Comment by resters 2 days ago
All this because Donald Trump claims (contrary to nearly all economists) that forcing companies to manufacture products on US soil is beneficial in some way that he (Trump) feels confident will make America great again. It is so embarrassing that these outdated ideas are entertained for even a second by HN readers.
only because of the outsized political importance of a few states that happen to specialize in outdated manufacturing technologies and happen to have enough electoral votes that politicians have an incentive to subsidize them.
It's a massive tax on the economy all to provide a tiny bit of welfare to a small number of workers. Better to just pay them a welfare check!
The world is the most unstable it has been in decades. If/when a war kicks off, you have to have your supply chain local because the oceans will be instantly impassable until we can work out how to counter submarines.
This has little to do with welfare and everything to do with national security.
To me it means some degree of being able to continue with necessary production despite global disruptions due to political disagreement, war, disaster, etc.
For example, a major push to bring more semiconductor production to the US was motivated by supply shortages during the COVID pandemic.
A globally interconnected and inter-tangled trade economy has a lot of benefits, but it can also be disrupted. So some degree of resilience against this kind of disruption may be beneficial.
The pandemic was part of it, but a lot of the shortages were related to the trade war started by Trump and the failure of the US collaborate with public health authorities in China to stop the pandemic sooner.
From the perspective of Trump, those shortages were a good thing because they forced US firms to find other inputs and to resent China and feel suspicious of relationships they had depended on for years.
A friend of mine whose company ultimately failed due to the tariff-induced shortages watched his 90% US-based manufacturing business go under after it couldn't keep up with lower-cost Chinese-manufactured goods -- Chinese manufacturers got all the parts cheaper with no tariffs so their resulting BOM cost was a lot lower. All because he did most of it in the US and relied upon a small number of Chinese manufactured parts.
Lesson learned. Now he isn't even in business anymore so there are fewer voices to complain about the tariffs.
Empirical studies show that governments typically do not introduce policies that result in benefits overall, and the costs of those polices are typically higher than if everyone had just paid a tax that was given as welfare to the small number of workers in the effected industry.
What position is a homeowner in when they decide to hire someone else to mow their lawn? Economic specialization generally a good thing.
US politicians get enamored by industrial policy when they see what happened to the "asian tiger" economies over the past decades. They forget that those nations were so destroyed by war that the "growth" was less due to the policies than to the people's motivation to live in a free and peaceful society.
China is also now the poster child for industrial policy. China had many years of intentional economic suppression in the name of societal harmony (preventing chaos resulting from some regions being poor and isolated and others being rich). In recent years China has managed to use some of the wealth to undertake a social policy (plus industrial policy) of bringing wealth from the coastal manufacturing regions into the agricultural regions, training workers, etc.
Even in spite of all this, China's GDP is still significantly lower than it would be without all the policies, but the societal order is preserved and there is likely greater social stability.
China faces unique challenges in these areas relative to other countries (largely due to geography) which is why it had suppressed its economy so much for so long.
We are getting a glimpse at what a modern approach to Chinese capitalism will look like and it has already left the US in the dust in terms of productivity. It's ironic that the US mis-attributes the success to the industrial policy rather than to the repeal of it.
Well actually, Alexander Hamilton is the father of mercantilism. And it's been followed and promulgated by pretty much every country at some point in time.
It's not wrong, it's one strategy given the political goals of a nation. There are other strategies and other goals, like economic liberalism.
Saying a behavior or approach is wrong and/or outdated shows a particular misunderstanding of what policy is for.
What "most" economists believe in the West (and "believe in" is a perfect way to put it, because it's a belief) is economic liberalism. Underlying/embedded in that belief are a number of assumptions, policy goals, and desired outcomes.
For a limited subset of countries on earth that worldview has been incredibly successful. However, for the vast majority of countries on earth economic liberalism has been a failure, and a costly one.
Unfortunately, there aren't many new alternatives out there, and the current system is heavily biased towards economic liberalism.
But it's important to remember that all this is relatively new. The era of modern states is relatively new, and the current postwar order is well, 80 years old or so. The Wealth of Nations was only published in 1776, Report on Manufctures was in 1791, and Das Kapital was in 1867.
These are good points. In my view the idea that "making America great" entails illiberal economic policies which benefit a small fraction at the expense of the rest of the population is a non-starter because in my view "greatness" does not come from propping up outdated industries (coal extraction, steel production) and taxing everyone else to do it.
I don't think economists are ideologically opposed to central planning. There are simply enough empirical studies that show how badly it fails. In fact most of the "economic liberalization" failure stories you refer to are actually centrally planned thefts that benefit specific firms but were sold as liberalization.
China is an example of a state that does very smart central planning. Everything from its central bank to its subsidization of small businesses doing embedded systems (hence all the super cheap gear on Amazon sent via subsidized shipping to customers around the world) is intended to enhance the capability of the workforce and guide the workforce toward a future of technological change and rapid (but not too rapid) advancement.
In other words, China's industrial policy is forward-looking, America's is backward-looking. The very phrase "Make America Great Again" is backward-looking.
