I completely understand the case Matt is making here. Trump is corruption made flesh. But I want to provide a good, honest, neoliberal shrill reminder that even *honest* trade tariffs are quite bad. When Americans buy stuff from foreigners, they typically do so because it's cheaper. Thus tariffs require Americans to pay more. This mechanically reduces incomes, and makes us poorer. It also reduces the productivity of the economy, by forcing us to shift more capital into obtaining inputs than would be the case without the tariffs (which leaves less capital for everything else). So it's a double whammy: poorer immediately, and poorer and economically weaker over the longer term, because of the hit to productivity and efficiency.
We no doubt do need a measure of industrial policy to ensure we can produce things like artillery shells, warships, attack drones and the like. And given the hostility of China, that list probably has to include things like microprocessors and pharmaceutical precursors.
But, really, we ought to be doing the minimum amount of trade restricting consistent with our national security needs. I remember thinking, shortly after the 2020 election: "Democrats in Congress ought to take advantage of this window to narrow the scope of the executive branch's power to restrict foreign trade." Pity they didn't. And too late now.
This piece melds nicely with Orenn Cass' interview on the Ezra Klein show. He legitimately thinks we can just fully build a domestic supply chain for semiconductors that is basically self-sustaining and barely imports much supplies. Which is at best misguided thinktank policy that will never materialize, and at worst something that Trump actually tries to impose and in turn makes our country poorer
I think that sounds right. For the most part, America's ability to engage in autarky is limited only by the country's willingness to accept a reduced standard of living.
Yep. That's also why I'm skeptical Trump is going to go full bore on a 10% tariff. Unless his economic team is truly delusional, they know that there would be incredibly political consequences to imposing such price increases on American consumers.
Isn't this just the bipartisan CHIPS policy if we don't get high-skilled engineers for it? I think those of us who are friend-shoring advocates need to bind together and insist on a several point plan for evaluating the "national security" relevance of an industry. Otherwise every single domestic US industry is going to cite national security and ask for their pound of flesh from the American consumer.
As a designer of ICs (chips), many or most new jellybean (broad market) designs go through a process of evaluating different foundries. Often the cost differences are quite small (a few percent) and things like shipping delays from a foundry to an assembly house come into play. So, while building a fully domestic supply chain from whole cloth might be impossible, small economic nudges could make significant changes in where the bulk of ICs were manufactured.
No doubt we could with enough money and motivation. We have the expertise to build and run the fabs, the biggest barrier is the lithography machines (and maybe metrology) but if we the government put enough emphasis on it I suspect we could offer the Netherlands enough that they wouldn't stop us from paying ASML to locate a secondary production location here and likely the same with Karl Zeiss. I believe the high quality sand is already US sourced.
It would be extremely expensive and take quite some time to implement (a decade or two) but I don't see why it's impossible. And once created I see no reason it wouldn't be self-sustaining. It's a very capital intensive industry and it's not like we don't have a perfectly adequate pool of talent to hire locally.
I don't think it's a good idea but it seems within the realm of possibility
And where we do need industrial policy it's probably better to just subsidize the creation of domestic (or friendly nation) manufacturing and supply chains.
Or apply "Buy America" or "Buy Friendly" restrictions on military and national security procurement and on supplier to military / national security contractors.
US military equipment should not be using chips sourced from China and if military suppliers also have a civilian business which does source chips from China (e.g. Boeing can put Chinese chips in a 737 Max, but not in a V-22) then there has to be a hard separation between those sides of the business.
One problem with this will be that officially designating countries as "friendly" is going to generate a lot of complaints: the whole point of the WTO and MFN status for China is that you don't get to designate a country as "more friendly" than China. Domestic preference is a lot easier to win an argument for in the global framework, but absent bilateral or multilateral treaties, preferring "friends" to "not-friends" is not really allowed. This is why the US should sign a trilateral agreement with the UK and EU/EEA and sign something like a TPP or TPP-lite with friendly nations in Asia so it can formally designate signatories to those treaties as "friendly" for the purposes of military and other procurement.
Note that the US can't restrict this to treaty allies: that would exclude Taiwan and Austria and Ireland, which are definitely friendly, but which are not treaty allies for good reasons (Taiwan because of the One-China Policy, Austria because the treaty ending WWII prohibits it from joining a military alliance, and Ireland because it refuses to ally with the UK for historical reasons). A set of trade agreements that defines certain countries as friendly (Canada, Mexico, the Europeans, the Asian democracies, Australia, New Zealand) would help (also, removing some of the trade restrictions on those countries, e.g. mutual recognition of safety certifications, would be a good idea).
Aside: I personally would be in favour of EU-style mutual freedom of movement with friendly, rich, democratic countries. I don't think that anyone benefits from how hard it is to get a work visa in Japan as an American or in America as a Japanese citizen. The US would probably want to limit how much of Eastern Europe it includes in this (ie not include the whole EU), but that's implicit in the "rich" bit of my "friendly, rich, democratic".
Being able to work in the US with just a British or French or German or Australian or Japanese or Canadian or (South) Korean passport would not wreak havoc on the US immigration system. As in the EU, you'd reserve the right to PNG people (declare them "persona non grata", ie say that this particular individual is not welcome), and you'd probably want a wider prohibition on people convicted of serious crimes (the equivalent of felons), but the general principle would be that an ordinary person can just get a job and move to another country without any bureaucracy.
Selfishly, the US could get the EU to agree with this for some countries but not others: the UK couldn't, but we could piggy-back on the US deal, and I'd really like to get back the right to travel to and live and work in at least a large section of the EU (and excluding the poorer bits of the East would resolve the immigration issue that the UK had which drove Brexit - no-one was complaining the country was overrun with French people).
Co-sign! It took Siemens like 8 months to get my temp. work visa for Germany and the steps they had to go through to prove no German could perform the job was crazy.
One of my big ideas is that we should use industrial policy and friendshoring to basically engage in a price war with China.
