In an op-ed in the Wall Street Journal former Treasury Secretary Henry Paulson says that we can out-compete the Chinese by returning to the neoliberal orthodoxy on trade if our allies go along with the gag:
The U.S. and China are engaged in a strategic competition that will determine the shape of global politics this century. But when it comes to trade, a critical dimension of that competition, America is ceding the field.
In recent years, the U.S. has imposed unilateral tariffs and trade barriers on allies and adversaries alike. Controls on the trade of technology, while important for national security, have been unnecessarily broad and often unilateral. The U.S. withdrew from the Trans-Pacific Partnership (TPP). And it has, through a mixture of negligence and obstruction, hobbled the World Trade Organization. These actions undermined America’s leadership of the global trade system, to the dismay of our allies and partners and to the detriment of our firms and workers.
At the same time, China has expanded its trade footprint. Already the world’s largest exporter, China is rapidly displacing the U.S. as the largest trade partner for much of the world. Ninety countries traded twice as much with China as with America in 2018. Last year China surpassed the U.S. as the largest recipient of foreign direct investment.
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Our work must start at home. America’s economic prosperity and the effectiveness of our political system and global leadership are rooted in domestic economic strength. We need an economic recovery program that invests in core technologies such as telecommunications and advanced computing, while also attracting the best minds from around the world to foster innovation. And as the economy recovers, we need a plan to defuse our national debt bomb over time.
China isn’t going to give America the courtesy of waiting. If the Biden administration wants to compete seriously and fulfill its promise of fashioning a “middle-class foreign policy,†it will be essential for Mr. Biden to craft a broad trade agenda that ensures U.S. workers aren’t cut off from some of the fastest-growing markets in the world.
I would submit two realities to Mr. Paulson. The first is that we cannot resume our position of economic strength unless we produce a lot more of what we consume than is presently the case and that is impeded by China’s illegal subsidization of its state-owned enterprises. Why buy an iPhone or a pair of socks made in the U. S. when you can buy those products for less money when they’re made in China?
The second is this. We have no allies. We have a few clients, e.g. Israel but not a single ally other than on paper. Germany, the United Kingdom, Japan, France, etc. are all pursuing their own national interests and right now those national interests rely on China. And China is controlling the market for rare earths, steel, consumer electronic goods, and many, many other sectors. What does he plan to do about that?
What the U. S. needs to do is to re-industrialize. We foolishly threw that economy away twenty years ago. And neoliberalism has no solution for it.
There is something that can be done from a neoliberal perspective, advertise the subsidy that the PRC government is paying to the people of the United States and how much it’s costing the people of the PRC.
I don’t recall if I’ve quoted this bit before from Keynes on national self-sufficiency:
“A considerable degree of international specialization is necessary in a rational world in all cases where it is dictated by wide differences of climate, natural resources, native aptitudes, level of culture and density of population. But over an increasingly wide range of industrial products, and perhaps of agricultural products also, I have become doubtful whether the economic loss of national self-sufficiency is great enough to outweigh the other advantages of gradually bringing the product and the consumer within the ambit of the same national, economic, and financial organization. . . . National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford, if we happen to want it.”
https://marginalrevolution.com/marginalrevolution/2019/07/john-maynard-keynes-national-self-sufficiency-1933.html
We need to re-industrialize so that Americans can have good paying jobs and governments can have secure tax bases. But re-industrialization requires severe restrictions on the importation of manufactured goods.
The World-average wage is about $5/hr, whereas the American average wage is about $15/hr. That difference is unsustainable under free trade and large-scale immigration. Who in his right mind makes iPhones in Ohio?
Mt. Vernon, Ohio, is a small town some 50 miles or so northeast of Columbus. It is on SR 3, which was the main road from Cincinnati to Columbus to Cleveland.
