Posts Tagged ‘global trade’
“Stand firmly in the present and focus on the future”*…
In a widely-cited article from May, Gillian Tett marks a fundamental shift– accelerated by the Trump administration, but underway beforehand:
… in the 20th century free-market intellectual framework — which is the one in which most western professionals built their careers — it was generally assumed that rational economic self interest ruled the roost, not grubby politics. Politics seemed to be derivative of economics — not the other way around.
No longer. The trade war unleashed by US President Donald Trump has shocked many investors, since it seems so irrational by the standards of neoliberal economics. But “rational” or not, it reflects a shift to a world where economics has taken second place to political games, not just in America, but many other places too…
…this phenomenon is not simply about one man (Trump), but rather marks a much bigger turning point in the intellectual zeitgeist — of a sort we have seen a few times before.
One such shift occurred just over a century ago, when the globalist, Imperialist vision of capitalism that reigned before the first world war was displaced by nationalist, protectionist policies. Another came after the second world war, when Keynesian economics took hold. Then, in the 1980s, free-market neoliberal ideas displaced Keynesianism.
The fact that the intellectual pendulum is now swinging again, towards more nationalist protectionism (with a dose of military Keynesianism), thus fits a historical pattern — although few predicted that the swing would take quite this form…
… one important facet of this zeitgeist shift is that governments are no longer “just” focused on their country’s absolute wellbeing, but on their relative positions too. This distinction might sound subtle. But it matters deeply, as a paper co-authored by Aaditya Mattoo, a World Bank economist, along with Michele Ruta and Robert Staige, spells out.
That is because an “absolute welfare” mentality supports trade co-operation, but unravels “if rivalry eclipses any consideration of own- country wellbeing,” the authors say. Trump’s angry rhetoric about America being “ripped off” by competitors, in other words, reflects a bigger mental shift… an (obvious) factor behind this rivalry is that China is now challenging America’s incumbent dominance…
It’s worth reading Tett’s piece in full (gift link)– and noting that the real-world evidence supporting her thesis is clear. Here, let us look more closely at China. Adam Tooze offers a primer– all-too-appropriate to Tett’s argument– on how to see China’s historic development through the veil of macroeconomics…
In the global economic conjuncture there are few if any factors more important than the state and future prospects of China’s economy. In purchasing power parity terms, it is the largest economy in the world, with a 20 percent share of global GDP. Measured in terms of current exchange rates, China comes second to the US.
China impacts the world economy as a huge market for exports from other countries. China’s imports range from raw materials, to Europe’s luxury brands. The share price of LVMH, Europe’s largest company by stock market valuation, bobs up and down in response to the spending patterns of Chinese women, the world’s most rapidly growing segment of luxury consumers.
China’s exports are a huge part of global markets. And when China’s domestic demand is less buoyant, there is a surge of anxiety about “excess capacity”, the pressure of exports increases and we start talking about “China shocks”.
In the macroeconomic balance, as discussed in World Economy Now of May, China’s huge surplus is the counterpart to the huge deficit of the USA.
China’s currency is pegged against a basket of other world currencies. This is backed up by some of the more effective capital account regulation in the world economy today. Funds cannot easily be transferred out of China on a large scale. So, there is structural uncertainty about what the exchange rate of the RMB should be. The trade account would suggest stronger. The scenario of mass capital flight in the event of a loosening of capital controls would suggest a much weaker currency, as happened during the crisis episode of 2015. A sudden adjustment in the Chinese exchange rate has the potential to destabilize the world economy as severely as Trump’s trade wars.
For all of these reasons, China is at the heart of global macroeconomics.