America can't make enormous amounts of crap anymore, nor is that our strength, but we CAN organize a massive global bloc of cooperating countries to compete with the wave of cheap silicon and batteries from China. China is now middle-income, which means there are PLENTY of places where it's cheaper to manufacture now, and just need to have their capacity built up.
So, instead of dumping trillions into subsidizing decrepit or too-immature national champions domestically, we embrace a world where all inputs become dramatically cheaper. And in the process, we undermine the CCP's stability by forcing them to subsidize their overcapacity more and more, while we sit at the top of a new free-world supply chain.
>we CAN organize a massive global bloc of cooperating countries.... there are PLENTY of places where it's cheaper to manufacture now
I agree with the gist of what you're saying here, but I'm not sure that there's 'plenty' of such places. There's a few, mostly in Asia where they're probably going to be pretty firmly in China's security orbit within the next decade or two. There's Mexico, sort of. But not only do all of these countries have their flaws, they all lack the massive scale of China. You could do some manufacturing in Vietnam, some in Mexico, some in Thailand..... but they're all too small on their own, and 2 out of those 3 are probably going to be taking orders from Beijing by 2035.
Except for India, which for reasons of being a messy democracy with the per-capita GDP of Sub-Saharan Africa, I suspect is never going to replicate China's 20th century. Too many veto points, a real court system and a bill of rights..... Not sure any democracy has ever gone from poor to rich on the East Asian model, that usually requires being an autocracy! Even Modi can't mildly reform their insane agricultural pricing laws, much less seize lands for factories, fix India's stupid labor protections, fight off militant unions, etc.
I basically agree with all this, but the issue is that
>US should sign a trilateral agreement with the UK and EU/EEA and sign something like a TPP or TPP-lite with friendly nations in Asia.... A set of trade agreements that defines certain countries as friendly (Canada, Mexico, the Europeans, the Asian democracies, Australia, New Zealand) would help (also, removing some of the trade restrictions on those countries, e.g. mutual recognition of safety certifications, would be a good idea
Would take 50-100 years to get passed. The US and the EU have been working on a free trade deal for decades now. The EU has been working on a free trade deal with South America for I believe 20 years, off and on. It just takes forever to get these kinds of things passed in rich democratic countries, there are so many stakeholders and voices etc. etc. Just the amount of detail that goes into something like 'safety certifications' and the number of industries involved is insane
I hate to harp on this but anyone who talks about the future looking normal in 5+ years is making a massive bet ok AI progress stalling in unexpected ways.
As an Irish citizen, I don’t think that Irish neutrality is now based on historical refusal to ally with the UK. That justification disappeared when the constitution was amended per the Good Friday Agreement to delete the territorial claim to Northern Ireland. The remaining justification is mainly that it’s popular. Regarding military entanglement with the UK, Ireland has been totally reliant on the RAF for air defense since the 1960s. Ireland has no radar, no missile defense, no interceptors.
I find this really dispiriting. Ireland should have effective defense forces and be in a position to offer useful capabilities to NATO. As it stands, we’d be more of an impediment.
I think that's the original reason for Ireland being neutral and now neutrality is just seen as being part of Irishness (the way it's part of Swissness) so it's a tradition that no longer has an underlying reason but remains popular.
God no, the navy is already falling behind because of the restrictions that prevent us from buying ships from the south Koreans.
Not buying chips from china is good because verification is very difficult. For most other things, I fear we are handicapping ourselves.
Realistically, the kind of threats we face are either unlikely to cut our ability to trade widely (war in Ukraine type stuff) or are likely to be huge high intensity near pear conflicts where the issue will be decided far before manufacturing gets involved. A WW2 style scenario that doesn't go nuclear is no longer very plausible.
It is, but usually politics makes it much easier to tax people through higher prices than through actual taxes. The Jones Act is the age-old case in point. It'd be way more efficient to just subsidize American shipbuilding, but the politics makes that seemingly impossible. so we're stuck with a relic of a law that raises costs and makes logistics much tougher.
I think Michael Pettis's point that due to China's large size and the international demand for US Treasuries the US is going to be subject to Industrial Policy whether the blue stockings in the Econ departments like it or not. So, it's better to be cleared about it.
That said a 10% tarrif on everything is not an actual Industrial policy, and adding exemptions for GOP donors doesn't make it so.
There are reasonable requirements we could make to sell Chinese EV’s here instead of outright banning them are taxing them to death.
Tariffs on Chinese solar cells are going from 25% to 50% this year. It’s insane we are trying to build a green future under these dumb burdens. It shouldn’t cost 20k to put solar panels on my house!
To be fair, that price tag is largely due to the inefficiency (in labor, balance of system, and cost of sales/permits/financing/time) of small scale installations of solar panels (and wiring, etc.) on (non-flat, non-standardized-shaped) roofs. On a per-watt basis, commercial solar farms are way cheaper than home systems (like, 1/3 the total installed cost, see https://www.nrel.gov/solar/market-research-analysis/solar-installed-system-cost.html), with commercial and industrial rooftops somewhere in the middle. You can buy (retail, not even wholesale) US-made solar panels for <$0.75/W today. Some as low as $0.50/W.
Yes. The costs of permitting and the over-regulation of utility interconnections has a big role in this. The comparison I find most instructive is with Australia, where solar installers earn the same wage as US installers, they are using the same imported panels and wire and inverters as US installers, the rooftops are at least roughly similar to US rooftops, but the full cost of rooftop residential installation is under $1 (USD) per watt, compared to $3+/watt in the US.
As long as we are discussing "friendshoring", I would argue that letting Australian regulators take over the US rooftop solar industry would do much more to increase solar uptake than lowering a 25% tariff on Chinese solar modules that are currently selling for 10 cents/watt on the spot market.
Protectionist sentiments aside there is a good strategic and human rights rationale for blocking the dumping of Chinese EVs and solar panels. Auto manufacturing is a key strategic industry. It would be quite rash I think to allow the Chinese to destroy it in the West. Noah Smith has some cogent remarks on this I can look up later.
