Marshall Auerback: Trump’s Trade War with China Will Cause an Economic Catastrophe — Here’s a Better Solution

By Marshall Auerback, a market analyst and Research Associate at the Levy Institute. Originally published at the Independent Media Institute

With the announcement by President Trump that the U.S. would start the process of imposing 10 percent tariffs on an additional $200 billion of Chinese imports in the next few months, it is safe to say that the U.S.-China trade war has definitively moved past the phony war phase. This action goes well beyond placating some important rust belt/swing-state constituencies and reflects the president’s deeply held belief that trade is a zero-sum game in which the U.S. has been persistently played for patsies over the last several decades, especially by Beijing (although, as last month’s G7 summit demonstrated, neither the EU, nor Canada, is exempt from this animus either). The cumulative actions undertaken by the president now account for almost 7 percent of total global trade, according to the economist George Magnus, reflecting the magnitude of Trump’s efforts.

If Trump is actually hoping that tariffs will enhance the possibility of boosting America’s export markets, he’s in for disappointment and a good deal of anger from the very economic sectors he might have expected to champion him. Modern global supply networks have been established on the assumption that globalized free trade and capital mobility were permanent realities. The so-called “Washington Consensus” has assumed globalization as an irreversible process to such a degree that U.S. companies are utterly reliant on global supply chains.

So what is the solution? Perhaps that might come via the imposition of local content requirements as opposed to a haphazard reliance on tariffs, which is to say that when a foreign company manufactures a product in a country, a certain proportion of those materials and parts should be made in that country domestically rather than imported. This is not unusual. In fact, China makes use of this practice very liberally, and insists that a minimum level of local content is required, when giving foreign companies the right to manufacture in a particular place. And if this requirement is mandated going forward, it may well arrest the ongoing “de-skilling” of the American labor force (because it slows the outsourcing of manufacturing), as well as curbing labor arbitrage (to be fair, labor arbitrage is less of a problem when free trade pacts are done between countries/regional blocs of comparable living standards, such as the recently concluded EU-Japan trade pact). So it’s potentially a win-win for American workers and businesses.

In a previous article, I explored the possibility of U.S. consumers being impacted in the event of a supply disruption engineered by Beijing using its dominant production in either rare earths or ascorbic acid, which is widely used in food production to improve quality and stability. Given the relatively self-sufficient nature of the American economy, the U.S. can probably withstand this kind of potential trade shock better than most countries, and ultimately can crank up production domestically to mitigate any short-term threat to supplies from China. More problematic has been the longstanding proclivity to outsource manufacturing rather than raw or refined materials, the long-term effects of which are more difficult to alleviate.

The U.S. will have to consider adopting policies to re-establish an “industrial ecosystem” (to coin a phrase used by political economist Seymour Melman) if it is to mitigate the threat posed by overseas supply disruptions, and counter the longstanding lament of U.S. manufacturers that they cannot find American workers with the right mix of domestic skills. The latter point is addressed in a Harvard Business Review study by Professors Gary Pisano and Willy Shih:

“Tool and die makers, maintenance technicians, operators capable of working with highly sophisticated computer-controlled equipment, skilled welders, and even production engineers are in short supply.

“The reasons for such shortages are easy to understand. As manufacturing plants closed or scaled back, many people in those occupations moved on to other things or retired. Seeing fewer job prospects down the road, young people opted for other careers. And many community and vocational schools, starved of students, scaled back their technical programs.”

The authors rightly note that the complaint of U.S. manufacturers that they do not have enough skilled workers confuses cause and effect. But the problem is even more serious than suggested by Pisano and Shih: Through massive outsourcing of the supply chain, the U.S. has empowered countries such as China with far greater leverage on trade matters. Instead of responding with a tit-for-tat tariff, the Chinese premier now can simply threaten to cut off Apple, or IBM, or any number of U.S. multinationals from critical parts.

We cannot entangle our supply chain so thoroughly with another country that their companies can ignore U.S. law and get away with it, because of a credible threat to the supply chain. No one country should have that power—however, the reality is that we live in a world where an automobile is made of parts 80 percent supplied by outside producers, from sometimes dozens of countries. This process can be highly efficient from a cost perspective in a global market, but in a world filled with tariffs, it can be mitigated by enforcing indigenization everywhere in the high value added supply chains to which all economies aspire.

