It is not just Mr. Trump’s awakening that the United States wants to return to manufacturing. Trump’s victory in the grand slam of the President and the Senate and the House of Representatives proves that this is the awakening of the United States and Americans.
Why does the United States want to return to manufacturing?
This is actually a question that requires profound thinking, and it is not as simple as the fact that the US virtual economy cannot continue to play.
01
Let the data and facts speak for themselves first.
Let’s first take a look at a set of data: according to the OECD’s 2023 data, China’s manufacturing output has already accounted for 35% of the world’s total. In contrast, the EU’s manufacturing output only accounts for 15.7% of the world’s total, the United States accounts for 12%, Japan accounts for 6%, Germany accounts for 4%, the United Kingdom accounts for 2%, France accounts for 2%, Italy accounts for 2%, Canada accounts for 1%, and the rest is not worth mentioning. The output value of China’s manufacturing industry has exceeded twice that of the European Union, nearly three times that of the United States, six times that of Japan, nine times that of Germany, 18 times that of the United Kingdom, France, and Italy, 35 times that of Canada, and is 5% higher than the sum of the G7 countries.
Let’s take a look at another set of data: as of August 2024, the proportion of global trade settled in US dollars is still as high as 47.8%, the proportion settled in euros is still as high as 22.5%, and the proportion settled in Chinese yuan is only 4.7%. The proportion of global foreign exchange reserves is still as high as 58% for the US dollar, 20% for the euro, and 5.5% for the Japanese yen. The British pound accounts for 4.95%, while the Chinese yuan only accounts for 2.3%.
Comparing two sets of data together, a very simple conclusion emerges: both the United States and the United Kingdom are giants in monetary and financial industries, while the manufacturing industry is a dwarf; The monetary and financial status of the European Union and Japan is basically equivalent to their manufacturing status; China, on the other hand, is a giant in the manufacturing industry and a dwarf in monetary finance.
In today’s world, no one knows how important the international status of currency and finance is. If you acknowledge that real value creation comes from real manufacturing, then the proportion of its currency in global trade settlements should undoubtedly match the output value of its manufacturing industry. China’s share of the global manufacturing industry is 35%, so the share of RMB settlement should be 35%, while American manufacturing only accounts for 12% of the world. So the proportion of US dollar settlement should only account for 12%. Correspondingly, the share of foreign exchange reserves should also be considerable.
The reason is very simple, how much you produce, if others want to buy your products, they have to exchange them for your local currency to buy them. The key lies in what you accept to exchange for your local currency. You can accept gold or other valuable resources, as well as currency swaps with the other party’s local currency, and of course, you can also accept US dollars as you do now. If you do not accept US dollars or the other party’s local currency, then the other party can only use gold or other valuable resources to exchange for your currency.
As long as you persist in doing so, your local currency will gradually become a widely accepted trade settlement currency globally, and also become a widely stored currency worldwide. Don’t think this is just a theoretical argument, it is an ironclad fact proven by economic history. During World War II, the United States was the world’s largest manufacturing country. What settlement did the United States use for global trade?
Of course it’s dollars. What can you use when you go to the United States to buy things without dollars? You don’t have any dollars, do you? It’s okay, you can exchange gold for US dollars, or at least store gold as collateral in the United States, then accept a US dollar loan, and use the US dollar loan to buy American things. That’s why after the end of World War II, 80% of the world’s gold went to the United States. In addition, many countries in the world still owe a large amount of US dollar loans to repay, which is also the reason why the Bretton Woods system was established. The Bretton Woods system later went bankrupt, but the US dollar quickly became tied to oil and energy, forcing you to use dollars whenever you buy energy.
Whether it was during World War II when the United States held the position of a major power manufacturer, or later when it tied up oil energy, the fundamental reason behind this is that the United States relied on having goods in hand, forcing you to use US dollars. Even without US dollars, you must exchange the most valuable thing for US dollars or mortgage dollars.
The economic fact that the US dollar has become a dominant currency through manufacturing and energy control is in stark contrast to the fact that today’s US dollar hegemony has lost its manufacturing and energy support?
This is the fundamental reason why the United States needs to return to manufacturing while also revitalizing its oil and gas industry. The United States and Americans are waking up to the fact that they know that the value support of the dollar hegemony has been lost, and they must regain the hard support of the dollar value.