I would think that if we actually want to build a green future, we should want to ensure future supply of solar panels continues to be available. Letting all domestic and friendly solar panel manufacturers go bankrupt so that we can get temporary cheap access to Chinese solar panels, which could get cut off at any moment in the future, doesn’t seem like a good strategy for building a green future. You would only do that if you think the next five years of climate policy is more important than the actual future.
China allows Tesla to sell cars there and Apple to sell phones and laptops, and the CCP are the most paranoid fucks on planet earth. Apparently their ability to vet potentially hostile equipment significantly exceeds America’s. That’s not good!
Doesn't China have vast insight on how those products are made, given that most of them (or most of their parts) are made in China? I don't think there is information symmetry here.
Could be a factor. But, like, don't we have smart engineers with sophisticated tools who can scan equipment, machinery and components? At the end of the day they still don't have a chip firm as advanced as Nvidia. But maybe they really are stronger in this area.
I'm not sure which is worse: the fact (if it's a fact) that their technical capacities in equipment vetting so exceed ours, or the fact that we're now paranoid to the point of restricting our car buyers more than they restrict theirs. Sigh.
It is more or less impossible to ensure that there isn't any hidden logic in an advanced microprocessor by examination. The amount of silicon needed for instructions like "if you read the following 64K sequence of data from a contiguous region of memory followed by instruction FOO, disable the cryptographic system" is _tiny_ compared to size of a modern chip, extremely easy to hide from physical examination, and would take approximately eternity to find via circuit testing.
Yes, no, maybe. I think Stuxnet was pretty illustrative of what's now possible. That worm / virus was insane. It literally crawled networks looking for Siemens Step7 systems to ultimately find the Iranian centrifuge controllers. https://en.wikipedia.org/wiki/Stuxnet
Also -- no one is restricting BYD from entering the US market. They just won the largest LADOT bus order. They can build cars here tomorrow if they wanted.
I think this is a legal concern more than a logistics/capacity concern. If the CCP wants to inspect anything in a Chinese factory, no one stops them. If the US Feds want to inspect something in an American factory, some lawyers tell them to go get a warrant. That warrant might be granted, sure, but the point is that the US government has to jump through more hoops to do any regulating. Which also means it costs more to do any regulating.
* Maybe warrant is not the right word, but there is a process.
And microphones. If you know that someone regularly conducts commercially sensitive work calls in their car, it's a small matter to spy on that if you have access to the car's data system.
On the bright side, you can use this concern to justify to your wife why you need to buy a Lotus -- "Honey, it's got practically no electronics in it! It's like a rolling Cone of Silence."
But will it fit on both sides of a tee shirt? Thanks for a great link - very interesting article that, among other things, informed me that we have a Deputy National Security Advisor for International Economics, which makes me feel a bit better...
Great issue to highlight. Since the free-trade consensus is dead, and a tarrif heavy system is also bad as you point out here, I wonder what a better system look like? It would be great if we could achieve a bipartisan consensus that friend-shoring is a good idea, then the limited tarriff regime could be focused on China and paired with subsidizing domestic production and/or production in friendly countries.
Possibly a better system would be, since tariffs are basically like a VAT except only on imported items, to implement a generally applicable VAT across the board on all products, domestically produced as well as imported. And then set the rates a bit higher on value adds that occur outside the US, or outside the US plus certain other that are treated as domestic.
No, I didn't say anything about how much higher the rate should be on value added outside the US versus domestically. What I'm saying is that if you want to design a tariff system that minimizes the opportunity President/administrative agencies micromanagement, it should be embedded as part of a coherent whole VAT tax system.
Because that what it is, a partial VAT, but people won't see it or think of it that way unless it's made blindingly obvious by actually making it just one component of an overall VAT system of general applicability.
I think the free-trade consensus is dead since China showed just how a free system could be subverted for nefarious ends (at least anticipating their move against Taiwan and their extant contributions to spreading totalitarianism).
Meh. Democrats enjoy industrial policy, intervening with regulations and picking and entrenching winners with their policies. Trump may be much sloppier, but this is pot calling kettle.
Being "sloppier" matters. It is unusual for Democrats to have a barely-concealed "you give me money, I give you policy" trade. That kind of politics is very corrosive, and one of the nice things about America is that that kind of corruption among officials is uncommon.
What? Have you not looked at large Democratic cities? Did you not see the EV baksheeh that conveniently left out Tesla? Who’s making money off the California high speed rail boondoggle? What’s going on with Menendez in New Jersey? I’m sure it’s all over the place if you care to look.
California high speed rail suffers from the problem that they are *required* to evaluate bids according to specific criteria, and only a few big companies can meet those criteria, and no human judgment is applied at all. It’s exactly the opposite of corruption - it’s anti-corruption policy driving prices up.
Menendez, and the various non-profits given official roles in San Francisco, really seem like corruption.
I have no idea what you’re talking about with “EV baksheesh”.
Corruption increases the more local you get and is worst in localities with the a dominant political affiliation the same as the state they are located in. This is true for both parties.
I think this topic is super interesting. I started my career in manufacturing / supply chain shutting down US factories and moving them to Mexico (e.g., residential breakers, lighting panels). I was then responsible for transferring rail propulsion component production (e.g.,, gearboxes, motors, inverters) from Germany to the US to meet Buy America provisions. I've spent a lot of time in factories. I think what Matt misses with his Buy America critique - which I think he gets from Alon Levy - is that these rail rolling stock contracts are *so* competitive that they get competed down to marginal cost and marginal cost with US production is going to be cheaper than globally sourced + massive finished stock transport costs. That's why Bombardier Transportation was acquired by Alstom. These are very thin margin contracts. Said more specifically because I did the calculations, the Siemens S70 (Avanto) produced in Sacramento for Houston's METRORail is *cheaper* than if it was built in the main production facility in Europe and imported because the Sacramento facility has now reached world-class production scale / capacities / efficiency.