The imposition of local content rules would end the possibility of any country cornering the market, thus reducing incentives for currency manipulation or subsidies. Done right, local content requirements would destroy the business models of chronic surplus countries like Germany, Japan and China. Their firms could invest in transplanted companies abroad, but the transplants would be de facto local factories, rather than designed for re-export back into the American market (in contrast to the current trade regime where—per a New York Times report—“Dell, Hewlett-Packard and Samsung have all flocked to China to lower their production costs, bolster their bottom lines and tap into the world’s largest consumer market”).

How to do this the right way? Let’s say there are four major markets that are also major producers: North America, Europe, East Asia and South Asia. Most trade is done within the same industrial sectors generally, as opposed to distinct and separate industries. They agree that each region can reserve 25 percent of its market for locally produced goods (or more realistically, components of final assembly goods). The other three blocs can compete for the other three-quarters of the local bloc market. If the locally produced share falls below one-fourth of the local bloc market, it can impose quotas while helping the local producers regain their share, preferably by improved productivity or business models.

Local content requirements are much more trade-friendly than tariffs since policy-makers are protecting a fraction of the market, not the full 100 percent. Once you eliminate the incentive to run merchandise trade surpluses, you don’t need all the elaborate schemes for deterring or sterilizing them. And it mitigates the need to resort to tariffs which, in any case, create both winners and losers, without necessarily resolving the problems that the tariffs were designed to solve in the first place.

Part of the reason why there has been such a proclivity toward offshoring manufacturing is that manufacturing itself is viewed as a cost variability through the narrow prism of short-term profitability (beating the quarterly number has been an ongoing game on Wall Street, used to perfection by figures such as GE’s former CEO, Jack Welch). As a result, note Pisano and Shih, “executives… give short shrift to the impact that outsourcing or offshoring it may have on a company’s capacity to innovate. Indeed, most don’t consider manufacturing to be part of a company’s innovation system at all.”

The problem goes beyond that, as Seymour Melman noted in his book, Dynamic Factors in Industrial Productivity, where he makes the case that the unremitting focus on low-cost labor inhibits technological innovation and invariably pushes companies to global labor arbitrage. The basic idea was elaborated by one of Melman’s former researchers, the political economist Jon Rynn:

“[F]aced with high labor costs, firm managers will be more willing to mechanize, that is, use more machinery, and more sophisticated machinery, instead of using labor. By using more, better machinery, they increase labor productivity, which leads to higher wages, and they also stay at the cutting edge of technology.”

Retaining a degree of homegrown manufacturing also mitigates the production risks posed by divorcing product design and manufacturing (such as originally occurred with the Boeing 787 Dreamliner program, which was characterized by massive cost overruns and ongoing engineering problems).

Needless to say, these sorts of ideas are despised by the apostles of free trade, who have conveniently dismissed globalization’s losers as “negative externalities,” the “deplorables” who (as I have noted before) have been “displaced from their jobs by globalization, automation, and the shifting balance in manufacturing from the importance of the raw materials that go into products to that of the engineering expertise that designs them.” There is also the issue of WTO rules, which limit the degree to which local content rules can be deployed (generally okay for government procurement on infrastructure, but problematic beyond that). That might explain part of the public musing by Trump in regard to America’s future relationship with the WTO or observance of its rules. But the truth is that America’s workers have suffered major displacement in a long-running trade war, “one in which,” as David Dayen argues, “for decades, the United States never fired a shot on their behalf.”

Tariffs might not be the answer, but they reflect an increasingly desperate attempt to break the stranglehold on a system which increasingly focuses less on “free trade” per se and more on simply privileging oligarchs and entrenching the powerful multinational corporations at the expense of everybody else. An increasing focus on local content rules might represent a more effective response than tariffs of helping to re-establish more domestically oriented supply chains, and reversing the adverse impact of offshoring. It would also deter governments from seeking to monopolize particular industries, and deter firms from offshoring based on labor arbitrage. This eliminates bubbles driven by overinvestment (Asia) with profits recycled as consumption elsewhere, because governments, unable to deindustrialize their trading partners, have little incentive to overinvest in industry and dump the products to drive others out of business. And for its part, the private sector will invest only in response to actual or projected demand.