China's policy is essentially an education policy disguised as trade policy. Corporate espionage leads to more knowledge, subsidized shipping leads to more low-end consumer devices and engineers who need to learn to build them, etc. There thousands and thousands of low-end consumer electronics, test equipment, etc., manufactured in China that are built upon the many low-end DSP chips and microcontrollers. This is not an Apple-esque 2nm process, it's much lower tech, lower cost but it offers far, far better experience to so many more workers than all but the best educational background can offer. What percentage of first or second year US EE grads could build and ship a $50 spectrum analyzer?
In my view, China has already overtaken the US in key areas of technological innovation and the US is "copying" by deploying industrial policy that has the opposite effect and entrenches and protects top US firms while having minimal educational impact on US workers and minimal impact on educational and early career choices for US workers.
It's funny how (supposedly liberal) opponents of Trump will strategically whine about economic theory when generally otherwise if you were to make appeals on the basis of economics you're labelled heartless, etc.
You know what? I like when jobs are based in America because people need domestic careers that can sustain communities. There are non-monetary costs to outsourcing that are not mere quantities for an economist to decide for us.
Ross Perot was wildly successful running on a platform like this, at least relative to any other third party in American politics, and as soon as he appeared to be a threat to the establishment, strange stuff started happening to him much like the assassination attempts in this election.
Heartless? In my view it is inappropriate for the government to prohibit or tax peaceful, voluntary activity such as trade.
The US grew economically due to the interstate commerce clause prohibiting states from imposing tariffs on each other, and now we are supposed to believe that Trump and Perot are economic geniuses because they want to subsidize coal extraction and tax EVs so that Americans have to pay double?
Most of the big wars started because countries got protectionist and isolated and had no economic reason not to fight each other.
Yes it is heartless, because it's talking about complete dissolution of communities and swaths of the country due to corporate decisions that are all made under certain regulatory regimes and strategic policies of foreign nations (in many cases enemies). Look at H1B, I've never seen a good justification for it based on working in many large corporations, there's absolutely no reason we can't be finding actual citizens that could fill these jobs and build their careers.
From what I've seen most economists have extremely short-sighted thinking. Their theories are almost comically naive.
Yes, economically in the short term (< 50 yrs) putting your eggs in your few specialized industries will give you big economic growth. But, in the long term this is economically extremely risky - because you're relying on remaining competitive in those few, high price, more advanced industries. If that happens to change, you're screwed.
And it CAN change due to geopolitical factors (something economists don't understand). A dictatorship of the future can 100% make more efficient supply lines than you. Even somewhere in-between and you can be screwed - just look at the Chinese automobile industry.
For decades, the automobile industry has been the darling child of the US. This has, and will continue, to no longer be the case. The reality is China subsidizing their industry and providing top-down support means they can make better cars cheaper. The only reason this hasn't completely fucked that portion of our economy is because we don't let them in.
We can't keep outsourcing all our manufacturing while we sit on our asses and rely on our darling child industries to grow.
Take a look at what happened during the global communist revolutions. Those communist countries were scary to us because they have the potential to make more shit and make it cheaper. They can out manufacture us.
Luckily we were not completely braindead (and the tech did not exist) to outsource our manufacturing to them. But if we did, it could have been catastrophic for our economy in the long-term.
A few points to consider:
- Electric vehicles are inherently much cheaper and have way fewer moving parts. Just because an entry level internal combustion vehicle costs $25K doesn't mean an EV has to. But with 100% tariffs it can!
- Every day that American workers spend building heavily government subsidized internal combustion powered vehicles is a day we fall farther and farther behind. All those low-end "hoverboards" that everyone bought a few years ago, all the electric scooters. The engineers who design those in China are the ones designing low-cost EVs that utterly out-compete what the US can do. US policy to subsidize mediocrity (Tesla, over-priced, over-hyped, impossible to maintain) HARMS the entire US economy. How many people need to pay an extra $500 to $1000 a month in payments that are effectively a subsidy of outdated tech? Most people with a car payment are doing just that.
Meanwhile we keep getting into wars over petrol which is why we don't keep track of how much we spend on the military because nobody cares, of course it's worth it to keep the oil flowing!
Economics is about information. Price is a function of supply and demand. As much as governments may wish that internal combustion tech was competitive with low-cost EV tech, it's not. As much as everyone wishes healthcare was free, it's not. We have to choose our subsidies wisely. US industrial policy is a disaster and it is fraught with so many misconceptions.
If it's really a national security issue, where is the US stockpile of raw steel, copper, lithium, 555 timers, etc.? Politicians would rather rant and impose tariffs and get photo-ops near coal factories than actually do something simple and strategic that would take away the possibility that a conflict would disrupt crucial supply chain.
Economic specialization is a good thing. Economies are not so simple as importer and exporter. Most companies are both importers and exporters. China's government knows this and adopts sensible policies like subsidizing oceanic shipment of goods so that shipping costs of the $25 electronic device aren't $100. This lets an engineer build and sell something and learn and grow.
China has an economically-aware industrial policy, the US has a backward-looking, short-term, electorally driven one.
Returning manufacturing to the US is a policy of both major parties right now.