparable to household/business finances and to turn the common belief around that in many cases it is not indebted countries which are to blame but those forcing their surplus reserves （often at the expense of their own population） onto these countries。Klein and Pettis expertly pick apart international asset flows to display how domestic policies， concentrates wealth in the wrong hands， leads to imbalances in the global financial system and ultimately trade wars。 They explain the failures of the existing structure through plentiful supporting data and historical examination which is both thorough yet simple to comprehend and offer actionable policies to remedy them。Notes:Three regions are central to the book: China， US and Europe but all are split into two halves: There are the nations that suppress their population’s consumption to a level below their productivity; and the resulting nations which are absorbing the surplus capacity。China has for a long time prioritised its industrialisation over its population， quashing consumption and producing a large financial surplus。 It has done this through stringent capital controls and domestic policies such as regulating rural-urban migration （hukou）。 The surplus is either invested in domestic infrastructure or the acquisition of foreign assets。 An interesting point they make that the Belt and Road initiative as a method for providing more demand for its surplus as opposed to military or geopolitical positioning。The US is a special case due its currency propping up the global financial plumbing。 It is not seen as a string puller but one bound to free market policies that allow it to be picked off by surplus countries and it is subsequent difficult for it to unilaterally change its situation。 Redressing the economic inequality and degrading infrastructure requires shifting foreign investment from the private sector which has few places to spent productively and into the public purse where it can be used for these purposes。After China， Germany has the highest trade surplus where policies favour business and sustaining wealth over workers。 More obvious fiscal solutions exist here; reforming taxes and strengthening social nets。 While this might limit the exasperation which occurred when an overheated lending market （from excess surplus） caused countries such as Spain to spend beyond its ability to productively invest it doesn’t not solve European problem which does not seemingly have a solution beyond multilateral organisation and ultimately federalism。 。。。more
Vilius
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Regardless of what one thinks of the central arguments that are made in this book， the analysis in this book is certainly welcome in a world where the best politicians can come up with to explain our post-2008 problems are anecdotal examples of Merkel's Swabian housewife， Dijsselbloem's Greeks that 'waste money on drinks and women' and Trump's Mexicans 'that are ripping us off'。 This book invites us to think about problems globally and to stay away from 'intuitive' anecdotes。 I think other revie Regardless of what one thinks of the central arguments that are made in this book， the analysis in this book is certainly welcome in a world where the best politicians can come up with to explain our post-2008 problems are anecdotal examples of Merkel's Swabian housewife， Dijsselbloem's Greeks that 'waste money on drinks and women' and Trump's Mexicans 'that are ripping us off'。 This book invites us to think about problems globally and to stay away from 'intuitive' anecdotes。 I think other reviewers also missed a crucial moment - this book seems not to follow the standard neoclassical level of analysis。 Authors claim that investment （I） causes savings （S）， whereas the neoclassical models state otherwise。 It also clearly focuses on income rather than substitution effects when describing choices that households make， as well as describes international capital flows to be based on trends， fashions and other irrational drives。 The main problem of the book is its title - it's catchy and provoking， but one must understand that there is very little analysis of ongoing 'Trade wars'。 Rather， the authors catch up to explaining trade wars in the conclusion， where they explain that trade wars will not change anything because they do not combat the real reasons why American， Chinese or German workers are not seeing appropriate returns for their labour。 This book rather explains various confrontations between creditors and borrowers （the Eurozone crisis， the confrontation between the US and China） as nothing more than an effect of policies in both countries that lead to capital accumulation to the very richest in expense of the 'peoples' of both countries。 。。。more
Jan Felix
