September 7, 2011
America right now is being inexorably stripped of its most valuable industries by its naïve embrace of one-sided free trade. Here’s the Harvard Business Review‘s list of industries we have already lost:
Fabless chips; compact fluorescent lighting; LCDs for monitors, TVs and handheld devices like mobile phones; electrophoretic displays; lithium ion, lithium polymer and NiMH batteries; advanced rechargeable batteries for hybrid vehicles; crystalline and polycrystalline silicon solar cells, inverters and power semiconductors for solar panels; desktop, notebook and netbook PCs; low-end servers; hard-disk drives; consumer networking gear such as routers, access points, and home set-top boxes; advanced composite used in sporting goods and other consumer gear; advanced ceramics and integrated circuit packaging.
Note that these are not the “junk” industries, like plastic toys, that free traders fantasize we are shedding to foreign nations that graciously acknowledge our divine right to skim the cream of the world economy while others do the donkey work. These are serious high-tech and thus high-wage industries, industries with a future. Without them, America is going to be increasingly shut out of the most lucrative and job-creating industries in the global economy. We are going to be the new Portugal.
Can a developed nation hang onto key industries in the face of cheap-labor foreign competition? Sure. Neither Japan nor Germany, nor their imitators from Taiwan to Switzerland, have suffered our chronic deindustrialization. Our unemployment rate right now is 9.2 percent; Germany’s is 6.1 and Japan’s is 4.7. General Motors went bankrupt, not Toyota or Mercedes.
The causes of these nations’ industrial success are complex, but one thing they all have in common is that they do not actually practice free trade (whatever they may say in public to gull Uncle Sam). They practice managed trade by a dozen different means, starting with currency manipulation and deeply embedded in the behind-the-scenes understandings their corporations have with their banks, governments, and unions.
Worstall said in an e-mail exchange with Fletcher that he was not concerned with national interests at all. He wrote:
I’m simply not interested in the results that trade or not trade have on people within a specific set of arbitrary national borders.
I’m interested only on the effects that trade or not trade have on people.
To Worstall, a nation is an “arbitrary” entity. He elaborates on this point:
My final admission is that when considering trade I simply do not consider the position of the producers at all. As Smith pointed out, the aim of all production is consumption. I take that to mean that what we should be interested in, care about even, is consumption. We should care that a pair of shoes for a child to go to school in is $10 or $15. Not whether the producer is within the same national boundaries as ourselves or not. Just to continue in this vein, I tend not to think of “national economies” either. I just don’t think they’re relevant to any of the interesting questions. And it’s most certainly not true that countries trade with each other either. Individuals do, companies do, but outside those poor benighted places where the government owns the industry, countries do not trade.
Nevertheless, as Fletcher points out, we compete with nations that do not view themselves as arbitrary entities and that defend their national interests.
— Comments —
Greg Jinkerson writes:
“Nevertheless, as Fletcher points out, we compete with nations that do not view themselves as arbitrary entities and that defend their national interests.”
In your final comment, you make a very important point that is too often lost upon some ideologues of free-market libertarianism. It would be one thing to pursue the ideal of radical free trade and worldwide low prices if historic nations really were nothing but archaic mirages being kept alive by nostalgic cavemen. But the truth is that the free-trade drift in American trade policy is based upon the libertarian fantasy that most people do not identify deeply with historic nationalities. In the same way that white liberals are the only group in humanity who have taken themselves up on the challenge to behave as if racial grouping cannot and must not matter to anyone, free-market ideologues are oblivious to the fact that every other nation on earth but the USA operates its trade under the assumption that nations are real political entities, and all other nations but the USA allow that assumption to shape their trade policies such that those policies are domestically beneficial to the respective nations. But pundits like Worstall want us to believe that the more widely we scatter trade and manufacturing around the world, the sooner such quaint notions as national-economic identities will vanish. It is true that one such identity is vanishing, namely the endangered American one. All the other nations are laughing at us.
