FALSE GODS DON'T LAST

GLOBALISM IS DEAD

Recently, U.S. National Security Advisor Jake Sullivan spoke publicly and outlined a new American economic doctrine that effectively turns it back on the free trade/globalist doctrines and policies of the past seventy years. He did so for reasons of national security in the face of the aggressive military and mercantilist economic and trade policies being pursued by China and in face of chronic U.S. trade deficits currently running at about 3.5 percent of GDP with U.S. total external debt at about 100 percent of GDP as compared to about 43 percent in 1990 before the Chinese economy got into stride. Today, in theory, foreign creditors could theoretically buy the entire U.S. economy.

It is important to note that Sullivan did not propose closing the U.S. to foreign trade and certainly not to trade with like minded countries like the EU countries, the UK, Canada, Australia, and others who play the trade game under more or less the same rules as the United States. What he did propose was not to treat a hostile country like China in the same way as we treat the EU. He also asserted that U.S. national security is a lot more valuable than the proceeds from the sale of a few semiconductors to hostile and threatening countries.

This seems reasonable and logical to most observers but not to the likes of CNN commentator and Washington Post columnist Fareed Zakaria whose most recent column attacks Sullivan as an apostate from the “true religion of globalism” in which Zakaria is a deacon.

He expounds three lines of argument. First, he notes that the U.S. economy has grown more rapidly of the past thirty years than those of Japan, the EU, and many others. What he does not do is explain that a good deal of the apparent U.S. growth is inflation. U.S. inflation has been about 3.5 percent annually for the past 30 years while Japan’s has been essentially zero. On a deflated basis, the U.S. economy has gained on Japan’s but not by nearly the sum Zakaria declares. Moreover, Japan has been suffering from loss of population while the U.S. population has continually increased. Certainly, China’s mercantilist economy has been breaking all growth records which raises the question of whether the United States should act more like China which is essentially what Sullivan is proposing.

Zakaria’s second complaint is that Sullivan’s proposal will result in too much government intervention in the economy which he claims has not gone well in the past. To support this assertion he argues that companies will always be lobbying the government for more money, that the subsidies will become eternal and that innovation will slow down. In making this argument he either avoiding or simply ignorant of the successes of past U.S. industrial policies that essentially created the U.S aviation, semiconductor, internet, and computer industries to name just a few.

Of course Zakaria has never made, bought, or sold anything except words. He has no idea of what let’s say a guy like Elon Musk must contend with. For instance, he does not realize that the U.S. once was the leader and dominant producer of solar panels. Then China poured subsidies into upstart Chinese makers who copied the U.S. technology and followed a complete “buy China” policy that locked U.S. and EU producers out of its large and rapidly growing market. The U.S. did put a bit of money into a U.S. company that tried to introduce a somewhat different technology, but it did not prevent a flood of now very inexpensive Chinese panels from entering the U.S. market. So, of course, the U.S. investment in the new U.S. company was too little too late. What Sullivan is proposing is not tiddlywinks but a serious industrial policy like those of America’s past.

Finally, Zakaria admits that wages have not kept up with rising costs over the past thirty years in America. However, he contends that raising U.S. tariffs and keeping certain foreign products out of the U.S. market would only make the problem of low wages and rising costs worse. He quotes Harvard professor and former Secretary of the Treasury as saying that tariffs that might protect the jobs of 60,000 steel workers would be a huge burden on the six million who use steel in their industries.

I know and respect Larry Summers, but this is a superficial argument. The sixty thousand steel workers who lose their jobs have families. Let’s say three people per family. That is 180,000 people directly impacted by job loss. Nor does it stop there. These people send kids to school, use local hospitals and medical care, pay taxes, and support local charities, Whole areas like the city of Detroit become blighted and a drain on the entire economy. Nor is the job loss just 60,000. At least 6 million and possibly double that number have lost jobs in America due to imports from China.

Finally, the great irony is that the Chinese steel is not really less expensive than U.S. steel because all the real costs are not counted. We know that greenhouse gases are slowly killing us. This is very costly. China produces steel by burning coal which is one of the worst fuels in terms of greenhouse gas emissions. Moreover, it imports coal from Australia and shipping accounts for fifteen percent of greenhouse gas emissions. More emissions are released when China ships the coal to the U.S. None of these costs are included in any of the trade calculations. U.S. steel is made in electric arc furnaces and virtually no greenhouse gases are released. Now if you asked directly, Zakaria would swear to be a strong supporter of reducing greenhouse gases. But his insistence on continuing to import Chinese steel with no duty imposition to offset the cost of green house gases belies his concern for the environment.

The good news here is that Sullivan has it right and that he has a majority of the congress and the American people on his side. Globalism a la Zakaria is a dying religion.