In any event, new proposals have to be found to arrest the ongoing erosion of the living standards of the middle and working classes, lest this trade war, like a real war, goes global.

Print Friendly, PDF & Email

47 comments

  1. Zachary Smith

    So what is the solution? Perhaps that might come via the imposition of local content requirements as opposed to a haphazard reliance on tariffs, which is to say that when a foreign company manufactures a product in a country, a certain proportion of those materials and parts should be made in that country domestically rather than imported.

    Mr. Auerback seems to be a bit tentative about his solution. I’m in company with those who are getting worried about the growing monopolies involved with overseas manufacturing, and in particular regarding prescription drugs. But I want a solution which will work, not “maybe” work.

    Being basically ignorant about trade issues is a problem for me. I’d never heard of Marshall Auerback before, but then neither do I know anything about whoever it is whispering in Trump’s ear. Or is he hearing voices in his head?

    Reply
  2. MemorableUsername

    While most of this article pushes the idea of local content requirements (LCRs) as an alternative to tariffs, I don’t feel it does a good job either:

    1) Explaining why an alternative is necessary
    2) Demonstrating that LCRs are different in effect (on manufacturing cost) than tariffs

    With regards to (1), two brief statements are made: “Modern global supply networks have been established on the assumption that globalized free trade and capital mobility were permanent realities … More problematic [in terms of withstanding trade shock] has been the longstanding proclivity to outsource manufacturing rather than raw or refined materials, the long-term effects of which are more difficult to alleviate.” To briefly summarize: There will be a price shock in both foreign and domestic manufactured goods.

    Yet the title of this article says “economic catastrophe.” A price shock is not a catastrophe. Am I to take it on faith that a 10% jump in manufacturing costs (and an ensuing increase in prices) will lead to widespread job losses? Or market panic? Or bank runs? I see no treatment of the impact of these trade wars on currency (the Yuan has already significantly depreciated) and thus credit available to governments.

    With regards to (2); the obvious way to enforce an LCR is to impose penalties on companies who fail to meet quota. A company faced with a tariff sees a penalty applied because its supply chain sources goods in a specific country; while a company faced with an LCR sees a penalty applied because its supply chain fails to source goods in a specific country. It seems to me that both approaches induce a price shock; and that such a shock is necessarily unavoidable because:

    i) Manufacturing has had decades to reach an optimum (minimize cost, maximize profit) under the current free trade system
    ii) We (/Trump/Auerback) want to introduce incentives (i.e. change the cost function!) to drive that optimum somewhere else

    Anyway I thought this article was thin gruel. Thin enough to post a first comment here.

    Reply
    1. John B

      An excellent comment, too. A tariff may not be a local content requirement, but it certainly is a local content incentive. That’s especially true for tariffs on intermediate goods, which many of Trump’s tariffs are.

      That said, if what trade policy is seeking to achieve is greater domestic manufacturing, a regulatory approach — LCR — rather than a tax approach could achieve the result more accurately. LCRs could certainly have very different effects on individual manufacturers than a tariff would — an LCR would completely prohibit imports of any product made entirely in a foreign country, but have virtually no effect on products that are already made partly in the US, like most autos. In a new trade deal, LCRs would be worth exploring. But the distinction between LCRs, quotas, and tariffs would be subtle, and not enough to avoid a “catastrophe” if one were actually impending.

      Reply
    2. Marshall Auerback

      In my defense, I didn’t choose the title (nor did Yves). That was an editorial choice beyond my control, and I agree that it misconstrues the argument somewhat. One of the models I had in mind (which I should have referenced in the article) is a piece I co-authored years ago on NC with Rob Parenteau, where we used the example of SEMATECH. SEMATECH was conceived in 1986, formed in 1987, and began operating in Texas as a partnership between the United States government and 14 U.S.-based semiconductor manufacturers to solve common manufacturing problems and regain competitiveness for the U.S. semiconductor industry that had been surpassed by Japanese industry in the mid-1980s. It was precisely because of this perceived vulnerability to a supply shock that the DoD got involved. SEMATECH was funded over five years by public subsidies coming from the U.S. Department of Defense via the Defense Advanced Research Projects Agency (DARPA) for a total of $500 million and actually turned out to be a very successful example of what I’m talking about.