Tying this back to this article ... the Samsung and LG washing machine story is a long one but it seems to have ended in a great spot. In 2013, the Obama administration imposed tariffs on imported washing machines from South Korea. They shifted production to China which led to a U.S. International Trade Commission anti-dumping investigation in 2016 that found the anti-dumping margins were 44.28%. In January 2018, Trump imposed tariffs of 20% to 50% on large residential washing machines. The tariffs expired in February 2023. Ok. So what happened? Samsung and LG both built massive US supply chains (same strategy as Bosch) and are building millions of washing machines a year here. Net net on pricing is they rose initially to match the tariff level and then fell just as quickly as production ramped.
Overall -- I think this is a huge win. But it's super interesting that Matt seems to be leaning way more into the ~ Libertarian view of just let capital and goods flow freely.
2. 'Second, according to an August 2019 examination of the tariffs’ effects by the United States’ International Trade Commission (ITC), which recommended the tariffs and is required by law to review them periodically, the tariffs have not produced a thriving domestic industry. Although capacity and employment reportedly increased, for example, actual production declined, “resulting in declining capacity utilization, lower productivity levels, and higher unit labor costs.” (The ITC also noted the aforementioned price increases.)'
The WSJ and Cato articles are WAY out of date. The pricing analysis focuses just on the first 4-8 months. Which the CPA article fully addresses. Point 2 is crazy. LG and Samsung are literally now producing millions of machines here a year and both are expanding their factories. The domestic industry is indeed thriving.
OMG. Yes. It's super hard just to transport them from Sacramento. A single car weighs 100k lbs and is 100 feet long and 13 feet tall. To say nothing about how risky even a slight drop would be for the undercarriage structure. .
EDIT: Just to provide more details, the cars are transported to their final destination from Sacramento by rail using special cars designed for rail-to-rail transfers.
Yes, but the high density and shock-sensitivity also apply to (say) automobiles. Indeed, automobiles are also transported inside the US on dedicated railcars. But automobiles also can be transported overseas, to the point that the general public considers final-assembly automobile plants in the US to typically be tariff engineering. That's why I focused on dimensional obstructions to placing such a vehicle in a shipping container; it's still not clear to me why the different size should make such a big difference.
EDIT: Which makes sense because once you've sunk the $300-500m to build the factory ... your pricing strategy is anchored to a lower marginal cost structure.
The rent control policy, as proposed, affects only large landlords, only existing buildings, and only rent increases above 5%, so it would be unlikely to have a big impact anywhere. That's leaving aside how it's very unlikely to pass even with a Democratic trifecta.
Yep, the policy design makes no sense as policy but is oriented around campaign messaging:
- the headline is a 5% cap to communicate to voters that Biden cares about cost-of-living issues, where housing is probably the most important single piece
- there's a broad exemption for "small" landlords (under 50 units!), which enables Biden to focus his rhetoric on corporate landlords, who don't have a lot of sympathizers (even though it makes the policy much less effective by failing to cover 50% of units)
- it's not technically a mandate but instead is a condition on being able to take the property depreciation deduction, which is completely nonsensical as policy but lets Biden portray it in terms of landlords keeping their end of the bargain in exchange for public support
- the two-year limit, together with an emphasis on increasing supply, together with the framing as a stopgap until new supply comes online, is intended to blunt criticism from center and center-left economists and those influenced by them
I don't particularly like it but it's politics. My biggest worry is that it will motivate housing activists in blue states to push for lower rent increase caps--in NY we now have 5% plus CPI which isn't crazy.
It's really outrageous to be behaving in this way. A bunch of resources will be consumed in formulating the policy, impacted parties figuring out how to comply, regulators figuring out how to enforce...and by the time that's done the policy will just disappear.
That's no excuse. Politicians making promises they have no intent of enacting and don't even think is a good idea themselves is how US politics ended up in the sorry state it's in.
I completely understand the case Matt is making here. Trump is corruption made flesh. But I want to provide a good, honest, neoliberal shrill reminder that even *honest* trade tariffs are quite bad. When Americans buy stuff from foreigners, they typically do so because it's cheaper. Thus tariffs require Americans to pay more. This mechanically reduces incomes, and makes us poorer. It also reduces the productivity of the economy, by forcing us to shift more capital into obtaining inputs than would be the case without the tariffs (which leaves less capital for everything else). So it's a double whammy: poorer immediately, and poorer and economically weaker over the longer term, because of the hit to productivity and efficiency.
We no doubt do need a measure of industrial policy to ensure we can produce things like artillery shells, warships, attack drones and the like. And given the hostility of China, that list probably has to include things like microprocessors and pharmaceutical precursors.
But, really, we ought to be doing the minimum amount of trade restricting consistent with our national security needs. I remember thinking, shortly after the 2020 election: "Democrats in Congress ought to take advantage of this window to narrow the scope of the executive branch's power to restrict foreign trade." Pity they didn't. And too late now.
This piece melds nicely with Orenn Cass' interview on the Ezra Klein show. He legitimately thinks we can just fully build a domestic supply chain for semiconductors that is basically self-sustaining and barely imports much supplies. Which is at best misguided thinktank policy that will never materialize, and at worst something that Trump actually tries to impose and in turn makes our country poorer
I think that sounds right. For the most part, America's ability to engage in autarky is limited only by the country's willingness to accept a reduced standard of living.
Yep. That's also why I'm skeptical Trump is going to go full bore on a 10% tariff. Unless his economic team is truly delusional, they know that there would be incredibly political consequences to imposing such price increases on American consumers.
For sure. There's a fair amount of policy demagoguery out of both campaigns this cycle.
And this "Import substitution" idea is not novel. Developing countries paired this with Soviet-style 5-year plans to disastrous results.
Isn't this just the bipartisan CHIPS policy if we don't get high-skilled engineers for it? I think those of us who are friend-shoring advocates need to bind together and insist on a several point plan for evaluating the "national security" relevance of an industry. Otherwise every single domestic US industry is going to cite national security and ask for their pound of flesh from the American consumer.
As a designer of ICs (chips), many or most new jellybean (broad market) designs go through a process of evaluating different foundries. Often the cost differences are quite small (a few percent) and things like shipping delays from a foundry to an assembly house come into play. So, while building a fully domestic supply chain from whole cloth might be impossible, small economic nudges could make significant changes in where the bulk of ICs were manufactured.
