Well, that didn’t take long. As I predicted last week, President Trump has paused the massive tariffs his trade advisor, the one-time liberal Democrat, Peter Navarro, dreamed up, once it became clear there were problems.
Pres. Trump has a unique way of operating for a politician. He will boldly take a risky position, just to see what happens. But his pride doesn’t stop him from changing course if it doesn’t pan out.
Trump’s alacrity may have been spurred when it was revealed how Dr. Navarro actually come up with his “reciprocal” tariffs. He created a catch-all economic formula to smooth out trade deficits; an utterly impractical idea. Even the economist whose work he based this on says this was utterly misguided. Worse still, Navarro plugged in the wrong number to calculate price elasticity, making the new tariffs four times higher than even his formula suggested.
This doesn’t even account for all the countries where we run a trade surplus, like Australia, which doesn’t impose tariffs on our products, yet are hit with a 10% minimum tariff.
Going forward on trade now, it is important that everyone be guided by the real economic data and not swept away in legends and myths.
For decades, protectionists like Navarro, and Pat Buchanan and Ross Perot before him, have cried, We don’t make anything! They’re stealing our jobs! Giant sucking sound!
But that’s all wrong. After WWII, the U.S. share of world manufacturing was at its apex, but as nations rebuilt, that declined. Then in the 1980s, large third-world countries — China, India, Indonesia — industrialized, and just by serving their own new domestic markets, assumed a big share of world production.
However, manufacturing as a per cent of real American GDP, has actually held steady since the late 1940s. America dominates important industries, from airplanes and jet engines to pharmaceuticals. We actually make more cars and light trucks today than in the 1970s.
factory jobs have declined worldwide for decades. Even in China. Even in India. Even in Brazil.
My hometown has a great example of this. In 1951, General Electric built Appliance Park, the world’s largest “white goods” factory complex, to make big home appliances — refrigerators, dishwashers, clothes driers, etc. The kind of stuff that cannot be shipped from abroad because it’s too big and bulky. They run more shifts and make more units now than when I worked summers in the late 70s. But factory jobs there peaked out at 23,000 in 1972. Today it’s less than 6,000. And they have plenty of openings anyway because most people disdain this kind of work.
Similar thing with drug makers. Puerto Rico famously uses tax breaks to lure pill factories to the island which are the mainstay of the island’s economy. But the pay is low and all Puerto Rico wages are just a fraction of the mainland. The real money and profits in the drug business are in the laboratories, where things are invented, not where they are assembled.
Sure, there are petty barriers to trade, like Canada’s dairy tariffs. We do the same thing for New England, with the Dairy Price Support Program. And we have had the 25% Light Truck Tariff since 1964. But in the overall scheme of things, it counts for little, compared to relentless productivity gains in all manufacturing.
The world has seen this before. In the 18th century, most people were farmers of some sort. In the United States, thanks to mechanization, there was a massive decline in the percent of farmers needed after 1860, even as the Homestead Act opened up the western lands. This caused great societal turmoil, such as the original populist revolts of the 1890s, and into the early 1950s, when cotton picking machines emptied out southern farms and black workers migrated to northern factory towns. Today, only about 1.2% of Americans actually work on a farm.
Similarly, over the last 50 years in America, automated factories left far fewer assembly line jobs. That’s no one’s fault — it’s human ingenuity. Our country has gotten richer and more pleasant from it. Even as some people and communities see they are left behind.
AI and robots will only accelerate this process into the white-collar world. Our government leaders and policymakers do us no favors by wallowing in a nostalgia for good times, long past. Sure, I wish they still made some of the cool stuff from the 1950s, like Studebakers, but this is a smart-phone world and we can’t, and wouldn’t want to, go back to rotary dial.
Most people naturally resist change; and as American conservatives, we like ideas and institutions that stand the test of time. But technology and invention guarantee that the commercial part of our world is always moving. We need to shape that part before it shapes us. What kind of occupations will we need and have in the 2050s? What kind of education will this require? That’s what we should be thinking about now.
And who knows? Elon Musk may even have an AI version of Raymond Loewy designing the next generation of his automobiles.
Image: WPA
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