And there are a lot of news to be concerned about…
[Tooze reviews the decline in China’s growth rate…]
… But as useful as it is, this macroeconomic approach also minimizes the drama of history and qualitative transformation. China’s economy is huge because it encompasses the material destiny of one sixth of humanity. In the 1970s, China’s national income per head was less than that of Sudan and Zambia. It was not just the most populous country in the world but also one of the poorest. China’s ascent during the age of globalization is not just one economic story amongst many. It is the single most dramatic development in world economic history, bar none…
… Today, with a per capita GDP in purchasing power parity terms of $24,569, China is officially classed as an “upper middle-income” economy. It has far outstripped India (which in 1990 was still ahead of China). It has overtaken Indonesia. It has surpassed Brazil and caught up with Mexico. China is now on the cusp of being promoted to the ranks of the “high-income” countries…
… So here we have two images of China: One, as a big part of global macroeconomics, the other as a world historic development story. The trick is not to play these two accounts against each other, but to figure out how they interrelate and condition each other.
If we can sensibly discuss China today as just another big economy, rather than a country struggling with basic development issues, it is because it has actually undergone something truly exceptional, namely, utterly radical economic development in the space of less than two generations.
Pause for a second to consider this twist.
Dialectics offers us a way of imagining the process through which quantitative change turns into qualitative transformation. And there is plenty of that going on in the Chinese case. For example, it is one thing to be a big player in electric vehicles, it is quite another to entirely dominate every facet of the global supply chain. At that point market share measured in percentage points, a quantitative metric, turns into power, a statement of qualitative distinction.
But China also spectacularly illustrates the opposite process, through which qualitative change on a huge scale – “opening up” and “market reform” – transform a society’s entire mode of being so much that it becomes discussable as “just another really big piece of the world economy”, no different in macroeconomic terms than the Eurozone or the US economy. A history of radical qualitative change gives way to bland quantitative metrication.
Social theorists and market practitioners both use the same word to capture this dialectic of quality into quantity – commodification. When your distinctive, branded product with its specific qualities and associated narrative becomes commoditized, it widens the market, but also erases distinctions. In intellectual terms, rendering China’s utterly radical, world-changing development story as a question of “global growth”, is something akin to “commodification”.
Of course, quantitative comparison enabled by commodification has many uses. No less than commoditized goods. But both accept as a cost the erasure of specific qualities. In narrative terms, it involves a kind of blindness to history – how we got here – but also to the wider social and political meaning of current trends and the network of social, political, cultural and material forces that may drive future development. We do macroeconomics no injustice, if we call it heuristic and algorithmic in its approach. Its metier is not the in-depth search for historical meaning.
If we are to have both we need to learn to shuttle back and forth in our economic analysis from quality to quantity to quality to quantity etc.
Of course, you might object that all I am describing in rather highfalutin terms, are the methods of any good economic journalist. A good economics story weaves back and forth between the particular and the general, the experiential and the GDP numbers. That is true. It is a familiar narrative style. But there is a difference between an anecdote that merely serves as a “hook” and the effort to actually find a keyhole or opening that allows us to enter into the complexity of historical reality. As Stuart Hall once put it, the challenge is to find ways of “breaking in” to the historical conjuncture we are trying to decipher…
… How does the quality-quantity dialectic help us to better understand China’s economic situation and its relationship to the world economy in the summer of 2025?…
[Tooze uses that dialectic to unpack four key issues for China: real estate/urbanization, youth unemployment/generational shock, trade surplus/manufacturing power, and deflation (the “accumulation regime”)…]
… This essay had been a forced march, the aim of which is to connect four points of common concern about China’s macroeconomic situation – real estate, youth unemployment, the trade balance and deflation – with broader questions of China’s recent history and development. Doing justice to any of these themes would require far more space and far more expertise than I have my disposal. My aim here is simply to demonstrate the value of this kind of approach. My aim is to alert us to the moments when quality flattens into quantity – when “world-changing hundred-millionfold urbanization” is recharacterized as nothing more than a real estate boom – and to suggest the possibility of different narratives. The aim is to allow us to see through the bare bones of the macroeconomic schema, to the more historically specific and ultimately more powerful forces that are at play.
