The source of malinvestment is asset inflation’s corruption of price-signaling in capital markets. The allocation of capital becomes deeply inefficient. Technological revolution, driven by vast speculation and the lure of monopoly, pursues a wild and unbridled path into the forest of the unknown. Only much later the giant flaws become apparent which might have been tamed or averted if the “checks and balances” of well-functioning markets under sound money had been operating properly. Such wildness and lack of foresight has been the story of the digitalization revolution through the past three decades.
The resulting poor growth in living standards by comparison with previous periods of technological revolution has fueled populism. Growth would have been even more anemic if it had not been for the extent to which US consumers benefited from the regime of economic and political repression in China.
One of the reasons that China is exporting so much to the world is that they have a phenomenal savings rate, thus, capital investment rate. Starting a trade war with them will, perhaps, not help us because we have such a meager savings rate and thus meager capital investment rate. Witness, we are not exporting so much because we don’t have the heavy production that capital investment brings about. If we tariff the snot out of them and their cheap goods no longer come here we will be getting less goods for ourselves. The bubble bursts.