Buck O. writes:
But if Arthur were a bird, he might also see people in China working and people in Detroit not working. From that he might conclude that there was something wrong. “I see trade only moving in one direction!” he might say.
If Merlin would then tell Arthur how to fix it, Arthur then could go on to become a wise king.
I see your point. Because the Chinese won’t exercise and eat their vegetables, we shouldn’t either.
But since you’re waiting for the Chinese instead of reading Smith and Hayek for yourself, you don’t see that you’re arguing from the false premise that our retaliation does not hurt us. But it does. When the Chinese practice protectionism, they hurt themselves and us. When we retaliate with protectionism, we hurt ourselves and them. Every bit of protectionism is harmful to everyone, no matter which party practices it. Don’t blame me; that’s how it works.
At least consider this point from Bastiat: to understand economics, you have to take into account what is unseen as well what is seen.
YouTube has lots of short clips where Milton Friedman brilliantly deals with just such questions as yours about Portugal. Generally they are being put by individuals who are intelligent and otherwise informed, but ignorant of the principles of free trade.
Alas, as I have pointed out previously on your wonderful site, I am no Milton Friedman, which is why I keep referring everyone to the masters. They are right there in the computer, waiting to offer enlightenment at no charge.
Of course economics is not the only factor, or even the most important factor. But it is true that, when the issue is economics, every limitation on the free transfer of capital, labor, and goods across borders has an unfavorable effect.
So, for instance, preventing mestizos from coming here to do our drudgery does in fact have an unfavorable economic effect. But letting them come here harms our society and culture. And that’s the choice.
Another blogger whom I also love was once arguing for conscription (which I hate) by pointing out the virtues it instills in young men. I replied that if we put a pig in our house and burn it down, we can get delicious roast pork. Like you, he is a very good sport.
To quote a journalist friend who used to get long e-mails from readers who disagreed with him: There is much in what you say.
You ask, “how did the Portuguese benefit from allowing their woolen industry to die and from cutting off their own innovation in this sector?” But, where is it written that one agricultural sector – wool – is amenable to innovation and technological development, but another – grapes and wines – is not? We don’t make wine now the way they did in 1600. We use all sorts of machines, and a huge body of agricultural knowledge, genetic knowledge, chemistry, and so forth. California just surpassed France for wine production – quality or quantity, I forget which; possibly both. We didn’t do it by using exactly the same methods as the French, but by innovating, with new forms of marketing, storage, shipment, distribution, finance, even accounting and IT. It was California firms that pioneered wine selling across the Internet. Nor did we do it by imposing tariffs on French wines to keep them out of California and support our local vineyards and vintners. Quite the contrary. Liquor stores here sell wines from all over the world. Even now the California wine industry is in the process of abandoning corks, because they are not a renewable resource (at the level of production now required for the volumes California is producing), and because they don’t work as well as screw caps, while being at the same time more expensive.
Even as wine booms worldwide, wool is a dying industry. It is being replaced by artificial fibers and complex new knits and weaves they make possible. In many cases, for many purposes, they work better. In some cases, they do not. Italian textile mills, family operations that have been in business for centuries, are at the forefront of daring new combinations of wool and synthetics (and, in some cases, metals), that are making possible new kinds of fabrics, and garments. Some are stupid and silly, of course; some are elegant, useful, ingenious. These folks are using new, smart looms, CAD, and advanced math and chemistry to engineer their products.
The Portuguese were outcompeted by the British. It’s that simple. The British were better businessmen. And they were, famously, far, far more industrious and enterprising. In just the same way, everyone knows today that the Germans, Koreans, Swiss, Chinese and Japanese are far, far more industrious and enterprising than the average American. I’d still bet on America to outproduce all of them put together, if we would just stop penalizing enterprise and subsidizing sloth.
Every field of human endeavour is open to improvement. Nothing is immune. Even bureaucracy. Especially bureaucracy.
That makes sense.
A further response by Kristor is in the next entry here. And the discussion here continues in that entry.