I’m not original in suggesting this. This is just what good history and good critical social analysis ought to do when it wrestles with the limitations of familiar macroeconomic concepts. In this particular case I am indebted to the work of Lan Xiaohuan of Fudan university, whose book How China Works: An Introduction to China’s State-led Economic Development offers a fascinating developmentalist perspective on recent Chinese economic history.
But not the least attraction of this approach is that it actually allows us to hear – as in really hear – how the Chinese describe their own situation. China insists on referring to itself as “developing” and “development” as the key objective of policy. The phrase 发展 (fāzhǎn) recurs in the titles of the National Development and Reform Commission, the de facto center of Chinese planning, and the Development Research Council of the State Council.
All too often the question of whether China should be counted as a “developing economy” is treated as a matter of cheap gamesmanship. Western critics, allege that China shirks its responsibilities by insisting on its status as a developing country. But triviality aside, as I have argued here, the question is actually a fundamental one. China is a huge and complex society with a powerful regime undergoing the most dramatic process of socio-economic change in world history. To describe this ongoing process as one of development is, if anything, an understatement.
Indeed, the question is why we don’t learn from the Chinese. Would it not behoove Western advanced economies to consider themselves, as well, as “developing”. Or does the difficulty of doing so betoken a telling blindspot? Development as a conception of economic change embodies a notion of comprehensiveness, qualitative change and deliberate purpose that is a challenge to policy in rich countries. In the US the bold vision of the Green New Deal was reduced to the Inflation Reduction Act. Trump’s tariffs and Big Beautiful Bill are a parody of economic nationalism. The best that the EU could manage was NextGen EU in 2020.
As Wang Yiwei of the Academy of Xi Jinping Thought at Renmin University remarked to The Economist:
Development is a permanent “political identity” … The party’s legitimacy depends in part on the riches yet to come. “Once you are ‘advanced’,” says Mr Wang, “you are declining.
The frankness is disarming. But does the West really have an answer?
Eminently worth reading in full: “Whither China? – World Economy Now, June 2025 Edition” from @adamtooze.bsky.social.
Pair with: “The Two Chinas.”
And for context, “Structure and Interpretation of the Chinese Economy.”
(Image above: source)
* ancient Chinese adage
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As we synthesize, we might recall that it was on this date in 626 that Li Shimin ambushed and killed his rival brothers Li Yuanji and Li Jiancheng in the Xuanwu Gate Incident. Li Shimin went on to become Emperor Taizong of Tang– the second emperor of the Tang dynasty of China, ruling from 626 to 649. He is traditionally regarded as a co-founder of the dynasty for his role in encouraging his father Li Yuan (Emperor Gaozu) to rebel against the Sui dynasty in 617. Taizong subsequently played a pivotal role in defeating several of the dynasty’s most dangerous opponents and solidifying its rule over China proper.
“Our grandfathers lived in a world of largely self-sufficient, inward-looking national economies – but our great-great grandfathers lived, as we do, in a world of large-scale international trade and investment, a world destroyed by nationalism.”*…
There’s a growing chorus of opinion arguing that the era of global trade is ending. To be sure, nationalism and the protectionism it can spawn are on the rise. But is globalization’s decline now locked in? In a recent speech at the University of Tokyo, Bill Emmott questions the conclusions of The Economist (which he used to edit) and others predicting an end to a world in which goods and services flow relatively freely– pointing out the global trade is still very much alive. It’s a provocative talk, eminently worth reading in full; it ends with a framework for thinking about the question…
The history of globalisation that I have outlined has shown the development of international trade in goods and services to have been driven by three main forces:
- Peace, war and international security
- National external trade policies
- Technology, and its effect on transaction costs
It is clear that the biggest discontinuity in the growth of international commerce was caused by what we now know as the two world wars of the 20th century.
Russia’s invasion of Ukraine in 2022 has certainly diverted trade and financial flows considerably, thanks to direct security effects and to sanctions. But neither it nor the other conflicts we can see occurring in the Middle East, Africa or elsewhere have been sufficient to block global trade in a significant way.