      Reply
      1. MemorableUsername

        Thank you for responding. I am sorry to hear that the title (which sets some expectations not aligned with the article) was thrust upon you.

        I can’t seem to turn up your article on SEMATECH, do you have a link?

        Reply
  3. ken

    In a world that needs less low quality, single use products and more reusable high quality products, i’m not sure indigenization will help. Shouldnt tariffs be based on the quality of products instead?

    Reply
  4. clarky90

    In my life I have had set backs. It just happens. Family betray you, a brother commits suicide, a house burns down, a business fails, friendships end, a pregnancy miscarries, marriages break up, custody battles……

    The voyage goes on. Pick ourselves up- retreat to a defensible position- heal up, and then sally forth, back out there. More living.

    A good challenge helps people to be healthy and happy!

    My point; if there are tariffs, new USAian businesses will arise overnight. People will reorganize their lives. Training centers will train needed people. Wages will rise. Communities will flourish. Neighborhoods will rebuild. There will be money for better schools.

    Henry Ford famously paid his workers high wages, so that they could buy his Ford automobiles.

    All the crocodile tears about global warming. Globalism is destroying our environment. Eat local food. Wear local clothes. Fend for yourselves. Learn to do without. Miss a meal or two! It is fun and empowering.

    Globalism makes us docile, fearful and easily manipulated.

    Reply
    1. WobblyTelomeres

      Fend for yourselves. Learn to do without. Miss a meal or two! It is fun and empowering.

      shouts clarky90 from the Treblinka train. Perhaps you mean “work sets you free”?

      Reply
      1. False Solace

        > Miss a meal or two! It is fun and empowering.

        Nothing turns one’s mind toward crime faster than a hungry child.

        Reply
    2. Arizona Slim

      During the mid-1980s, there was a time when I lived on one or two meals a day. Believe me, this was NOT a character-building experience and I don’t look back on it with fondness.

      Reply
      1. clarky90

        When I was growing up, the kids in my town were healthy and skinny. Nobody, that I knew of, had diabetes or weird auto-immune diseases.

        We only, ever, ate three meals a day. If I ever asked for a snack, my mom said, “No snacks, eat more at dinner next time”.

        We went crazy for two or three days after Halloween with our secret candy stashes.

        “Intermittent fasting” (look for Dr Jason Fung on youtube) is a thing. I generally don’t eat til after noon. I ate one meal yesterday.

        My body weight/BMI, at 68 yo, is roughly same as when I was 18

        Reply
        1. Arizona Slim

          I might add that my reduced food intake was not a lifestyle choice. It was forced on me by poverty.

          Reply
  5. Anonimo2

    Maybe it is a mistake to assume that the aim of this trade war is to revive american manufacturing (which by the way will never happen until the real cause, financialization, is addressed).

    Michael Hudson suggested that the real aim is to force the chinese to open and deregulate their economy so the US financiers can go in for the kill. This idea seems to be pretty reasonable. After all, do you really think that a real estate mogul gives a sh*t about manufacturing?

    Reply
    1. makedoanmend

      ” After all, do you really think that a real estate mogul gives a sh*t about manufacturing?”

      This is what I tend to think this myself, but I have a niggling suspicion that Trump sees the trade issue as one that has many upsides with few immediate downsides. I’m assuming Trump will be seeking a second term. I also think Trump is very “America First” in his views, and this is a rational position for an American President that will resonate with the USA population across the political spectrum.

      In short, yeah, Trump primarily has a real estate head* but he is now President and also has developed a re-election head and an a native USA nationalism head. He wants to be a successful USA President who achieves an improvement in economic USA power. These are rational positions.