No doubt we could with enough money and motivation. We have the expertise to build and run the fabs, the biggest barrier is the lithography machines (and maybe metrology) but if we the government put enough emphasis on it I suspect we could offer the Netherlands enough that they wouldn't stop us from paying ASML to locate a secondary production location here and likely the same with Karl Zeiss. I believe the high quality sand is already US sourced.
It would be extremely expensive and take quite some time to implement (a decade or two) but I don't see why it's impossible. And once created I see no reason it wouldn't be self-sustaining. It's a very capital intensive industry and it's not like we don't have a perfectly adequate pool of talent to hire locally.
I don't think it's a good idea but it seems within the realm of possibility
And where we do need industrial policy it's probably better to just subsidize the creation of domestic (or friendly nation) manufacturing and supply chains.
Or apply "Buy America" or "Buy Friendly" restrictions on military and national security procurement and on supplier to military / national security contractors.
US military equipment should not be using chips sourced from China and if military suppliers also have a civilian business which does source chips from China (e.g. Boeing can put Chinese chips in a 737 Max, but not in a V-22) then there has to be a hard separation between those sides of the business.
One problem with this will be that officially designating countries as "friendly" is going to generate a lot of complaints: the whole point of the WTO and MFN status for China is that you don't get to designate a country as "more friendly" than China. Domestic preference is a lot easier to win an argument for in the global framework, but absent bilateral or multilateral treaties, preferring "friends" to "not-friends" is not really allowed. This is why the US should sign a trilateral agreement with the UK and EU/EEA and sign something like a TPP or TPP-lite with friendly nations in Asia so it can formally designate signatories to those treaties as "friendly" for the purposes of military and other procurement.
Note that the US can't restrict this to treaty allies: that would exclude Taiwan and Austria and Ireland, which are definitely friendly, but which are not treaty allies for good reasons (Taiwan because of the One-China Policy, Austria because the treaty ending WWII prohibits it from joining a military alliance, and Ireland because it refuses to ally with the UK for historical reasons). A set of trade agreements that defines certain countries as friendly (Canada, Mexico, the Europeans, the Asian democracies, Australia, New Zealand) would help (also, removing some of the trade restrictions on those countries, e.g. mutual recognition of safety certifications, would be a good idea).
Aside: I personally would be in favour of EU-style mutual freedom of movement with friendly, rich, democratic countries. I don't think that anyone benefits from how hard it is to get a work visa in Japan as an American or in America as a Japanese citizen. The US would probably want to limit how much of Eastern Europe it includes in this (ie not include the whole EU), but that's implicit in the "rich" bit of my "friendly, rich, democratic".
Being able to work in the US with just a British or French or German or Australian or Japanese or Canadian or (South) Korean passport would not wreak havoc on the US immigration system. As in the EU, you'd reserve the right to PNG people (declare them "persona non grata", ie say that this particular individual is not welcome), and you'd probably want a wider prohibition on people convicted of serious crimes (the equivalent of felons), but the general principle would be that an ordinary person can just get a job and move to another country without any bureaucracy.
Selfishly, the US could get the EU to agree with this for some countries but not others: the UK couldn't, but we could piggy-back on the US deal, and I'd really like to get back the right to travel to and live and work in at least a large section of the EU (and excluding the poorer bits of the East would resolve the immigration issue that the UK had which drove Brexit - no-one was complaining the country was overrun with French people).
Co-sign! It took Siemens like 8 months to get my temp. work visa for Germany and the steps they had to go through to prove no German could perform the job was crazy.
... and, seriously: who benefits from this relative to a bilateral treaty where people can just travel.
If we allow the free movement of goods and capital, then we should allow the free movement of people between places too.
Your plan results in a lot more Korean Fried Chicken joints.
One of my big ideas is that we should use industrial policy and friendshoring to basically engage in a price war with China.
America can't make enormous amounts of crap anymore, nor is that our strength, but we CAN organize a massive global bloc of cooperating countries to compete with the wave of cheap silicon and batteries from China. China is now middle-income, which means there are PLENTY of places where it's cheaper to manufacture now, and just need to have their capacity built up.
So, instead of dumping trillions into subsidizing decrepit or too-immature national champions domestically, we embrace a world where all inputs become dramatically cheaper. And in the process, we undermine the CCP's stability by forcing them to subsidize their overcapacity more and more, while we sit at the top of a new free-world supply chain.
>we CAN organize a massive global bloc of cooperating countries.... there are PLENTY of places where it's cheaper to manufacture now
I agree with the gist of what you're saying here, but I'm not sure that there's 'plenty' of such places. There's a few, mostly in Asia where they're probably going to be pretty firmly in China's security orbit within the next decade or two. There's Mexico, sort of. But not only do all of these countries have their flaws, they all lack the massive scale of China. You could do some manufacturing in Vietnam, some in Mexico, some in Thailand..... but they're all too small on their own, and 2 out of those 3 are probably going to be taking orders from Beijing by 2035.
Except for India, which for reasons of being a messy democracy with the per-capita GDP of Sub-Saharan Africa, I suspect is never going to replicate China's 20th century. Too many veto points, a real court system and a bill of rights..... Not sure any democracy has ever gone from poor to rich on the East Asian model, that usually requires being an autocracy! Even Modi can't mildly reform their insane agricultural pricing laws, much less seize lands for factories, fix India's stupid labor protections, fight off militant unions, etc.
Good criticisms. I don't have an immediate rebuttal, but I appreciate the constructive attitude.
I basically agree with all this, but the issue is that
>US should sign a trilateral agreement with the UK and EU/EEA and sign something like a TPP or TPP-lite with friendly nations in Asia.... A set of trade agreements that defines certain countries as friendly (Canada, Mexico, the Europeans, the Asian democracies, Australia, New Zealand) would help (also, removing some of the trade restrictions on those countries, e.g. mutual recognition of safety certifications, would be a good idea
Would take 50-100 years to get passed. The US and the EU have been working on a free trade deal for decades now. The EU has been working on a free trade deal with South America for I believe 20 years, off and on. It just takes forever to get these kinds of things passed in rich democratic countries, there are so many stakeholders and voices etc. etc. Just the amount of detail that goes into something like 'safety certifications' and the number of industries involved is insane
I hate to harp on this but anyone who talks about the future looking normal in 5+ years is making a massive bet ok AI progress stalling in unexpected ways.