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Very interesting read。 MCK and MP argue that trade wars are not wars between countries but between rich and poor within countries。 As German and Chinese inequality rises， excess savings and goods find their way into the US private sector and households which become less competitive and more indebted as a result。 This is due to the privilege or burden of the US of having the global reserve policy。 The same was happening in Europe， between （roughly） North and South， until austerity was forced upon Very interesting read。 MCK and MP argue that trade wars are not wars between countries but between rich and poor within countries。 As German and Chinese inequality rises， excess savings and goods find their way into the US private sector and households which become less competitive and more indebted as a result。 This is due to the privilege or burden of the US of having the global reserve policy。 The same was happening in Europe， between （roughly） North and South， until austerity was forced upon southern states。 Great for wrapping your head around the sometimes confusing topic of current account and financial account， as well as giving a new perspective on the world。 Personally， I could have done with less historical chapters in the beginning and more intuition concerning the theory。 But then again I'm no expert in this matter。 。。。more
Gabriel Stein
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Well worth readingMichael Pettit is the world’s greatest authority on sectoral financial balances。 In this book， he an Matthew Klein show that imbalances cannot be rectified by tariffs; that huge current account surpluses hurt the workers in the surplus countries; and suggest a way out。 You may disagree with their proposals， but you should read the book。
Benjamin Huber-Rodriguez
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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 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 very hard technical data and not much humanity。 Still worth a read if you want a recap of global capitalism。 。。。more
Dean1112
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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 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 other social services， education， infrastructure。 A central idea of this book is that governments will either implement policies consistent with spending or policies consistent with saving （investment）， and countries which don't provide domestic consumers with adequate capacity to consume all goods produced domestically will result in current account surpluses which must be consumed elsewhere in the world。 This leads to current account surpluses in countries where consumers don't have sufficient purchasing power， and current account deficits where domestic demand outpaces domestic supply （production）。 Current account surpluses and other economically competitive policies are beneficial to governments， but they often come at the cost of a reduction in living standards for the domestic population。 。。。more
Brian Kong
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Overall: 3。9 This investigation into global transactional warfare explores the political maneuvers， economic interests， and cultural forces that secure elite interests and widen inequality。 The exploration of Germany and China's political pasts demonstrates trade wars are the second-hand effects of dwindling domestic purchasing power。 The America's congruence as safe asset sponges will exacerbate the pernicious consequences of export surpluses。 Despite the overwhelming historical context for tra Overall: 3。9 This investigation into global transactional warfare explores the political maneuvers， economic interests， and cultural forces that secure elite interests and widen inequality。 The exploration of Germany and China's political pasts demonstrates trade wars are the second-hand effects of dwindling domestic purchasing power。 The America's congruence as safe asset sponges will exacerbate the pernicious consequences of export surpluses。 Despite the overwhelming historical context for trade disputes， its coherent arguments and advised solutions are refreshing and engaging。 。。。more
Ramon
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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 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 are not familiar with some basic accounting and economic principles and in some arguments —especially does compelling the US and current European system— I felt bias。 Besides this downsides it’s an amazing read and it undeniably deserves five stars。 。。。more
Peter Verboven
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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 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 inequality within countries。 If labour income is suppressed in favour of investment， surplus production cannot be consumed domestically and will automatically lead to exports to and consumption in deficit countries。 This mechanism is presented as a macro-economic inevitability。 It is not the result of profligacy or any kind of lack of restraint; it is just trade and financial flows balancing out。 The only 'choice' element in it， is with the elites in the surplus countries who manage to push through policies that restrain consumption and boost investment。The idea is intriguing and it highlights the main reason why so many people/voters seems to have given up on globalisation and liberalism。 The final chapter looks into ways to reverse this trend。 Its recommendations run counter to the economic orthodoxies we have been brought up with: lower income taxes and VAT， increase the budget deficit， make inheritance taxes and corporate tax rates go up。 This should stop the exports from surplus countries， increase the competitiveness in deficit countries and make the system rebalance - which is crucial for preserving its legitimacy。 This counterintuitive reasoning is the main reason why the book deserves its place under the sun。 At the same time I feel the book has not entirely convinced me， for several reasons。