Many a new genre of journalism has sprung up thanks to President Trump. The latest is the “victims of tariffs” industry profile. As the Trump administration slaps tariffs on foreign steel, aluminum, and manufactured goods of various kinds, trading partners—i.e., rivals—such as China and Mexico are imposing retaliatory tariffs of their own. The problem for China and Mexico, however, is that the U.S. buys much more of almost everything from them than they buy from us. China can hardly retaliate against American steel when China buys no American steel in the first place. But countries like China and Mexico do buy food from the United States, so American orange juice, wheat, and soy are all vulnerable to retaliation.
As is meat: On July 22, the Wall Street Journal reported on a mounting 2.5 billion pounds of beef, poultry, turkey, and pork piling up in industrial cold storage—chiefly for reasons having nothing to do with trade battles, but Chinese and Mexican tit-for-tat is only making matters worse. Warehouse capacity is strained. “Growing meat stockpiles may bring down prices for meat-hungry U.S. consumers, along with restaurants and retailers,” the WSJ story noted, “But slowing overseas sales and rising domestic stockpiles threaten profit for meat processors and prices for livestock and poultry producers.”
President Trump has offered $12 billion in federal aid to farmers harmed by retaliatory tariffs, a move greeted with glee by opponents of the President’s trade policy—they see it as proof that any deviation from free-trade orthodoxy puts the lie to free-market principles. Is a meat bailout coming next?
You never know in an election year. But as with most criticisms of President Trump’s industrial policies, this one depends on Americans being kept in the dark about just how the new economy preferred by the overclass really works. Already, there are many sorts of retraining and relief programs for industries hard hit by globalization. Without such sops, there would have been a political backlash against the free-trade policies of the last two decades long before Trump’s election in 2016. Reorienting a national economy, whether toward or away from industry, inevitably involves paying compensation to those who lose out immediately; it’s a cost imposed by political reality. Trump has less to be embarrassed about in this regard than his critics do.
On August 5, the New York Times added a new chapter to the book of complaints about the effects of tariffs, with a story titled “Steel Giants With Ties to Trump Officials Block Tariff Relief for Hundreds of Firms.” Companies can apply to the Commerce Department to get the foreign steel products they need exempted from the tariffs—but the process also allows U.S. steel manufacturers to object to the exemption. Unsurprisingly, major steel manufacturers Nucor and United States Steel have tried to stop what they see as attempts to circumvent the tariffs. Over 20,000 exemption requests have been made, and 639 have been turned down—in half of those cases, according to the Times, thanks to objections by one of the three largest steel manufacturers.
Is this “crony capitalism”? Government “picking winners and losers”? The anti-industrial talking points are well known. But again, they depend on omitting the relevant context: Government was picking winners and losers all along, only until now it has been China’s government that has made the most important picks. America’s government before Trump was content to undercut our country’s industry—and workers—for the benefit of the financial class, and to keep Beijing buying our debt. Consumers would get cheaper goods, too, at least in dollar terms. However, if the real long-range costs of turning America into a country that no longer produces anything the world wants to buy were taken into account, the cost of those foreign goods would look considerably steeper.
China’s economic and strategic self-interests coincide perfectly, and the policy adopted by Beijing pursues the country’s objectives in an open and obvious way. Forty years ago, China was very poor and only partly industrialized. The United States was rich and fully industrialized, which meant that labor and domestically produced goods were relatively expensive. If labor and industry were moved to China, the Chinese would get a higher standard of living and greater economic development, while American consumers would get more and cheaper products and American firms could specialize in whatever their greatest “comparative advantage” might be. David Ricardo’s 19th-century theory said as much.
But as China develops a middle class—by, in effect, cannibalizing the American industrial working and middle classes—will Chinese factories continue to cater to the U.S. market of some 325 million souls, or will they serve instead a Chinese domestic market of nearly 1.4 billion people? China’s long-term strategy is not to be an exporter to Western consumers, but to be the center of global production and consumption alike. As neighbors are brought deeper into China’s economic sphere of influence, the result will be a market that dwarfs America’s, and the entire Western world’s, by an even greater multiple than what the size of China’s population alone already suggests. When that happens, Americans will not be in a position to demand cheap goods from China. The Asian price will be the one Americans have to accept, and it will be a price asked not by a poor country eager to industrialize, but by an industrialized superpower eager to charge as much as it can. And what will Americans sell to get the money they need to buy these now-expensive foreign goods?
Not coincidentally, this same process that gives China leverage over America as both a buyer and a seller also enhances China’s military power and overall strategic standing vis-à-vis the U.S. and her allies. The economic strategy is really not so different from the one Amazon has pursued to become America’s largest retailer: For years, Amazon turned no profit but accepted its losses in order to build up market share. Competitors could not afford to lose as much money, so they kept their prices higher and lost market share instead. Now Amazon can raise prices, having attained a command position, although its first steps have been modest, such as agreeing to be subject to state sales taxes, a strategic concession that opened the way for internet taxation that would disadvantage Amazon’s smaller competitors.
Think of China as a start-up with the world’s deepest reserves of venture capital to draw upon. And nuclear weapons.
Tariffs can be painful for U.S. consumers and some domestic producers—those who have bought into China’s strategy for national supremacy. But the pain felt now is nothing compared to the pain a postindustrial U.S. economy will feel as China eclipses the West. The American interest, and not just the interest of American industry, is in keeping as much manufacturing and high-value production in our country as possible, and being prepared for the day when we might once again have to offer the world goods it wants to buy from us. And if that day never comes, we will have to learn to make more of what we want to buy ourselves, if we are not going to be subject to the prices, as well as the goods, of China’s choosing.