[3d3mon]

> Trade policies and externalities have absolutely nothing to do with that.

You're right on that since we're clearly talking past each other :-) Yes, businesses become commodities over time. We agree here. However this is orthogonal to innovation and job creation. If an old mature industry is on its last throes, then by all means, farm that out. Those jobs are gone. But that's not what we're talking about here. We're talking about new industries that if they can stay put for even say 5-10 years could provide immense benefits to the innovating nation. It keeps the middle class healthy and prevents the have/have-not scenario that you mentioned as troublesome. I share those same concerns. It also creates an in-house knowledge base for future innovation and an investing base for venture capital formation (think Paypal/Google mafia). It also has the effect of incenting the country to implement pro-innovation policies to continually lay those golden eggs. A virtuous cycle if I ever saw one.

Now enter the bureaucrats in Beijing who have created their own "incentives". The main one being cost which they obtain by mortgaging their labor/environment and toying with the exchange rate. These aren't truly economic advantages but are really artificial rules put in place by a planning committee for national interest. Government intervention if you will. Entrepreneurs and startups who must factor in cost to any decision are thus improperly incented to quickly offshore. Thus we have the familiar story of "we innovate and they get the jobs" This is why Grove said creating more startups won't do anything to help US unemployment since they do their scaling elsewhere. The proper course of action is for China to due away with their policies but we can't make them. This is game theory folks. The unfortunate reality is that the rules of engagement are written by bureaucrats and Grove is saying if China is playing that game we must too.

[binaryfinery]

Except that if we do, China will simply stop recycling its share of our government debt and the US government defaults. It will take a president with huge balls to call China on its trade war, and risk having to monetize that debt.

[linhares]

As of now, if I remember correctly, China has over 2 Trillion greenbacks. It's _impossible_ to win a trade war. We're talking about something _very_ much like this:

http://en.wikipedia.org/wiki/Suez_Crisis#Financial_pressure

It is easy to be protectionist. But a major selloff of the USD by China would create the mother of all confidence crises, and, while _everyone_ would lose, the world's reserve currency, the USD, would be forever damaged.

This is not a war you can realistically fight to win. I really expected more from someone of Grove's intellect. Much much more.

[binaryfinery]

"Damaged" i.e. lose a lot of value. Precisely. We could no longer afford to buy goods from China, Japan, etc. China doesn't have the internal economy to risk that. Yet. US manufacturing, and the US social fabric, would win win win. This is absolutely a war we can fight to win. And win it we must.