Tensions between the US and China similarly have some diversionary effects, and are to some degree echoed in tensions between China and Europe and China and Japan. But those geopolitical tensions would have to get a lot worse to have a major effect on global commerce as a whole, in part because the world economy has become much more complex and multipolar in nature.
The one conflict that would be very likely to have a major “deglobalisation” influence would be a conflict between the US and China over Taiwan, for such a conflict would very likely reach catastrophic proportions and would force many countries to choose sides. We cannot predict how commerce and the exchange of ideas would look after such a conflict, just as my European forebears would have been unable to predict the world after 1918 from the standpoint of 1914 or earlier.
Secondly, nations’ external trade policies. As I commented earlier, there has been a clear trend back towards protectionism since the 2008 financial crisis, one that has lately been reinforced by policies aimed at the energy transition and by US-China tensions.
This has not yet however had a major effect on world trade. It could, of course. The big question is what would happen if Donald Trump is re-elected as US President in November and carries out his promise to impose a 10% tariff on all imported goods, and a 60% tariff on all goods from China.
One quite likely possibility is that other countries – including the EU, the UK, Japan and indeed China – would retaliate by imposing higher tariffs of their own, and we would be in a trade war, one that could escalate higher and higher.
The wider such a trade war became – i.e., taking in more countries – the likelier it would be to make deglobalisation visible in the trade statistics. Nonetheless, we should bear one other thing in mind: this is that services, especially digitally delivered services, have become an increasingly important component of global commerce. How they would be affected is unpredictable.
Third, we need to bring in the related and vitally important force of technology. Falling costs and increasing digital capabilities have been a big factor behind the growth of global commerce. The entry of artificial intelligence means that there is no likelihood of this technological force for cross-border commerce diminishing.
During the pandemic, the science and technology behind vaccine development, production and distribution were all global, even if geopolitics introduced some distortions. Moreover, the basic reason why the US stock market has been driven by the so-called “Magnificent Seven” tech stocks is that the market for all of them is global.
Geopolitics threatens, but as yet it does not decide. External trade policies at present divert, but only an escalatory trade war would be likely to have a major effect. Technology, however, remains the most powerful force in favour of continued globalisation.
The future of globalisation will be determined by the interplay of these three forces. There is no currently pre-determined destiny for globalisation. Many commentators over-play the influence of politics and under-play the role of technology. Extreme outcomes are possible, and need to be prepared for. But we must above all keep an open mind as to what the actual outcome will be…
We see deglobalization everywhere except in trade statistics: “The future of globalisation: a history,” from @bill_emmott and his excellent newsletter, Bill Emmott’s Global View .
(Image above: source)
* Paul Krugman
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As we tackle trade, we might recall that it was on this date in 1178, about an hour after sunset, that five monks from Canterbury saw “the upper horn [of the Moon] split in two.” They reported their experience to the abbey’s chronicler, Gervase, continuing (as he reports) “From the midpoint of the division a flaming torch sprang up, spewing out, over a considerable distance, fire, hot coals and sparks. Meanwhile the body of the Moon which was below writhed, as it were in anxiety, and to put it in the words of those who reported it to me and saw it with their own eyes, the Moon throbbed like a wounded snake. Afterwards it resumed its proper state. This phenomenon was repeated a dozen times or more, the flame assuming various twisting shapes at random and then returning to normal. Then, after these transformations, the Moon from horn to horn, that is along its whole length, took on a blackish appearance.”
In 1976, a geologist suggested that this was consistent with the location and age of the 22-km lunar crater Giordano Bruno. However, such asteroid impact would have ejected debris causing an astonishing meteor shower, which was never reported. So, while that is plausible, it’s now considered more likely that the sighting of 1178 was an exploding meteor that just happened to line up with their view of the Moon.
