Salvo 08.01.2022 15 minutes

Free Trade’s Heavy Cost

USA China Trade Conflict

How globalization became sinicization

Free trade and open markets are great ideals. These principles, over the last few centuries, but especially since World War II, have created tremendous wealth, particularly in the developing world. But free markets were made for human society, not the other way around. 

Many thinkers on the right, however, have embraced a form of free-market fundamentalism that’s as ideologically brittle, entrenched, and impervious to critique as any Leftist vision of social utopia. These doctrinaire free-marketers believe that if China seeks to capture a huge industry like telecommunications through subsidies and protect their market, that will benefit us all.

“Huawei’s a great example,” says former Duke University chair of political science Mike Mubger. “This is just 5G technology! How could it not be great? It benefits consumers!” According to this view, the U.S. and other Western companies should just get out of the way and find another business that Beijing does not care so much about dominating. The problem, however, is that we no longer live in a world where America is monumentally richer or has far greater technological prowess than its rivals. We no longer reliably call the shots.

This reality has been unfolding for a generation. Asian and European nations have long prioritized their export industries, helping them gain dominance in many markets, from steel and cars to semiconductors. By contrast, big American capital, bolstered by cheerleaders in the corporate media, sacrificed our nation’s communities and the personal aspirations of countless workers for the sake of greater profits.

Munger cites imported semiconductors, smartphones, and other American-branded tech as big wins for our economy. This may be true for the investors who own piles of big tech stock. The technology is also cool for consumers, if sometimes very pricey. But what did this system produce for the overall U.S. economy and the health of its workforce? Google, Microsoft, and the other oligarchic firms make virtually nothing here. Apple may be “headquartered” in Cupertino, but more than 90 percent of iPhones, iPads, and MacBooks are made in China, albeit “designed in California.” Despite their endless virtue-signaling, these corporations are indifferent to the national economy. Instead, many have become China’s ultimate cheerleaders and enablers, with venture capital firms raising billions to fund new firms in the Middle Kingdom—in other words, subsidizing the competition.

Apple epitomizes this new corporate mindset. With ever-increasing dependence on Beijing, the company is supporting Xi Jinping‘s promised “China dream” of greater wealth and technological supremacy. In 2016, Apple negotiated a $275 billion deal with China that guarantees the firm’s continued dependence on Beijing, with additional promises to share vital technology with our most important global adversary. The company also recently announced plans to source some of its chips from China. All the while, Apple continues to enable and profit from China’s ever-expanding surveillance state.

Simply put, what has benefited Apple, American investment banks, and China, mirrors a general decline in U.S. economic prowess. Our traders, publicists, and media may be world-beaters, but much of the rest of the country flounders. Between 2000 and 2007 alone, the United States hemorrhaged 3.4 million manufacturing jobs, about 20 percent of its total. It lost a further 1.5 million manufacturing jobs between 2007 and 2016. These rapid losses were unique in American history and without parallel in other major Western countries. Throughout the period between 2004 and 2017, the U.S. share of world manufacturing shrank from 15 to 10 percent, while our reliance on Chinese imports doubled, even as dependence on Japan and Germany shrank. According to the Economic Policy Institute, the trade deficit with China has cost as many as 3.7 million jobs since 2000.

Back when the U.S. was unrivaled, the loss of some low-end industrial jobs to competitors might have been absorbed and quickly replaced with new enterprises. But we no longer possess the overwhelming skill to design and market products. De-industrialization means more than just losing some “crappy jobs.” It means losing the critical skills required to design and produce products.

As noted by David Adler and Dan Breznitz in American Affairs, Apple decided not to build the new Macbook Pro in Texas because they could not domestically source “custom screws,” among other critical components. Partly the result of the cascade of production bottlenecks, the company chose to build its new model in China instead. Yet as Gary Pisano and Willy Shih demonstrate in the Harvard Business Review, this transition has been an ongoing process for a generation. As a result, they note, “the U.S. has lost or is in the process of losing the knowledge, skilled people, and supplier infrastructure needed to manufacture many of the cutting-edge products it invented.”

The pandemic demonstrated in the starkest possible way the vulnerabilities brought about by the de-industrialization praised by Ivy League geniuses. As noted by Tom Mahoney, a principal figure at Mforesight, a firm that studies and advocates for manufacturing innovation, the usual first answer to how to boost profits is to shift production abroad. The belief that “a manufacturing firm (can) maintain itself long-term without controlling its own production” is virtually a dogma. To this end, Mahoney contends, firms like McKinsey are “the great evil empire along with anyone with an MBA.”

In accordance with this trend, U.S. medical equipment producers have left en masse for abroad, notably to China. As a result, Chinese dominance of the medical supply chain undermined our initial pandemic response, exposing us to the reality that we’re unable even to produce masks for our own people. Instead, we were forced to genuflect to Beijing, while they refused to share critical information on the pandemic. As observed by Richard Haass, President of the Council on Foreign Relations, “China’s decision to block exports of these goods led to widespread shortages.” Moving forward, “there is also the concern that an increasingly assertive China might seek to exploit the world’s dependence on it for political purposes.”