      Whether the lives of USA working people will be improved is uncertain but it will be encouraging to many Americans that a President actually seems concerned about the fate of the overall economy of that country. One got the distinct impression that Presidents such as Obama and Clinton were either paid up shills for the financiers or just self indulgent or both.

      [*I often wonder if Trump, being so immersed in real estate, is very loath to launch wars which essentially destroy real estate – just pure conjecture on my part.]

      Reply
      1. PlutoniumKun

        Its not a pleasant task trying to get into Trumps head, but I think the best guess is that he has a sort of macho view of ‘building and making things’ as representing ‘real business’, as opposed to those effete guys with briefcases who do esotheric things with spreadsheets. The bigger, noisier and dirtier the work, the more ‘real’ it is for him. Hence his love for coal mining and steel production.

        He also clearly sees trade and business as a zero sum game. Its all about grabbing what you can, and the bigger and more aggressive your grab, the more impressive it is. I think his dislike of Europe and Canada comes down to a personal contempt for the more diplomatic style of those countries, compared to the real men who run Russia and China, who he is happy to see alternatively as enemies to be defeated or worthy adversaries to do deals with, depending on his mood.

        So I think his desire to on-shore heavy manufacturing is genuine, as his believe that the Chinese are cheats who need to be taken down a peg or two. But between his own ignorance and the various actions of his hangers on and pupetteers, the implementation is only sporadically coherent.

        Reply
        1. makedoanmend

          hehe…”Its not a pleasant task trying to get into Trumps head…”

          Douglas Adams wrote about about Zaphod’s Bebblebrox’s psychoanalyst being on danger money…(and from afar Trump often seems to me to be something of a fictional character…)…

          And when writing about Trumps heads, I couldn’t help thinking about Worzel Gummidge…each head a distinct personality…

          About the substance of your statement – yep

          Reply
    2. Marshall Auerback

      Agree with you The point was not to anticipate what Trump would do (like you, I hold little hope that he will do much). But it’s a proposal. I also made a lot of proposals when Obama was President, with equally littel conviction that he (or his Tsy Secretary) would do anything remotely positive.

      Reply
    3. animalogic

      “Michael Hudson suggested that the real aim is to force the chinese to open and deregulate their economy so the US financiers can go in for the kill.”
      Yes, that’s true. However, of equal or greater priority is the US policy to undermine the Chinese 2025 plan to become leaders in a whole gamut of high Tech areas. US goals are as much/more political than economic. Imperialism & hegemony, as usual, are US intentions….

      Reply
  6. Ignacio

    Trump moves must almost certainly have shaken many heads that were overconfident on globalization as it has proceeded. There are other countries labelled as poster childs of an open economy that will have to rethink their policies if they don’t want to be totally striped. The formula of minimum local content requirements (LCRs) could prove useful for such countries. I am thinking of Spain for instance but, of course, globalisers dislike those LCRs.

    Anyway, this post led me to think about production chains efficiency. Not efficiency in simple cost terms but in other terms (logistics efficiency, energy efficiency and carbon footprint, water and raw material footprints, other environmental issues, recycling and disposal issues, etc). My suspicion is that if cost effectiveness (particularly labor arbitration) and monopoly achievement are the main drivers for supply chain construction, this will almost certainly result in supply chains that are quite inefficient when the other factors are considered. Have economists analysed this in a meaningful way?

    Reply
    1. PlutoniumKun

      Thats an interesting question. I’ve never seen a comparison between the traditional Ford/VW model of having everything possible on one site and the more modern vast supply chain system, but I really do wonder, when you factor in all the administrative and transport costs of long supply chains, how it can be so much cheaper. I’m pretty sure that labour and other cost arbitrage represents the real ‘savings’, but it would be interesting to quantify it. Maybe someone has done the studies needed, but I’ve never seen them.

      Reply
    2. Left in Wisconsin

      Have economists analysed this in a meaningful way?

      I am not aware of any economists that have anything worthwhile to say about supply chains. All of the trade talk from economists (sadly, including the above) takes the position that countries trade when it is companies that trade, and much of that trade when it comes to manufacturing is intra-company. Also, because they believe countries trade, they use national productivity averages to argue that low-wage countries do only low-productivity work. As Apple has shown with the iPhone, that is patently ridiculous. And these “famously complicated” supply chains? Everything we need to know about them is kept from us because they are “trade secrets.”