“When I despair, I remember that all through history the way of truth and love have always won”*…
Aditya Narayan Sharma on how the Hindu right distorted Gandhi…
Even outside India, it can be difficult to escape the cult of Mohandas Gandhi, the lawyer, thinker, and politician who helped liberate the nation from British colonial rule in 1947. The praise ranges from the anodyne (Gandhi is a “hero not just to India but to the world,” per Barack Obama) to the ironic (“really phenomenal,” according to Burmese political prisoner turned genocide defender Aung San Suu Kyi) to the surreal (“I am Gandhi-like. I think like Gandhi. I act like Gandhi,” declared New York City Mayor Eric Adams). Seventy-six years after his death, Gandhi is not only an icon of Indian independence, but a uniquely potent international symbol of peace and nonviolence. Gandhi has been, at one point or another, as historian Vinay Lal puts it, the “patron saint” of “environmentalists, pacifists, conscientious objectors, non-violent activists, nudists, naturopaths, vegetarians, prohibitionists, social reformers, internationalists, moralists, trade union leaders, political dissidents, hunger strikers, anarchists, luddites, celibates, anti-globalisation activists, pluralists, ecumenists, walkers, and many others.” Everyone, it seems, has endorsed the honorific coined for him more than a century ago: Mahatma, Sanskrit for “great soul.”
Within India, Gandhi graces every banknote and is plastered on billboards and painted on walls alongside busy thoroughfares. His bespectacled face looms over big cities and small towns alike. Countless schools, universities, roads, and public spaces are named after him. In 2013, the government of Bihar, India’s poorest state, spent several million dollars building the world’s tallest Gandhi statue, casting him in a shimmering tower of bronze with two grateful children by his side. Public figures fight to outperform one another at Mahatma-loving, something of a national sport: in 2021, one representative viral video captured a regional party leader clinging to a bust of Gandhi and sobbing. But Gandhi’s ubiquity masks the fact that among political actors, commentators, intellectuals, and a growing swath of the general public, his reputation is far from settled.
The lead-up to a general election this spring — in which the Hindu nationalist Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, is likely to beat out the centrist Indian National Congress Party and be reelected for a third straight term — has brought dueling visions of Gandhi to the fore. Congress, which was helmed by Gandhi himself on the road to independence, still hopes to capitalize on its historic connections to the Mahatma, but the efforts of its increasingly ossified leadership are falling flat. Meanwhile, the BJP pays lip service to Gandhi’s brand while vigorously working to counter his core values, including, most crucially, his lifelong pursuit of Hindu-Muslim unity. The far-right fringes go even further than the official party line: in some circles, Gandhi is belittled, mocked, burned in effigy. This confused state of affairs suggests that a reckoning with the competing narratives swirling around Gandhi is long overdue. Even as he has been flattened into an ill-defined figurehead by liberals and centrists, his complex legacy is being appropriated — and at times desecrated — by India’s seemingly unstoppable right…
…
It is dangerous, ultimately, to cede criticism of Gandhi to the Hindu right. Many Indians, myself included, admire our founding fathers for their grand, if imperfect and patchily implemented, vision of a secular and pluralist country. Nevertheless, the kernel of truth behind the right-wing critique of Gandhi is that the republic was founded by patrician Anglophone elites, and its core institutions do reflect the worldview of a small, affluent group who were, in many crucial ways, disconnected from the material and spiritual realities of the people they governed. Contemporary India has severe socioeconomic, caste, gender, and regional inequalities, in part as a legacy of this paternalistic cohort’s work. But that’s a starting point for politics, not a dead end. Look a little deeper, and opponents of the BJP will find not only flaws but also invaluable resources in Gandhi’s writings, particularly his distinctively Indian formulation of secularism that stands a real chance of resisting Hindutva. And in an era of rising religious violence, Gandhian pacifism itself may be more relevant than ever: it’s no longer a set of bland phrases from history books, but an urgent directive. Beyond shallow paeans to the forgotten values, Gandhi’s message could be deployed against his killer’s ideological heirs, if only someone were willing to do it. No one — politician, citizen, or intellectual — can seriously claim to inherit Gandhi’s values until they take him down from his pedestal, rescue him from both the glibness of liberal idol worship and the humiliation of Hindutva slander, and re-engage with the great thinker himself. That is surely the only fate befitting the man we once called Bapu, or Dad…
Eminently worth reading in full: “Character Assassination,” from @AdityaNSharma in @thedrift_mag.