02
It is not just the United States and Wall Street who maintain the hegemony of the US dollar, but wealthy people around the world.
The reason why Americans are waking up is that they have reached the acme of playing with financial currency, and they feel guilty. However, it is not only the United States and Americans who do not want the hegemony of the dollar to fall, but almost all the rich people in the world.
To understand the mysteries behind this, one certainly needs a deep understanding of finance. We can simplify things by taking the stock market as an example.
As is well known, the US stock market has risen 60 times in the past 40 years. Even in the decade following the financial crisis, the US stock market has risen fivefold. Especially after the pandemic, with the US economy plummeting, the US stock market continues to rise wildly, at least doubling.
Yes, the United States is driving the stock market up by crazily printing money, but have you ever thought about why the United States is doing this?
You can say that the United States has no other choice but to print money, and you can also say that the United States is playing the dollar cycle in order to harvest the world. However, I want to remind you that you can completely look at the problem from a different perspective: what are the benefits of printing money with the dollar and driving the stock market to rise?
If you bought US stocks 40 years ago, your monetary wealth would have increased 60 times. If you bought US stocks 15 years ago, your monetary wealth would have increased fivefold. As long as you bought US stocks 4 years ago, your monetary wealth doubled.
The stock market keeps rising, even fools can make money. What happens after making money? After making money, you have more money in your hands. Does having more money make consumption bolder and domestic demand less automatic?
This is not the main effect, the main effect is that wealthy people around the world will exchange their wealth for US dollars and then go to the United States to trade stocks, right?
It should be noted that in the past 8 years, the large-scale flow of global capital to the United States has been a fact. The flow to the United States may not go to manufacturing as Trump boasted, but the flow to the U.S. stock market is certain.
Is it a good thing or a bad thing that the concentration of capital in the United States, without engaging in manufacturing, has further propelled the US stock market to soar?
Answering this question requires analysis from both short-term and long-term perspectives. What I just want to say here is that capital flows to the United States must be supporting the dominance of the US dollar, at least in the short term. Do you think that all the wealthy people in the world have switched to US dollars and gone to the US to trade stocks, earning so many dollars? Do they want the US dollar to collapse and become worthless overnight?
So, in the current situation, although the United States has realized that the dominance of the US dollar has become precarious due to the lack of hard support for value, wealthy people around the world hope that the US dollar will not collapse. This is the cruel reality.
03
Why does the world’s largest manufacturing country not have corresponding international monetary and financial status.
We are undoubtedly the world’s largest manufacturing country, and it is no longer just a big country manufacturing, but a big country precision manufacturing. Shamefully, we hold 35% of the manufacturing share, but only 4.7% of the RMB trade settlement share and 2.3% of the RMB international storage share.
It is certain that there is a gradual process from the rise of manufacturing to the rise of monetary and financial status, as evidenced by the history of the United States and the United Kingdom. However, if I use this as an excuse to acknowledge and accept reality, then writing this article would be completely meaningless.
Looking back at the history of the US dollar becoming a global hegemonic currency, we know that it relied on its position as the first manufacturing power at that time, as well as its later bundling with oil and energy. Today, to challenge the dominant position of the US dollar, we also need the support of the manufacturing and energy industries. Do you have this foundation now?
Russia is most eager to break the hegemony of the US dollar, but it can only demand settlement of oil and gas trade in rubles or Chinese yuan, which is obviously not enough. If Chinese manufactured products also require settlement in RMB, is this enough?
It may take time to destroy the dominant position of the US dollar, but enhancing the international status of the renminbi and making its international share comparable to that of China’s manufacturing industry is clearly sufficient. What we need now is first and foremost to change our mindset and put the transition from a manufacturing powerhouse to a financial powerhouse on the agenda.
We can have more aggressive monetary and financial policies to promote the internationalization of the renminbi. We can also vigorously promote the strategy of becoming a financial powerhouse while emphasizing the importance of building a strong manufacturing nation. This is certainly a big topic, but we can still use the stock market as an example to briefly explain the basic principles.
Since the birth of A-shares, it has been more than 30 years. Comparing the quarterly K-line of A-shares with that of the US stock market, we cannot deny that we should be very embarrassed. People always say that the stock market is a barometer of the economy. Compared to China’s high economic growth in the past 40 years, this A-share market is simply an extreme reaction against the Chinese economy, isn’t it?