First of all the authors spend countless pages droning on macro-economic generalities and describing endless lists of statistics。 This is the fallacy of the economist: put things in numbers and all of a sudden there is insight。 This is mistaken。 Insight comes from constructing a plausible narrative around a phenomenon。 Numbers may at best illustrate this。 The authors go some way to constructing this narrative， but they fall short of incorporating the more explanatory elements。 Those get swept up under the label of the inevitable rebalancing of flows （ 'which is true， because the numbers show it'）。 The book therefore is at least one hundred pages too long。 Leaving out the parts on the economic theories of Ricardo and others; and replacing the endless lists of statistics with more well-selected ones to really make a case。Secondly the analysis hinges on the stories of three countries， not all of which are convincing。 China and Germany are the surplus countries， each directing a large share of national income to investment and smaller one to consumption。 The story of how this came to be is rather general and stuck （again） in a list of statistics for China。 Germany's case is better fleshed out， with clear anchoring points in getting over unification and the Hartz IV reforms to preserve competitiveness。 It comes to no surprise that this was one of the best parts of the book。 The United States acts as the main deficit country， 'being forced' to soak up excess production from elsewhere time and again。 Despite a similar fundamental setup as Germany （domestic inequality， decaying infrastructure）， its acting as a consumer of last resort is described as a result of the dollar's status as the main reserve/reference currency and the depths of its financial markets。 This puts the act of balancing international streams squarely with the US， which often goes counter to what is needed domestically。 Although I see a lot of value in the author's proposition in creating a multilateral reserve standard （to replace the dollar） for balancing， I feel one aspect is overlooked here: the fact that more consumption is always desirable and that this task should not be left to the US alone。This is exactly the third issue I take with the book。 For a text with a moral/prescriptive tone， I am surprised to see that the authors never questioned indiscriminate consumption as the underpinning of their reasoning。 They identified inequality as a main issue in today's international order， but overconsumption is another one。 Without being naïve， the rise of climate action， the concern about plastics or ideas on a circular economy are alive with a growing number of people and they start influencing voting and decision making around the world。 These forces - especially the shift towards a more circular economy - could influence a rebalancing by themselves as fewer things would have to be produced and shipped。Overall I am glad I came across this book and its fundamental idea， but it has not been sufficiently developed to not feel like an attempt at shifting blame for the US deficit entirely to others。 This is a pity。 With some extra work and insight， the case for a commonly managed and globally balanced （and probably somewhat restrained） system of trade and monetary flows， would have been a lot stronger。 。。。more
Kamran Tahir
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'Trade Wars Are Class Wars' is a highly intriguing discussion on the biggest and one of the most onerous challenges facing the World today: rising inequality。 Throughout the book， Klein and Pettis make cogent arguments as to why all highly advanced countries are embroiled in trade wars and fomenting protectionism。The book has been certainly an eye opener and has tremendously expanded my economic knowledge about the World。 'Trade Wars Are Class Wars' is a highly intriguing discussion on the biggest and one of the most onerous challenges facing the World today: rising inequality。 Throughout the book， Klein and Pettis make cogent arguments as to why all highly advanced countries are embroiled in trade wars and fomenting protectionism。The book has been certainly an eye opener and has tremendously expanded my economic knowledge about the World。 。。。more
Sangheon Jeong
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A Superb Book on Global Imbalances If you are interested in global imbalances and distortion of the international trade/financial system， make sure to read this book。
Alan Carlson
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The title implies a book focused on political science; it is instead a quite dense economics text。 I am not sure I am convinced of his argument， even though I want to be， because he asserts his conclusions rather than reach them through structured argument。 Reminds me of he old cartoon with the physicist writing out his formula on a huge blackboard， and tucked away in the middle is "and then a miracle happens" The title implies a book focused on political science; it is instead a quite dense economics text。 I am not sure I am convinced of his argument， even though I want to be， because he asserts his conclusions rather than reach them through structured argument。 Reminds me of he old cartoon with the physicist writing out his formula on a huge blackboard， and tucked away in the middle is "and then a miracle happens" 。。。more
Jeffreyalpert
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