See also: “Prime Minister Modi Is Disarming the Opposition Ahead of India’s National Elections.”
* “When I despair, I remember that all through history the way of truth and love have always won. There have been tyrants and murderers, and for a time, they can seem invincible, but in the end, they always fall. Think of it–always.” – Mahatma Gandhi
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As we resist self-rewarding revisionism, we might recall that it was on this date in 1602 that an ur-engine of the colonialization from which Gandhi led India was born: Vereenigde Oost-Indische Compagnie (VOC, or The Dutch East India Company, as it’s known in the Anglophone world) was incorporated. It was a response to the English (later, British) East India company, on which it was modeled, up to a point.
Generally considered the world’s first trans-national corporation and the first publicly to issue stocks and bonds (and the first company to be ever actually listed on an official stock exchange), it began with a 21-year monopoly on the Dutch spice trade. The VOC also prefigured the mega-corporation of today in that it had quasi-governmental powers, including the ability to wage war, imprison and execute convicts, negotiate treaties, strike its own coins, and establish colonies. Considered by many to be the largest and most powerful corporation in history, the VOC eclipsed all of its rivals (including the British) in international trade (and many nations in power) for almost 200 years.
“As people who deal with the ocean you must see the irony. We are facing a shortage on a planet whose surface is covered two-thirds with water.”*…
The Panama Canal has become a vital link in the web of global trade, especially that trade that connects Asia and the U.S. U.S. commodity export and import containers account for 73% of Panama Canal traffic, representing about $270 billion in cargo. That trade is now constrained, as water shortage has reduced the Canal’s throughput…
For months, the global shipping community has been closely watching the Panama Canal, as a severe drought has threatened water levels and forced the Panama Canal Authority to enact restrictions on the maximum weight and size of vessels that can transit its waters. The impact of the Panama Canal Authority’s restrictions has been negligible, as lower shipping demand offset any vessel weight restrictions–until now…
It takes almost 200 million gallons of water for every ship to transit the Panama Canal. And, in a drought, that’s become a problem. The Panama Canal operates with a lock system that is fed via freshwater drawn from Lake Gatun. The water flows from the lake, the high point of the canal, down through the lock system and is then discharged to sea. While the canal’s newer locks can recycle about 60% of its water, it still requires a tremendous amount of water for every ship to pass through.
At this time of year, the lake’s average water level should be around 87 feet, but the lake currently sits at 81.8 feet and is forecasted to remain at or near that level through January. To make matters worse, the lake is only receiving 70% of the intake it needs (largely from rain) to satisfy the canal’s water usage.
To combat this, about a year ago the Panama Canal Authority began limiting the draft of vessels (the distance between the waterline and the deepest point of the boat) that are using the canal. The current draft limit is 44 feet (from a normal 50 feet). A lot of factors influence the draft of a vessel but the number one factor which can be controlled most readily is the vessel’s weight. For every one foot of draft reduction, a container ship has to reduce its weight by the equivalent of 300-400 TEU (at 14 tonnes of cargo). Therefore a six-foot reduction in draft equates to 1800-2400 TEU of reduction in vessel capacity.
As the reduction in vessel draft proved to not be enough to manage Lake Gatun water levels, the Canal Authority began to limit the daily transits of vessels. The canal normally sees 34 planned transits per day. This has been reduced to 24 transits and is forecast to reduce to 18 by February 1, 2024…
“What You Need To Know About the Impact of the Panama Canal on Global Logistics”
Consequently, shipping companies are faced with a thorny choice: They can risk waiting for days, pay a big fee to jump the line (currently running at $4-4.5 million per passage), or avoid the canal entirely by taking a longer route… any of which increase the cost of transit– a cost that likely to show up in prices…
… Shipping companies are set to incur heavy losses due to the bottleneck. Maersk, which is the second-largest shipping company in the world, said it was working to ensure the backlog did not disrupt its deliveries. “We follow the guidance from the Panama Canal and adapt our intake on relevant services in advance of the departure at origin. Maersk remains committed to minimizing disruptions to our operations,” it said in a press release. The Danish company moves more than four million TEU (Twenty Foot Equivalent Unit) vessels every year. In 2021, it saw its revenues reach $62 billion. Maersk added that the low water levels in the Panama Canal were a stark reminder of the climate crisis, and its ripple effect on global supply chains.