"Buy Friendly" is a great phrasing that should get used more often.
As an Irish citizen, I don’t think that Irish neutrality is now based on historical refusal to ally with the UK. That justification disappeared when the constitution was amended per the Good Friday Agreement to delete the territorial claim to Northern Ireland. The remaining justification is mainly that it’s popular. Regarding military entanglement with the UK, Ireland has been totally reliant on the RAF for air defense since the 1960s. Ireland has no radar, no missile defense, no interceptors.
I find this really dispiriting. Ireland should have effective defense forces and be in a position to offer useful capabilities to NATO. As it stands, we’d be more of an impediment.
I think that's the original reason for Ireland being neutral and now neutrality is just seen as being part of Irishness (the way it's part of Swissness) so it's a tradition that no longer has an underlying reason but remains popular.
God no, the navy is already falling behind because of the restrictions that prevent us from buying ships from the south Koreans.
Not buying chips from china is good because verification is very difficult. For most other things, I fear we are handicapping ourselves.
Realistically, the kind of threats we face are either unlikely to cut our ability to trade widely (war in Ukraine type stuff) or are likely to be huge high intensity near pear conflicts where the issue will be decided far before manufacturing gets involved. A WW2 style scenario that doesn't go nuclear is no longer very plausible.
It is, but usually politics makes it much easier to tax people through higher prices than through actual taxes. The Jones Act is the age-old case in point. It'd be way more efficient to just subsidize American shipbuilding, but the politics makes that seemingly impossible. so we're stuck with a relic of a law that raises costs and makes logistics much tougher.
Did someone say, "the Jones Act"? [Rockin' guitars fade in] https://www.youtube.com/watch?v=k9-qPrOE_VM
I think Michael Pettis's point that due to China's large size and the international demand for US Treasuries the US is going to be subject to Industrial Policy whether the blue stockings in the Econ departments like it or not. So, it's better to be cleared about it.
That said a 10% tarrif on everything is not an actual Industrial policy, and adding exemptions for GOP donors doesn't make it so.
Let the people by BYD EV’s!
The CCP will certainly appreciate all those extra cameras in the US 👀
There are reasonable requirements we could make to sell Chinese EV’s here instead of outright banning them are taxing them to death.
Tariffs on Chinese solar cells are going from 25% to 50% this year. It’s insane we are trying to build a green future under these dumb burdens. It shouldn’t cost 20k to put solar panels on my house!
To be fair, that price tag is largely due to the inefficiency (in labor, balance of system, and cost of sales/permits/financing/time) of small scale installations of solar panels (and wiring, etc.) on (non-flat, non-standardized-shaped) roofs. On a per-watt basis, commercial solar farms are way cheaper than home systems (like, 1/3 the total installed cost, see https://www.nrel.gov/solar/market-research-analysis/solar-installed-system-cost.html), with commercial and industrial rooftops somewhere in the middle. You can buy (retail, not even wholesale) US-made solar panels for <$0.75/W today. Some as low as $0.50/W.
Yes. The costs of permitting and the over-regulation of utility interconnections has a big role in this. The comparison I find most instructive is with Australia, where solar installers earn the same wage as US installers, they are using the same imported panels and wire and inverters as US installers, the rooftops are at least roughly similar to US rooftops, but the full cost of rooftop residential installation is under $1 (USD) per watt, compared to $3+/watt in the US.
As long as we are discussing "friendshoring", I would argue that letting Australian regulators take over the US rooftop solar industry would do much more to increase solar uptake than lowering a 25% tariff on Chinese solar modules that are currently selling for 10 cents/watt on the spot market.
Protectionist sentiments aside there is a good strategic and human rights rationale for blocking the dumping of Chinese EVs and solar panels. Auto manufacturing is a key strategic industry. It would be quite rash I think to allow the Chinese to destroy it in the West. Noah Smith has some cogent remarks on this I can look up later.
I would think that if we actually want to build a green future, we should want to ensure future supply of solar panels continues to be available. Letting all domestic and friendly solar panel manufacturers go bankrupt so that we can get temporary cheap access to Chinese solar panels, which could get cut off at any moment in the future, doesn’t seem like a good strategy for building a green future. You would only do that if you think the next five years of climate policy is more important than the actual future.
China allows Tesla to sell cars there and Apple to sell phones and laptops, and the CCP are the most paranoid fucks on planet earth. Apparently their ability to vet potentially hostile equipment significantly exceeds America’s. That’s not good!
Doesn't China have vast insight on how those products are made, given that most of them (or most of their parts) are made in China? I don't think there is information symmetry here.
Could be a factor. But, like, don't we have smart engineers with sophisticated tools who can scan equipment, machinery and components? At the end of the day they still don't have a chip firm as advanced as Nvidia. But maybe they really are stronger in this area.
I'm not sure which is worse: the fact (if it's a fact) that their technical capacities in equipment vetting so exceed ours, or the fact that we're now paranoid to the point of restricting our car buyers more than they restrict theirs. Sigh.
It is more or less impossible to ensure that there isn't any hidden logic in an advanced microprocessor by examination. The amount of silicon needed for instructions like "if you read the following 64K sequence of data from a contiguous region of memory followed by instruction FOO, disable the cryptographic system" is _tiny_ compared to size of a modern chip, extremely easy to hide from physical examination, and would take approximately eternity to find via circuit testing.
Yes, no, maybe. I think Stuxnet was pretty illustrative of what's now possible. That worm / virus was insane. It literally crawled networks looking for Siemens Step7 systems to ultimately find the Iranian centrifuge controllers. https://en.wikipedia.org/wiki/Stuxnet
Also -- no one is restricting BYD from entering the US market. They just won the largest LADOT bus order. They can build cars here tomorrow if they wanted.
https://en.byd.com/news/byd-receives-largest-battery-electric-bus-order-in-u-s-history/
The former is much worse than the latter.