      The biggest problem with Trump’s manufacturing MAGA agenda is that the people who run US-based multinationals have absolutely no interest in bringing manufacturing capacity back to this country. Why should they? Why should they pay more to manufacture something here when it can be done much cheaper in authoritarian China? (Yes, I can come up with reasons but I don’t run a MNC.)

      Reply
  7. Sound of the Suburbs

    The US had no problems running a trade deficit until the economists decided the politicians needed to balance the budget.

    Bill Clinton didn’t realise the Government deficit covered the trade deficit and cutting the Government deficit would blow the economy up.

    This is the US (46.30 mins.)
    https://www.youtube.com/watch?v=ba8XdDqZ-Jg

    Government assets + private assets + transfers from/to the rest of the world = zero

    There are only three terms in the equation and the trade deficit had been covered by the Government deficit, so when Clinton reduced the Government deficit he drove the private sector into debt.

    The last Government surplus occurred in 1927 – 1930, it precedes crises.

    We are trying to do all the wrong things by not understanding the system.

    Reply
    1. Synoia

      You need to expand the three variable equation to the world (and the factors are revenue, not assets)

      This

      Government revenue + private revenue + transfers from/to the rest of the world = zero

      becomes this for the whole planet:

      Government revenue + private revenue = zero

      Every county cannot possibly run a trade surplus. Thus any attempt to tun more than balanced trade is predatory, and has the intent and effect of deliberately impoverishing other countries.

      Or in more blunt terms: A sustained trade surplus is a war on the countries with surpluses against the countries with deficits, a war which will impoverish both countries.

      Government revenue + private revenue = zero also says much about the rich, accumulation, avarice and greed. It states wealth IS a zero sum game.

      Reply
      1. djrichard

        Bingo. Here’s a couple of graphs showing how much trade surplus is parked in bonds and stocks:

        http://data.imf.org/?sk=d87ea63d-f2db-4dc3-a2b5-295ef18a671f – US stocks and bonds owned by rest of world. At $13T as of 2016. That’s up from $3T in 2001.

        http://data.imf.org/?sk=a386138e-ffa6-4830-b8e6-9d0344d99e19 – Foreign bonds and stocks owned by entities in the US. $10T as of 2016. Up from $2.3T in 2001.

        That’s a net surplus of $3T to the rest of the world as of 2016. That’s what Trump needs to stop. Would tariffs solve that? Hard to argue that, but it certainly gets everyone’s attention. If it doesn’t get enough of their attention that it’s not worth their time to get more creative on this, then by all means let’s add more tariffs on until they do.

        Reply
  8. Sound of the Suburbs

    It is time to realise what happened in the US.

    Economics was always far too dangerous to be allowed to reveal the truth about the economy.

    The Classical economist, Adam Smith, observed the world of small state, unregulated capitalism around him.

    “The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

    How does this tie in with the trickledown view we have today?
    Somehow everything has been turned upside down.

    The workers that did the work to produce the surplus lived a bare subsistence existence.

    Those with land and money used it to live a life of luxury and leisure.

    Capitalism had two sides, the productive side where people earned their income and the parasitic side where the rentiers lived off unearned income. The Classical Economists had shown that most at the top of society were just parasites feeding off the productive activity of everyone else.

    Economics was always far too dangerous to be allowed to reveal the truth about the economy.

    How can we protect those powerful vested interests at the top of society?

    The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between “earned” and “unearned” income and they conflated “land” with “capital”. They took the focus off the cost of living that had been so important to the Classical Economists to hide the effects of rentier activity in the economy.

    The landowners, landlords and usurers were now just productive members of society again.

    Knowledge of the banking system had also regressed and so even people like Ben Bernanke thought banks were financial intermediaries. This had been regressing since 1856, when someone worked out how the system really worked.

