Recently there have been a number of controversies in the business sector regarding Chinese influence on US corporations. Though the Chinese influence on markets has been long, recently a few situations have been thrust to the fore. As a gamer, the most notable for me was Blizzard Entertainment’s decision to ban Blitzchung, a Hearthstone player, from the Grandmasters tournament for 12 months after voicing his support for the Hong Kong protests. He was also fined the full amount of his prize money. There have also been Hong Kong supporters removed from NBA games, and the banning of South Park in China after they aired an episode mocking Chinese censorship. Because I’m a gamer, the Blizzard incident is the one which most grabs my attention.
Many gamers have taken to advocating for the boycott of Blizzard, and have even resorted to turning the Chinese Overwatch character, Mei, into a symbol of Hong Kong freedom. I thought this would be a good opportunity to explain foreign trade, something I’ve attempted to explain to friends and family in the past.
For many, the issue of Blizzard (and other corporations) complying with the wishes of the Communist Party of China (CPC, or sometimes Chinese Communist Party, CCP), is simple to understand; China represents a huge share of the global market, and often corporations will make efforts to adhere to the CPC’s wishes in order to gain access to the market. This may be sufficient to explain the situation at a surface level, but there is more at work here. For example, many people on the internet, including Mark Kern (former Team Lead for World of Warcraft, and former Hong Kong citizen), have pointed out holdings in a multitude of corporations by Chinese companies, such as Tencent.
I remember being younger, and claiming that China owns America, saying it unironically without having any understanding of the economics of it. Ultimately, Chinese ownership of US assets can be attributed to the US to China trade deficit. Yes, that thing that Trump has been condemning forever. Now, I’m not going to say that trade deficits are bad, and you’d be hard pressed to find an economist who would make such a claim. An oft-used analogy is that you most likely have a trade deficit with your local grocery store. You give them more money for goods than they give you, yet this doesn’t negatively affect you. This is pretty easy to understand when dealing with a common currency, but once you start trading goods internationally, with different currency, for some reason people get tripped up by the idea.
It is uncontroversial, even from mainstream economists, to say that money spent overseas must eventually make it back to its country of origin. Without getting too deep into the economics of currency exchange, if you were to buy a Chinese TV with US dollars, they might accept the purchase, but once they get that money, its use is limited by the fact that it isn’t the commonly accepted currency. From there the money can take a number of routes, maybe through the bank, or buying something from someone willing to accept US dollars, or buying something from the US themselves, but through the course of exchange the US dollar must make its way to the hands of someone willing to purchase something from the US.
Let’s switch gears for a moment to discuss economic growth. How economic growth is achieved is a subject of controversy, with a number of schools of thought, but the main two are the notion that production drives economic growth, and the view that consumption drives growth. I’ll demonstrate the opposing views using the common Robinson Crusoe method; that is one of demonstrating complex ideas with simplified systems of exchange.
The production view (supply-side) posits that expanding one’s productive capacities in turn expands the economy. For example if one man gathers 100 berries and trades them for 5 rabbits one week, and then the next week he decides to trade 120 berries, he might expect to receive 6 rabbits, which would expand the economy.
The consumption view (demand-side) posits that increasing consumption drives growth. Under this view, the baseline of 100 berries in exchange for 5 rabbits occurs, but then one of the men expresses the desire to consume more, and by virtue of that, more is produced. Note that under the consumption view, one man cannot offer to exchange more before demanding more consumption, or he is engaging in supply-side economics; that is productive growth preceded consumptive growth. This is the main problem with demand-side economics, it disregards Say’s Law, an economic theory that production precedes consumption, because one cannot demand an increase in consumption without first increasing their capacity to produce. Demand-sider’s sometimes try to dismiss this by misconstruing Say’s Law as a claim that supply creates its own demand.
It is because this view that increasing consumption drives economic growth that trade deficits, like that with China, can grow so much. Maybe my argument against demand-side economics was unconvincing to you, and that’s fine, I’m just identifying what, to me, is a factor in the trade deficit, which in turn has resulted in acquisition of US assets by Chinese companies.
However, now I’d like to address a view which is uncontroversial in economics, one which even mainstream economists, in my experience, have agreed to, which is that a trade deficit can be corrected through increased savings and investment. This concept is pretty simple to understand. Consumption of foreign goods in excess of the export of domestic goods means that the productive capacities of the nation are not meeting foreign demand. As such, a reduction in consumption in combination with an increase in domestic investment in capital goods will expand domestic production such that the nation can more readily meet foreign demands. The increased availability of domestic capital also reduces the demand for foreign capital.
So, if the current state of Chinese influence on American markets upsets you, sure, go ahead and boycott whoever the hell you want; that’s a good start, but take that money you are no longer spending to consume goods produced by companies beholden to foreign interests and make that capital available for domestic expansion.