I think this is a legal concern more than a logistics/capacity concern. If the CCP wants to inspect anything in a Chinese factory, no one stops them. If the US Feds want to inspect something in an American factory, some lawyers tell them to go get a warrant. That warrant might be granted, sure, but the point is that the US government has to jump through more hoops to do any regulating. Which also means it costs more to do any regulating.
* Maybe warrant is not the right word, but there is a process.
And microphones. If you know that someone regularly conducts commercially sensitive work calls in their car, it's a small matter to spy on that if you have access to the car's data system.
Cars were one of last bastions of privacy. I hate that we’re losing that in order to turn them into smartphones. I don’t care to drive a smartphone.
Taking all the knobs and buttons away in favour of screens is also annoying. I hope consumers fight that trend.
On the bright side, you can use this concern to justify to your wife why you need to buy a Lotus -- "Honey, it's got practically no electronics in it! It's like a rolling Cone of Silence."
Or this: https://bringatrailer.com/listing/2008-aston-martin-db9-22/
I can think of a lot worse ways to spend $45k.
Say no to dumping!
Some good news on existing makes https://www.forbes.com/sites/jimgorzelany/2024/07/15/sales-surge-shows-the-electric-cars-death-may-have-been-greatly-exaggerated/
Here's how BYD prices in Europe: https://www.reuters.com/business/autos-transportation/why-byds-ev-exports-sell-twice-china-price-2024-04-26/
Would be the same story if they tried to compete in the US. Currently they have "no plans" to enter the US market.
Here’s a good explanation of how to intervene in markets in a more sophisticated and strategic manner. Hard to put on a bumper sticker I’ll grant…
https://www.ft.com/content/e948ae78-cfec-43c0-ad5e-2ff59d1555e9
But will it fit on both sides of a tee shirt? Thanks for a great link - very interesting article that, among other things, informed me that we have a Deputy National Security Advisor for International Economics, which makes me feel a bit better...
Great issue to highlight. Since the free-trade consensus is dead, and a tarrif heavy system is also bad as you point out here, I wonder what a better system look like? It would be great if we could achieve a bipartisan consensus that friend-shoring is a good idea, then the limited tarriff regime could be focused on China and paired with subsidizing domestic production and/or production in friendly countries.
> friend-shoring is a good idea
Coupled with "make more friends".
Is this about international relations, lifestyle advice, or AI alignment?
... Yes
Possibly a better system would be, since tariffs are basically like a VAT except only on imported items, to implement a generally applicable VAT across the board on all products, domestically produced as well as imported. And then set the rates a bit higher on value adds that occur outside the US, or outside the US plus certain other that are treated as domestic.
So.... you're just proposing a *lower* across-the-board tariff (plus an unrelated VAT)?
No, I didn't say anything about how much higher the rate should be on value added outside the US versus domestically. What I'm saying is that if you want to design a tariff system that minimizes the opportunity President/administrative agencies micromanagement, it should be embedded as part of a coherent whole VAT tax system.
Because that what it is, a partial VAT, but people won't see it or think of it that way unless it's made blindingly obvious by actually making it just one component of an overall VAT system of general applicability.
Is free trade dead? Or is it that we've let China become too dominant and need to corral them more?
In a Biden (or Democratic) second term, would we see lots of tariffs on nations other than China? I'm guessing no.
[James Harden eyeroll animated GIF, but instead of Harden it's a Canadian softwood lumberjack]
Fair point.
I think the free-trade consensus is dead since China showed just how a free system could be subverted for nefarious ends (at least anticipating their move against Taiwan and their extant contributions to spreading totalitarianism).
You should consider making this one available to the general public. A lot of conservatives and moderates should read it.
Think the whole week is free to read
Meh. Democrats enjoy industrial policy, intervening with regulations and picking and entrenching winners with their policies. Trump may be much sloppier, but this is pot calling kettle.
Matt isn't "Democrats", this response doesn't make sense.
why is it impossible to evaluate the merits of a thing independently of the partisan blame game?
i've noticed this over and over again in internet discourse and i genuinely don't even understand what the thought behind it is.
'this is bad? eh, who cares. the other side is also bad.' what?
So why would it be good to have two statist parties? Markets are good and having both parties ditch their support for them will be bad for everybody.
Except for the central planners in charge.
Being "sloppier" matters. It is unusual for Democrats to have a barely-concealed "you give me money, I give you policy" trade. That kind of politics is very corrosive, and one of the nice things about America is that that kind of corruption among officials is uncommon.
What? Have you not looked at large Democratic cities? Did you not see the EV baksheeh that conveniently left out Tesla? Who’s making money off the California high speed rail boondoggle? What’s going on with Menendez in New Jersey? I’m sure it’s all over the place if you care to look.
California high speed rail suffers from the problem that they are *required* to evaluate bids according to specific criteria, and only a few big companies can meet those criteria, and no human judgment is applied at all. It’s exactly the opposite of corruption - it’s anti-corruption policy driving prices up.
Menendez, and the various non-profits given official roles in San Francisco, really seem like corruption.
I have no idea what you’re talking about with “EV baksheesh”.
Biden's EV subsidies that required unionized workers.
Corruption increases the more local you get and is worst in localities with the a dominant political affiliation the same as the state they are located in. This is true for both parties.
I think this topic is super interesting. I started my career in manufacturing / supply chain shutting down US factories and moving them to Mexico (e.g., residential breakers, lighting panels). I was then responsible for transferring rail propulsion component production (e.g.,, gearboxes, motors, inverters) from Germany to the US to meet Buy America provisions. I've spent a lot of time in factories. I think what Matt misses with his Buy America critique - which I think he gets from Alon Levy - is that these rail rolling stock contracts are *so* competitive that they get competed down to marginal cost and marginal cost with US production is going to be cheaper than globally sourced + massive finished stock transport costs. That's why Bombardier Transportation was acquired by Alstom. These are very thin margin contracts. Said more specifically because I did the calculations, the Siemens S70 (Avanto) produced in Sacramento for Houston's METRORail is *cheaper* than if it was built in the main production facility in Europe and imported because the Sacramento facility has now reached world-class production scale / capacities / efficiency.
