President Trump's Tariffs And The "Old General's Syndrome"

On April 2, President Trump announced that the United States would impose tariffs on all its trading partners. He called it “Liberation Day.” From his perspective, the day that America would be “freed” from being “ripped off” by other countries’ predatory trade practices.

The President would go on to tell us that this was an idea he had thought of 40 years ago.

https://www.youtube.com/watch?v=YGghSS-IOck

By my calculation, that’s about right — 40 years ago would bring us to sometime in the mid-1980s, the time when China, in particular, was hollowing out our industrial base. It was a time when tariffs would have been a potent tool in fighting China’s aggressive mercantilist policies.

Mercantilism, you see, is a strategy where one country seeks to maximize its exports while minimizing its imports. If successful, this strategy means that the importing country will send its wealth overseas to purchase those imports. It enriches the exporter while sending the importer into increasing poverty.

Economists have labeled this approach the “beggar thy neighbor policy,” and it is a strategy that China has employed for millennia, currently against its chief target, the United States.

The particular version of Chinese Mercantilism used against America was to undercut US Industrial costs by selling goods to America at prices that American industrial companies could not match. Slowly at first, we saw goods that were heretofore “Made in America” become “Made in China.”

Entire industries moved across the Pacific as demand for comparable but less expensive Chinese products grew. Low-tech items, such as toys, household goods, and clothing, were among the first to transition to offshore production.

It was about the time that the future President first visualized the issue. Low-skilled, cheap Chinese labor, working in literal “sweatshops,” was taking American jobs and factories overseas.

There can be little doubt that Trump was right. Moreover, given that China’s primary advantage at the time was cheap labor and unhealthy working conditions, Trump’s solution of imposing tariffs would “even the playing field,” an innovative approach.

The goods China produced back then were sold based on price. Forty years ago, China was competing primarily in low-tech goods, sold at affordable prices. So, Trump’s concept of tariffs would eliminate China’s price advantage — a win for the United States.

Regrettably, that picture of the world no longer holds. Those American factories that were once the envy of the world, models of efficiency and cleanliness, are long gone.

When I was young, we used to watch “Study Films” in school. Nearly every film began with photos of “Smoke-Stack America,” not a derisive term, but rather a proud display of the heavy industry that powered America’s growth and prosperity.

Of course, today that’s history. Both the factories and the pride we once felt toward heavy industry no longer exist. Today, the very concept of a “smoke stack America” is anathema to most in this country. It’s a visible representation of filth and pollution, of a dismal way of life, that most are thankful is long gone.

Herein lies the chief issue. While it’s true that China was trying its best to move American industry across the Pacific, Americans were just as happy to see them go. Our country was relieved that it would be the Chinese factories that would pollute their skies and rivers, not our own. In short, we saw the proverbial “free lunch,” cheap goods made in faraway factories. We saw a pristine, pollution-free America, with manufacturing and all its troubles on the other side of the world.

It’s a view of the world that persists to this day, especially in Washington, the nation’s capital. We are the country that prides itself on being the technological leader of the globe, yet we hold economic and industrial concepts that are decades old. Imagine that any other national leader would tell the world that his economic ideas are 40 years old! Most Americans weren’t alive when Trump first imagined imposing tariffs.

Mr. President, a lot has happened since you first considered tariffs as our path to economic prosperity. Technology has revolutionized the manufacturing industry. Factories that once belched smoke and ash, that sent acid rain over miles, and polluted rivers, can now operate cleanly. However, in America, many of our factories, to an unfortunate extent, have not kept pace with modern advances.

President Trump promises that the newly instituted tariffs will bring industry back to America, and he points to substantial deals to onshore production from Apple Computer ($500 billion), Taiwan Semiconductor ($100 billion), and Hyundai Motors ($20 billion).

But it is the President’s recent action in the sale of US Steel to Japan’s Nippon Steel that illustrates just how far we have to go in re-industrializing America. While most of US Steel’s plants were outdated and inefficient, one stands out -the Edgar Thompson Plant in Braddock, Pennsylvania. Constructed initially by Carnegie Steel in 1875 (you read that right), this plant has been the subject of significant enforcement efforts by the EPA and State Regulators for decades, yet it continued to operate because it is considered an “essential” part of the economy.

For the Edgar Thompson Steel Plant, like most of America’s heavy industry, its concern is that it must rise to the technological and environmental standards of the 21st century. Something it is woefully behind. 

While the President’s Tariffs may level the price disparity between the United States and its competitors, they do little or nothing to bring our manufacturing up to date. American politicians, no less than the American public, must overcome the mindset that production equals pollution and that all manufacturing is inherently bad.

CONCLUSION

President Trump aspires to bring industry back to the United States. He instituted a penalty for offshore production — the tariffs — but provided little or no actual incentive to relocate plants and factories here. It’s a stick but no carrot policy.

To entice American manufacturing to return home, the President needs a comprehensive industrial policy, one that includes affordable and reliable energy, reduced regulation, and up-to-date infrastructure, all of which are currently lacking at the Edgar Thompson Steel Mill.

The President often remarks that the United States is the world’s largest marketplace. Now, his Administration must demonstrate that we are also the best place for a multinational company to build its modern factory or manufacturing plant.

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