There is still no estimate of how much the Panama Canal jam will cost shipping companies, but the situation is a reminder of the 2021 crisis in the Suez Canal in Egypt. In that case, shipping companies suffered multi-billion dollar losses when the Ever Given container ship got stuck and blocked access to the canal…
“The economic impact of the Panama Canal jam: Inflation and shipping losses“
Capacity is down; time-to-market is up; and costs are rising: The Panama Canal is under environmental pressure.
See also: “Drought Saps the Panama Canal, Disrupting Global Trade” (gift article).
* Clive Cussler, Blue Gold
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As we deal with drought, we might recall that it was on this date in 1982 that a soil sample taken in Times Beach, Missouri, was found to contain 300 times the safe level of dioxin (c.f. Agent Orange). A byproduct of the manufacture of hexachlorophene (banned in 1972) by NEPACCO (the North Eastern Pharmaceuticals and Chemicals Company), the dioxin was meant to be stored securely onsite, but was eventually improperly disposed of in a trench in the facility, and by a local waste handler.
Times Beach– well over 2,000 residents– was completely evacuated and relocated early in 1983. The land that was once Times Beach is now Route 66 State Park. One building from the town still exists: the park’s visitor center was once a roadhouse from Times Beach’s glory days and was the EPA’s headquarters for the area.
“Poverty is the worst form of violence”*…
Two economic historians, Peter A. Coclanis and Louis M. Kyriakoudes, on why about 20% of counties in the U.S. South are marked by “persistent poverty”…
For a brief moment in the summer of 2023, the surprise No. 1 song “Rich Men North of Richmond” focused the country’s attention on a region that often gets overlooked in discussions of the U.S. economy. Although the U.S. media sometimes pays attention to the rural South — often concentrating on guns, religion and opioid overdoses — it has too often neglected the broad scope and root causes of the region’s current problems.
As economic historians based in North Carolina and Tennessee, we want a fuller version of the story to be told. Various parts of the rural South are struggling, but here we want to focus on the forlorn areas that the U.S. Department of Agriculture refers to as “rural manufacturing counties” — places where manufacturing is, or traditionally was, the main economic activity.
You can find such counties in every Southern state, although they were historically clustered in Alabama, Georgia, North and South Carolina, and Tennessee. And they are suffering terribly.
First, let’s back up. One might be tempted to ask: Are things really that bad? Hasn’t the Sun Belt been booming? But in fact, by a range of economic indicators — personal income per capita and the proportion of the population living in poverty, for starters – large parts of the South, and particularly the rural South, are struggling.
Gross domestic product per capita in the region has been stuck at about 90% of the national average for decades, with average income even lower in rural areas. About 1 in 5 counties in the South is marked by “persistent poverty” — a poverty rate that has stayed above 20% for three decades running. Indeed, fully 80% of all persistently poor counties in the U.S. are in the South.
Persistent poverty is, of course, linked to a host of other problems. The South’s rural counties are marked by low levels of educational attainment, measured both by high school and college graduation rates. Meanwhile, labor-force participation rates in the South are far lower than in the nation as a whole.
Unsurprisingly, these issues stifle economic growth.
Meanwhile, financial institutions have fled the region: The South as a whole lost 62% of its banks between 1980 and 2020, with the decline sharpest in rural areas. At the same time, local hospitals and medical facilities have been shuttering, while funding for everything from emergency services to wellness programs has been cut.