We need to emphasize that it is right for the economy to shift from virtual to real, but we also need to recognize the positive role of the stock market in direct investment and financing, and more importantly, the positive role of the stock market in creating monetary wealth.
We can first consider a question: which is more beneficial or harmful to the economy, to skyrocket the price of a commodity or to skyrocket the stock market?
Raising the price of a commodity to sky high is undoubtedly a distortion of the market and a destruction of the real economy. By comparison, how harmful is it to drive the stock market to sky high prices?
If it continues to rise like the US stock market, there is actually no harm. Everyone is making money, and once they make money, they have the ability to consume, which can stimulate domestic demand. What’s wrong with this? The real danger of the stock market lies in its ups and downs, plundering investors like a roller coaster, right?
Of course, I do not advocate but have always opposed the stock market being inflated to sky high prices and excessive skyrocketing and plummeting, but it is always necessary to match the stock market with the real economy. The US manufacturing industry only accounts for 12% of the global market share, but the US stock market value accounts for 48% of the total global stock market value; China’s manufacturing industry accounts for 35% of the global market, but its A-share market value only accounts for 10.6% of the global market. We don’t learn from the United States just by playing games, but it is always necessary to match the market value of A-shares with our global share of manufacturing.
Making the market value of A-shares account for 35% of the total global stock market value means that the market value of A-shares can increase at least threefold, making the Shanghai Composite Index exceed 10000 points.
The stock market is one of the typical indicators of financial activity. Enabling A-shares to rise and international capital to flow to China like it flows to the United States, creating a monetary wealth effect that not only drives consumption but also promotes the internationalization of China’s financial market, is clearly one of the effective means to enhance China’s international status in monetary and financial markets.
We also need to acknowledge some basic facts and simple truths. The era of real estate is over, and no matter what policies you introduce, it is impossible to bring real estate back to its high growth era. After all, the housing stock of Chinese people is enough for 6 billion people to live in, while there are only 8 billion people in the world; After all, the savings of Chinese people are growing rapidly at a scale of 15 trillion yuan per year, but they still dare not consume and are unwilling to buy houses.
How can we turn the 150 trillion yuan of household savings left there into a driving force for the economy? If you don’t invest in real estate, then invest in stocks. If you have 100000 yuan in savings and dare not spend it, would you dare to spend 100000 yuan if 100000 yuan becomes 200000 yuan?
The global economy is in a recession, and the domestic economy is in a transitional period. The employment situation is not good, and the people have no income growth, so they dare not consume, which is in line with social psychology. Boosting the stock market and allowing ordinary people to have property income even without employment is an effective way to improve income distribution and enhance consumer courage and ability?
To make A-shares hot, the first step is to make the national team and institutions take on the necessary mission. Don’t allow them to shake up and grab funding before it gets hot. A simple principle is that only when the national team and institutions raise funds at a high level, can the stock market rise and not fall. If the national team and institutions are more calculating than individual investors, and even more frightened than individual investors, can the stock market become hot?
The awakening of the United States is because they have gone too far in playing finance and know that they need to return to physical manufacturing appropriately; We are obsessed with building a strong country for ourselves, but we overlook the importance of building a financial powerhouse. Is our manufacturing industry strong, even reflected by how much trade surplus we have and how many dollars we have earned? Isn’t this very sad? We have obviously overlooked the value and significance that the stock market should have, and overlooked the value and significance of the moderate wealth creation effect of the stock market in improving investment and financing efficiency, increasing shareholder income, enhancing the international status of local currency finance, and driving consumption and domestic demand.
We must understand that overcapacity and insufficient consumption are always false propositions. Overcapacity and insufficient consumption are always only applicable to countries and people without money. Why is it that the United States is experiencing manufacturing decline instead of overcapacity, and why is it consumerism instead of insufficient consumption? Americans play with the stock market rising, and what they play with is to let Americans’ monetary wealth increase significantly, so that they can buy from the whole world.
The international status of RMB finance certainly involves many aspects, but do not deny a simple factual logic. If A-shares grow for decades like the US stock market, wealthy people around the world can also earn money in A-shares. After earning money, they can still buy and sell in China. They will naturally maintain the international status of RMB like they maintain the status of the US dollar, right?
