In all of Trump’s bullying of US corporations, threats of erecting 35% tariffs on goods either from various countries or on specific US corporations, one thing that strikes me is this: In many ways, this is just industrial policy, only done in the stupidest possible way. And yet, the concept of industrial policy has basically been verboten in US political discourse for 25 years. It was briefly a big thing at the beginning of the Clinton administration. But it didn’t survive first contact with Washington, DC. And it was written off entirely after Republicans took over Congress in 1995.
My point here is not that there isn’t a role for domestic protection in some instances, with respect to specific industries or in response to specific practices abroad. The way Trump is trying to do it, however, basically means ripping up international agreements that creates collateral damage way beyond trade and, executed as he proposes, likely just means higher costs for American consumers without industries or supply chains or anything else there and ready to pick up the slack.
I am not an expert on this topic. But some of the most edifying things I’ve read in recent years centers on the role of supply chains in giving Asia and particularly key regions in China a big advantage in electronics manufacture. Despite what people think, wages disparities make up only one portion of China’s competitive advantage. A big, big part of the advantage has to do with effective, integrated supply chains.
For those who don’t know this topic, supply chains have to do with regional economies, transportation and industrial infrastructure which allows you to assemble manufactured goods in a transport and time efficient way. If most of the parts and raw materials to assemble an iPhone, for instance, are produced or available within a hundred mile radius of a given plant or easily transported into that area in a predictable and timely way, that drives huge efficiencies. Once those things are in place, that manufacturing ecosystem, iPhones and similar smart phones get built there and that tends to intensify that supply chain efficiency and concentration.
This is a very complex topic. I’m only scratching the surface to give a basic sense of the concept. But those things don’t usually come about by chance. They, arguably, require national policy to foster their development.
Point being, if we believe manufacturing is a national imperative beyond what the market might determine on its own, a lot of thinking has been done on how to bring this about. Other countries have a lot of experience at it. It’s just that Trump is doing it in the most destructive and likely least effective, even democracy threatening ways. Now, to be clear, there are people who are quite knowledgable who argue that manufacturing jobs actually don’t have higher wages in the US economy today; they also point out that the US has lots of manufacturing, just not that manufacturing jobs because of automation. So a lot of assumptions we’re discussing here are not uncontested. Maybe it doesn’t matter if iPhone are made in California or China. But as long as we’re here, as long as this is the debate, the perceived need, it’s probably time to dust off the industrial policy debate that’s been out of bounds for 25 years.