Relatedly, the rural South is ground zero for poor health in the U.S., with life expectancy far lower than the national average. So-called “deaths of despair” such as suicides and accidental overdoses are common, and rates of obesity, diabetes, hypertension, heart disease and stroke are high – much higher than in rural areas in other parts of the U.S. and in the U.S. as a whole…
Although some people think that these areas have forever been in crisis, this isn’t the case. While the South’s agricultural sector had fallen into long-term decline in the decades following the Civil War — essentially collapsing by the Great Depression — the onset of World War II led to an impressive economic growth spurt.
War-related jobs opening up in urban areas pulled labor out of rural areas, leading to a long-delayed push to mechanize agriculture. Workers rendered redundant by such technology came to constitute a large pool of cheap labor that industrialists seized upon to deploy in low-wage processing and assembly operations, generally in rural areas and small towns.
Such operations surged between 1945 and the early 1980s, playing a huge role in the region’s economic rise. However humble they may have been, in the South — as in China since the late 1970s — the shift out of a backward agricultural sector into low-wage, low-skill manufacturing was an opportunity for significant productivity and efficiency gains.
This helped the South steadily catch up to national norms in terms of per-capita income: to 75% by 1950, 80% by the mid-1960s, over 85% by 1970, and to almost 90% by the early 1980s…
By the early 1980s, however, the gains made possible by the shift out of agriculture began to play themselves out. The growth of the rural manufacturing sector slowed, and the South’s convergence upon national per capita income norms stopped, remaining stuck at about 90% from then on.
Two factors were largely responsible: new technologies, which reduced the number of workers needed in manufacturing, and globalization, which greatly increased competition. This latter point became increasingly important, since the South, a low-cost manufacturing region in the U.S., is a high-cost manufacturing region when compared to, say, Mexico.
Like Mike Campbell’s bankruptcy in Hemingway’s “The Sun Also Rises,” the rural South’s collapse came gradually, then suddenly: gradually during the 1980s and 1990s, and suddenly after China’s entry into the World Trade Organization in December 2001…
A sobering read: “Poor men south of Richmond? Why much of the rural South is in economic crisis.”
* Mahatma Gandhi
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As we dive into the dynamics of development, we might recall that it was on this date in 1718 that the famous pirate Edward Teach– better known as Blackbeard– was killed off the coast of North Carolina.
Edward Teach, also known as Blackbeard, is killed off North Carolina’s Outer Banks during a bloody battle with a British navy force sent from Virginia.
Believed to be a native of England, Edward Teach likely began his pirating career in 1713, when he became a crewman aboard a Caribbean sloop commanded by pirate Benjamin Hornigold. In 1717, after Hornigold accepted an offer of general amnesty by the British crown and retired as a pirate, Teach took over a captured 26-gun French merchantman, increased its armament to 40 guns, and renamed it the Queen Anne’s Revenge.
During the next six months, the Queen Anne’s Revenge served as the flagship of a pirate fleet featuring up to four vessels and more than 200 men. Teach became the most infamous pirate of his day, winning the popular name of Blackbeard for his long, dark beard, which he was said to light on fire during battles to intimidate his enemies. Blackbeard’s pirate forces terrorized the Caribbean and the southern coast of North America and were notorious for their cruelty.
In May 1718, the Queen Anne’s Revenge and another vessel were shipwrecked, forcing Blackbeard to desert a third ship and most of his men because of a lack of supplies. With the single remaining ship, Blackbeard sailed to Bath in North Carolina and met with Governor Charles Eden. Eden agreed to pardon Blackbeard in exchange for a share of his sizable booty.
At the request of North Carolina planters, Governor Alexander Spotswood of Virginia dispatched a British naval force under Lieutenant Robert Maynard to North Carolina to deal with Blackbeard. On November 22, Blackbeard’s forces were defeated and he was killed in a bloody battle of Ocracoke Island. Legend has it that Blackbeard, who captured more than 30 ships in his brief pirating career, received five musket-ball wounds and 20 sword lacerations before dying…
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