Mt. Vernon used to have a thriving industrial sector, now almost gone. The Mt. Vernon Bridge Co. provided the steel for Ohio Stadium at Ohio State, and for Boston’s elevated central artery (now torn down). There was a large oil/gas field equipment manufacturer. Rolls-Royce then Seimens ran a plant making engine-generator sets for oil companies. We had American Can and PPG and a window manufacturing plant. There was a lot of other manufacturing, too, almost all gone.
You can argue that the location of I-71 some 20 miles to the west killed Mt Vernon manufacturing, and it surely hurt, but cheap foreign steel and parts and manufactured imports did a lot of damage, too.
What subsidy? In 2020 commerce with China cost the U. S. more than a trillion dollars and a half million lives—that’s more than any conceivable benefit of trade.
” impeded by China’s illegal subsidization of its state-owned enterprises.”
I think that subsidy. If China is providing cheaper goods because they are subsidizing them, how do they keep that up?
Steve
Complicated subject.
“Why buy an iPhone or a pair of socks made in the U. S. when you can buy those products for less money when they’re made in China?”
Which goes to a point I’ve made repeatedly. American companies import finished or input products to lower costs and price as a matter of survival. They know what the American consumer will do, out of naked self interest and due to stagnant wages. But this is a holding action. It has also created a do loop: wage/purchasing power stagnation –> seek to buy cheap –> more wage stagnation –> etc.
Much of this is caused by government intervention. We complain about China’s subsidies, but forget that US federal, state and local government intervention leads to tremendous dead weight loss and after tax purchasing power issues for many, except public sector workers. And what exactly has US intervention in a variety of ways done to the prices of major personal lifetime expenditures: food, education, health care, or housing? And exactly how is immigration policy helpful? Very narrowly.
But we should also understand that creating an uncompetitive island is not advisable either. I come from an industry, that supplied an industry, that haughtily laughed at the consumer before foreign competition was brought to bear. One can only imagine what the state of the automobile would be without foreign competition.
Like I said, complicated subject.
America’s leadership
Should be America’s ownership. Does anybody who utters that phrase believe otherwise?
@Drew
… [American companies] know what the American consumer will do, out of naked self interest and due to stagnant wages. …
It is not quite that simple. The imported goods are not equal to domestic goods, and there are few recourses available. If a domestic manufacturer produces a product that kills my dog (pet food), poisons my child (lead paint on toys), or corrodes my plumbing (drywall), there are civil, criminal, and regulatory remedies, but if an imported good does the same, I have a dead dog, a brain damaged child, and leaking pipes.
With the auto industry, there were safety standards, and because of import restrictions, the foreign cars were eventually manufactured domestically. If Chinese goods are produced in the US, it would be similar, but they are not.
As you know, the latest manufacturing technologies allow specialized production with generalized machinery. Additive and reductive machinery allow manufacturing techniques that make domestic production profitable.
Unfortunately, it is far more profitable to produce the debt used to purchase the imported goods, and this profitability extends far outside the financial industry – politicians, the wealthy, and wealthy politicians.
To be clear, I do not have a problem with Ford manufacturing trucks in China to be sold on China, and I do not have a problem with China requiring Ford trucks sold in China to be produced in China. Also, I do not have a problem with Ford keeping that profit in China.
Ford has no choice but to keep that profit in China since the yuan is not convertible.
We have different priorities than China.
It’s even problematic to use “weâ€, in reference to the USA.
In China, “weâ€, means Xi.
Xi wouldn’t give a damn about the kangaroo rat, or the generic diversity of the spotted owl, or declining salmon runs, dam them.
He wouldn’t have stopped the Keystone XL, or started it either.
Put the refinery in Minnesota.
Xi could care less about social equity. Immigration? Ha!
As a people, as a nation, the US has by default accepted every burden placed on it’s economy by every grievance group that can find a megaphone.
Diversity is our strength?
I seriously doubt that. But we’d better find a way to make it work
because we are no longer the world’s sole superpower.
The honeymoon with China is over.