Commentary
The stock market does not like major changes in the status quo, especially when the changes encompass uncertainty. Hence it is no surprise that over the past few weeks we have seen it go down, and we have seen it go up. And over the next month that pattern will likely continue as the market overreacts to each new bit of “bad” news hyped by the media. This is upsetting to some, but trying to craft good public policy to suit the stock market’s vagaries is a fool’s errand.
Equally foolish is risking national security by
relying on Chinese parts and components for our military. It is also foolish to depend on China for medical protective gear and
pharmaceuticals. And relying nearly 100 percent on foreign powers to ship goods from China in and out of our ports due to our anemic/non-superpower
shipbuilding capacity puts our national security at risk, and is a
major contributing factor to our Navy’s decline.
In short, the negative impact the really bad trade policy of the last 30 plus years has had on U.S. manufacturing has put our national security and economic security at risk. These policies have allowed China and other protectionist/tariff-wielding countries to hollow out our manufacturing base.
All this talk about
constructive engagement with China has been an unmitigated disaster for the United States. Fact is, we never had, and never will have, anything even remotely like free trade with countries like communist China.
What’s more, even if fair trade is possible with another country, national security interests and other factors may warrant having protections in place for our industries. And while the effects of tariffs is a hotly debated topic, during the late 19th and early 20th centuries, the United States did experience massive industrial growth and large increases in real wages for American workers with high tariffs in place. More recently, we saw South Korea become a world economic power using highly protectionist/nationalist trade policies, “development mercantilism,” to rapidly move from being an agrarian third-world county to being an economic powerhouse whose citizens saw their standard of living skyrocket. And then we have China, whose nationalistic/protectionist/predatory policies targeting U.S. industries vaulted it to being the world’s largest industrial superpower.
Consequently, due to the very successful unilateral trade war waged against the United States, over the last 30-plus years, the U.S. economy went from one that was solidly anchored by the world’s largest industrial base, to one whose GDP is increasingly dependent on trillions of dollars of government and consumer debt generation each year. That’s right, the money the government borrows to pay its employees, vendors, and contractors, as well as fund the billions of dollars of monthly transfer payments that go to Social Security recipients, public employee/military pensions, Medicaid, welfare, etc., is counted as GDP when those payments are spent by the recipients. So, the more government borrows and disburses, the greater the GDP. Likewise,
consumers going into debt to buy things also pumps up the GDP. That GDP can be fueled by unhealthy levels of deficit spending makes it an unreliable, even deceptive measure of economic health.
It is wise to keep in mind that while our post-World War II economy was consumer driven, it was supported by a strong industrial base, an industrial base that relied on well-paid, middle-class workers to produce the goods that Americans were consuming. And while the United States has been running trade deficits since the early 1970s, they remained small until 1995, when they started to grow rapidly as more nations began to take advantage of our low-tariff open markets. Last year’s trade deficit was a whopping
$1.13 trillion dollars, with China accounting for
$298 billion of that. The United States also suffers large trade deficits with Mexico and Vietnam, at
$172 billion and
$123.5 billion, respectively.
It is commonly believed that these trade deficits are related to labor cost differentials that allow many countries to produce goods more cheaply than the United States. But that is not strictly true. For many manufactured products, the labor component is relatively small. This means that when you factor in all the costs, including shipping costs and capital costs (machinery/equipment), many products can actually be made more cheaply in the United States. But many countries’ governments, with China being the cheap culprit, are willing to subsidize their industries to allow them to sell below cost as long for long as it takes to drive American companies out of business or force them to move their manufacturing operations offshore. This unfair/unfree trade gave us the Rust Belt and is a
major contributing factor to the epidemic of drug-overdose deaths.
Further, manufacturing has an average economic
multiplier effect of 2.64. That means for every dollar of manufacturing output, another $1.64 of economic activity is created. By comparison, the service sector has a multiplier effect of only about 0.5, and service sector jobs play pay less on average than manufacturing jobs. Hence, allowing other countries to poach our manufacturing has had massive effect on the U.S. economy and wealth creation. In other words, the destruction of our industrial base has made the United States poorer than it would have been had we maintained a more balanced economy.
President Trump is trying to redress and correct 30-plus years of bad economic policy, and one of the tools he is using is tariffs. To the degree he uses tariffs to help redress the trade imbalance and to reshore and strengthen defense critical industries such as steel, semiconductors, rare earth elements, magnets, etc., his aggressive use of tariffs is justified. It also makes sense for the president to use whatever tools he has at his disposal to create a more level playing field for American manufacturing.
Yes, President Trump’s actions have upset the status quo, but is undeniable that the United States has become hooked on “cheap” foreign goods whose real cost to our country has been anything but cheap. Weaning ourselves off these goods will involve some withdrawal pains. But given that the status quo threatens both our national security and economic security, going through a bit of pain to get to a more secure, more prosperous country is well worth it.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