Tying this back to this article ... the Samsung and LG washing machine story is a long one but it seems to have ended in a great spot. In 2013, the Obama administration imposed tariffs on imported washing machines from South Korea. They shifted production to China which led to a U.S. International Trade Commission anti-dumping investigation in 2016 that found the anti-dumping margins were 44.28%. In January 2018, Trump imposed tariffs of 20% to 50% on large residential washing machines. The tariffs expired in February 2023. Ok. So what happened? Samsung and LG both built massive US supply chains (same strategy as Bosch) and are building millions of washing machines a year here. Net net on pricing is they rose initially to match the tariff level and then fell just as quickly as production ramped.
Overall -- I think this is a huge win. But it's super interesting that Matt seems to be leaning way more into the ~ Libertarian view of just let capital and goods flow freely.
https://prosperousamerica.org/economic-view-tariff-jumping-investment-the-success-of-the-2018-washing-machine-tariffs/
https://www.cbp.gov/trade/quota/bulletins/qb-23-505#:~:text=Quota%20Period%3A,and%20Chapter%2085%20duty%20rates.
This Cato piece strongly disagrees on your washing machine story I guess:
1. Supposedly raised prices on the washing machines https://www.wsj.com/articles/consumers-bore-cost-for-u-s-tariffs-on-washing-machines-paper-finds-11555936276
2. 'Second, according to an August 2019 examination of the tariffs’ effects by the United States’ International Trade Commission (ITC), which recommended the tariffs and is required by law to review them periodically, the tariffs have not produced a thriving domestic industry. Although capacity and employment reportedly increased, for example, actual production declined, “resulting in declining capacity utilization, lower productivity levels, and higher unit labor costs.” (The ITC also noted the aforementioned price increases.)'
https://www.cato.org/blog/will-president-trump-do-essential-medicines-what-he-did-washing-machines-lets-hope-not
The WSJ and Cato articles are WAY out of date. The pricing analysis focuses just on the first 4-8 months. Which the CPA article fully addresses. Point 2 is crazy. LG and Samsung are literally now producing millions of machines here a year and both are expanding their factories. The domestic industry is indeed thriving.
EDIT:
https://news.samsung.com/us/samsungs-road-to-success-south-carolina-seha-home-appliance-manufacturing-facility/
https://www.lg.com/us/press-release/lg-expands-tennessee-laundry-factory-operations-to-support-unprecedented-us-demand
"massive finished stock transport costs"
Why are these so expensive? Is it really that hard to fit rolling stock into a shipping container (or group of shipping containers "fused" together)?
OMG. Yes. It's super hard just to transport them from Sacramento. A single car weighs 100k lbs and is 100 feet long and 13 feet tall. To say nothing about how risky even a slight drop would be for the undercarriage structure. .
https://assets.new.siemens.com/siemens/assets/api/uuid:8bdeb615058534866abb0890338b4cfcc1110406/twin-cities-s70-data-sheet.pdf
EDIT: Just to provide more details, the cars are transported to their final destination from Sacramento by rail using special cars designed for rail-to-rail transfers.
Yes, but the high density and shock-sensitivity also apply to (say) automobiles. Indeed, automobiles are also transported inside the US on dedicated railcars. But automobiles also can be transported overseas, to the point that the general public considers final-assembly automobile plants in the US to typically be tariff engineering. That's why I focused on dimensional obstructions to placing such a vehicle in a shipping container; it's still not clear to me why the different size should make such a big difference.
Shipping containers are 40 feet long.
On washing machines, after everything settled out, how much, if any, do you think onshoring increased purchase cost?
None. Maybe down. By Jan 2020 CPI pricing returned to 2017 levels and look at the disconnect vs. CPI since 2022 peaks: https://data.bls.gov/timeseries/CUUR0000SEHK01.
Everything is coming down.
EDIT: Which makes sense because once you've sunk the $300-500m to build the factory ... your pricing strategy is anchored to a lower marginal cost structure.
Which policy is worse, Trump's 10% tariffs or Bidens 5% rent control?
The rent control policy, as proposed, affects only large landlords, only existing buildings, and only rent increases above 5%, so it would be unlikely to have a big impact anywhere. That's leaving aside how it's very unlikely to pass even with a Democratic trifecta.
It also lasts only two years and is explicitly intended as a stopgap. It's pretty meaningless
Almost like it was designed to be meaningless but sound good as campaign rhetoric...
Yep, the policy design makes no sense as policy but is oriented around campaign messaging:
- the headline is a 5% cap to communicate to voters that Biden cares about cost-of-living issues, where housing is probably the most important single piece
- there's a broad exemption for "small" landlords (under 50 units!), which enables Biden to focus his rhetoric on corporate landlords, who don't have a lot of sympathizers (even though it makes the policy much less effective by failing to cover 50% of units)
- it's not technically a mandate but instead is a condition on being able to take the property depreciation deduction, which is completely nonsensical as policy but lets Biden portray it in terms of landlords keeping their end of the bargain in exchange for public support
- the two-year limit, together with an emphasis on increasing supply, together with the framing as a stopgap until new supply comes online, is intended to blunt criticism from center and center-left economists and those influenced by them
I don't particularly like it but it's politics. My biggest worry is that it will motivate housing activists in blue states to push for lower rent increase caps--in NY we now have 5% plus CPI which isn't crazy.
It's really outrageous to be behaving in this way. A bunch of resources will be consumed in formulating the policy, impacted parties figuring out how to comply, regulators figuring out how to enforce...and by the time that's done the policy will just disappear.
Did you miss the part about how it would be unlikely to pass even with a Democrat trifecta and really appears to be a campaign sound-bite?
That's no excuse. Politicians making promises they have no intent of enacting and don't even think is a good idea themselves is how US politics ended up in the sorry state it's in.