    Credit creation theory -> fractional reserve theory -> financial intermediation theory

    “A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner

    http://www.sciencedirect.com/science/article/pii/S1057521915001477

    Knowledge of public money creation that had enabled Governments to create full employment in the Keynesian era had also gone, which is why they can’t afford anything these days. In the middle of the Great Depression, the US government embarked on the New Deal, they just needed to create the money to do it.

    Working from this corrupted base they came up with neoliberalism, they never stood a chance.

    Reply
  9. Jim Haygood

    For years Argentina has had screwdriver assembly plants for electronics in Ushuaia in Tierra del Feugo, on the remote southern tip of the South American continent.

    Not only do they jack up costs (to about twice US levels) and slash quality, but also — worst of all — they impose a delay on availability of new models. It’s always last year’s phones, tablets and laptops on sale, not the current ones churned out of Chinese assembly plants and air freighted to the free world outside pokey, protectionist Argentina for prompt sale.

    Having been involved myself in US screwdriver assembly plants — for mass transit vehicles, in which 50% US content is required — I was not impressed. Most screwdriver assembly is semi-skilled at best, imparting little to no high-value technical knowledge. You don’t need no PhD in Electrical Engineering to wield a screwdriver. It also tends to be short-term, as the product mix changes and more advantageous subcontractors are found.

    Creating a big US screwdriver final assembly industry would be a deadweight loss to the economy, only slightly more productive than paying people to dig holes and fill them back up again.

    Smuggling is the alternative to tariffs.

    Reply
    1. PlutoniumKun

      I assume the purpose of a ‘local content requirement’ is to precisely avoid the problem of screwdriver factories not contributing much to local economies.

      Reply
    2. JCC

      The US manufacturing base, based on my personal experience working for one of the last surviving Machine Tool companies in the US, already has a relatively large “screwdriver final assembly industry”.

      Personally I think LCR requirements are a better idea, as long as Labor is not included as part of that percentage.

      Reply
    3. Jeremy Grimm

      I remember the “Buy American” campaigns from the 1970s (?) when the remanents of the U.S. clothing makers were trying to hang on. Details are fuzzy but I recall finding out how generously the “American Made” label had been defined and the nice markup it commanded — briefly. I don’t have much trust that local content laws would be any more trustworthy than that fake “American Made” label.

      Reply
  10. Shane Mage

    “America’s workers have suffered major displacement in a long-running trade war, “one in which,” as David Dayen argues, “for decades, the United States never fired a shot on their behalf.” How charming! At least since Taft-Hartley there has been a long-running economic and political “war” by the corporate establishment and its satellites against the American working class. Why would anyone imaging that our ruling class would not use international trade terms as weapons in that class war? Ever. And by the way, names like “USA,” “China,” etc., do not denote any existent entity. These, like all “countries,” are mere granfaloons.

    Reply
  11. linda amick

    One big deterrent to students learning trade skills is the Tech Schools’ current practice of requiring successful passage of “Core Curriculum” (math, science and literature) BEFORE allowing students to take tech skill classes.

    I worked, for years, with refugee populations in the US south, watching these students fail year after year at these classes when all they wanted to do was become Car mechanics or air/heat repairmen or welders in order to make a decent living. There are many measures of intelligence and forcing all students through the same assembly line is defeating.

    It was so discouraging. i grew to believe that Tech schools, like 4 year colleges in general, view students as prey and revenue sources and have no concerns related to giving students skills for jobs.

    Reply
    1. Arizona Slim

      There’s a very good book on this topic. Title: In the Basement of the Ivory Tower: Confessions of an Accidental Academic.

      OTOH, when I went through Pima Community College’s building and construction technologies program, I took the six prerequisites for the local apprenticeship programs. They were construction-related, and not the least bit irrelevant. And that included the math class. It was all about the math you’d use on the job.

      Reply
  12. danpaco

    Imagine if trade tariffs could be linked to CO2 emissions, kill two birds with one stone… Oh wait, the US would lose that one.