China’s ambitions go beyond the role of cheap labor supplier. It now seeks control of key tech industries, in part so they can impose their own standards for telecommunications, artificial intelligence, and other sectors. The movement of tech to China, widely boosted by U.S. firms, has made us dependent on our biggest global adversary, even, remarkably, for defense components. Libertarian theorists may justify such developments on the basis of profit, but the Chinese are not playing the same game of profit maximization and lower consumer costs. Their goal, argues former head of Google China Kai-Fu-Lee, in AI Superpowers: China, Silicon Valley, and the New World Order, is to gain pre-eminence in precisely every last field of technology where America is still competitive, particularly artificial intelligence.

America may still have the edge in innovation, but Lee notes that tech firms in China benefit from totally unfettered data collection in China’s “techno-utilitarian” system, with no privacy protections for the individual. Nor do they have to worry about NIMBY concerns when they wish to set up an “innovation district,” as they might in a U.S. or European city. Unlike his Western counterpart, the politically connected Chinese tech developer need not worry overmuch about opposition to development. Rather, notes Lee, they can just depend on the government to clear out the inhabitants and “brute-force the geographic proximity” of the desired elements.

This growing technological predominance is the key to China’s rapid military buildup, which heavily relies on tech either purchased or purloined from U.S. firms. America’s military leaders are geared up to meet the supposed dual threat of “white nationalism” and climate change, but less so about keeping up with our global rival in critical technologies. In the likely event of a Chinese takeover of Taiwan—home of arguably the world’s most critical semiconductor industry—we can expect the worst images to be removed from the internet by companies like Microsoft, who are traditionally willing to censor items unpalatable to China’s despots.

Chinese science fiction, one of the last redoubts of critical thinking, provides us with a glimpse into our dystopic future. One leading writer, Ma Jian, suggests in his introduction tohis story China Dream that Orwell “foretold it all.” President Xi’s “national rejuvenation,” Ma adds, “reprises the horrors of the last century—it requires complete control of the population’s thoughts and the elevation of the leader himself to demigod status. The Great China dream will replace all private dreams.”

As China Dream suggeststhe Middle Kingdom now represents the most profound philosophical challenge to liberal values since the end of the Cold War. Academic libertarians can prattle on about the glory of “free markets” but China does not embrace the same religion. Our competitor is a muscular, nationalistic, and highly organized society whose goal is demonstrably not fair exchange. The goal is global domination. One recent report showed that China spends four times its GDP share on subsidies and grants to its favored corporations, by far the highest percentage of any major country and significantly more than the U.S.

This form of state capitalism is attractive to many countries looking to address their development needs and more appealing  than anything New York or London has to offer. In fact, the most potent defenders of China can be found among the investment banks, mega-rich investors like Warren Buffett, the tech oligarchy, and some “domestic” retail chains.

In this context, the incessant virtue signaling by big companies seems grossly hypocritical. Apple’s Tim Cook poses as a progressive green visionary, while fighting to use factories staffed by Chinese slave labor and powered largely by coal power—something likely to remain in place given China’s recent decision to slow its GHG reduction. Meanwhile, Cook has praised Chinese developers as “the cutting edge,” telling China Daily that he was “inspired” by their innovation. In the same interview, he predicted that “China will be of greater appeal to global tech giants in the future.”

For all his faults, Donald Trump understood the moment. China, and particularly its tech sector, threatens our economy and national security. Even elements of the traditional left, notably Bernie Sanders and rising politicians like Ohio’s Representative Tim Ryan, have recognized the wisdom in Trump’s focus on China, with even the largely incoherent and sometimes compromised Biden Administration also catching on.

However, recognizing the threat is only the beginning. America needs to shed its dogmatism—both from the progressive left and the libertarian right—and realize that in the real world, great powers cannot simply hand over critical industries essential for national security. The dangers of overdependence on foreign imports and offshore production cannot be masked by chanting free market homilies. Indeed, as two Harvard researchers have suggested, “believing in the power of markets does not preclude the judicious use of appropriate government policies.”

It is within the confluence of true American interests—trade unions, small manufacturers, Heartland communities, unwoke defense advocates—that hope for a more realistic China policy lies. Abandoning a dogmatic attachment to “free trade” is not a violation of American “principles” as imagined by some conservative intellectuals. Rather, it is critical to the survival liberal principles and continues a grand tradition—started with Alexander Hamilton, continued by Abraham Lincoln, and embraced during the Cold War—of strengthening our national economy to meet our global challenges. As Burke put it, what really matters is not ideology but reality: “The circumstances are what render every civil and political scheme beneficial or noxious to mankind.”

Globalist orthodoxy against restraints on trade has allowed Chinese and other state-supported companies to develop their capacities while keeping Western competitors out of their own market. Fortunately, it’s not too late to address this challenge so long as we take it seriously and seek to exploit our competitor’s weaknesses. Heavy handed regulation has had a negative impact on China’s tech sector, including video game designers, as has the threat of new U.S. restrictions. China also faces serious domestic problems, such as rising youth unemployment and a banking and property crisis, which is shaping up to leave them vulnerable. These weaknesses are a great opportunity. The threat of China must be confronted and overcome.

The American Mind presents a range of perspectives. Views are writers’ own and do not necessarily represent those of The Claremont Institute.

The American Mind is a publication of the Claremont Institute, a non-profit 501(c)(3) organization, dedicated to restoring the principles of the American Founding to their rightful, preeminent authority in our national life. Interested in supporting our work? Gifts to the Claremont Institute are tax-deductible.

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