    Reply
    1. Shane Mage

      It is some 25 years since there could be no doubt in the mind of any rational being that a carbon tax was indispensable to avoid climatic catastrophe. Through our species, alas, does not yet include nearly enough rational beings even to end the criminal subsidies of polluting energy, the necessity is still the same. A carbon tax levied on carbon content *at the point of extraction* or import, rising swiftly to become swingeing enough to render all fossil fuels uneconomic for virtually all purposes–by, say 2030–thus forcing immediate transition to renewable energy sources in all domains. The tariff implication is that there would be no tariff on physical imports from polities enforcing an identical tax, but for others full tariffs would be charged on a presumed carbon content determined by the proportion of their GDP representing carbon production and imports.

      Reply
      1. Synoia

        Through our species, alas, does not yet include nearly enough rational beings even to end the criminal subsidies of polluting energy, the necessity is still the same.

        The Rational have selected profits (greed) over others(pride) and enjoy consuming(gluttony). Our elected do not care(sloth), and wish to be rich(envy, lust). Both groups get angry(wrath) when called on their behavior.

        None of them believe in hell. Living hell is for the peasants.

        As for the afterlife there have neither been any complaints, nor any recommendations (or likes), despite Zuck’s attempts to extend Facebook as God’s instrument into the hereafter.

        Attempts to extent the internet into the hereafter have been met with derision, as deserving of such Pai in the sky.

        Reply
  13. Jeremy Grimm

    Building an Industrial Base takes a long time and a lot of effort and it doesn’t just happen.

    Once upon a time … America built an Industrial Base through centuries of conflict between Southern landed interests and Northern Industrial interests. Time passed … A new regime of Neoliberals drove out the Cold Warriors who had managed America’s Industrial Base through the Great War and as long as they could through the Cold War they’d crafted. At last there was “Morning in America” for the financiers and buccaneers slavering over a chance to cash out America’s wealth. And on another shore … after the disappointments of Mao’s programs to build a Chinese Industrial Base, Mao’s wise and flexible successors could see a better way to achieve this goal as they scoped the new playing field.

    The Neoliberal faith with its unwavering belief in the Wisdom of the Market gave blessings to the financiers and buccaneers. They were free to loot the Corporate Wealth built and stored over centuries in the physical capital of American Industry. Our Corporate Elite cashed out that wealth and shipped America’s Industrial Base lock-stock-and-barrel — all our physical capital and know-how — to China in exchange for access to the largest unexploited and undeveloped consumer market in the world promised for some time in the future. As an added bonus for our Corporate Elite they could extract the last pennies from the control their Corporate shells maintained over access to the withering American consumer market. Profits from logistics alone without pesky labor to deal with and without the problems of actually producing a product.

    Now … What fool believes throwing a wrench into the world trade machine will magically bring back the American Industrial Base? A new “Made in America” label will bring back the American Industrial Base? HaHaHa! my fairty tale ends with some jokes.

    Reply
  14. paulmeli

    “By using more, better machinery, they increase labor productivity, which leads to higher wages”

    I would think increased labor productivity “leads” to higher wages for fewer workers, resulting in lower wages overall, at least for the working class. Gains tend to go to the managerial class on up.

    Reply
    1. Shane Mage

      The infallible way to increase productivity is to shorten the working day. Everyone who has ever had a job (or, at any rate, a productive {not a bullshit} one) knows that mental and physical exhaustion, inevitable after a long sustained effort, makes the last hours of the work day less productive than the earlier ones. So the average productivity of every worker would increase because only the more productive earlier, and not the less productive later, hours of work, would count.

      Reply
  15. JR

    Jobs need to be brought back to the US. LCRs can be a good thing in that regard.

    I think, though, the focus should be on: tariff rate equalization; an environmental destruction surcharge (iow, the market price of the items in US must reflect a charge for the subsidy provided by lack of enforced environmental regulations); and a fair wage surcharge (that is, US labor should not be forced/required to compete with third world wages).

    I expect the current administration to focus only on tariff rate equalization, but that at least is a start.

    Reply
  16. Schofield

    It’s the policing of local content that worries me. The Fed, etc. didn’t do a very good job on Wall Street and you can always rely on some lunatic politician from the Republican Party to be repeatedly invited to appear on Fox News waving an active chain-saw to cut through “unnecessary” bureaucratic legislation!

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *