fU.S. government officials have announced their departure from the dominant global economic order that the United States itself put in place after World War II. At the heart of this order was the idea that free trade increases prosperity. Standing in conflict with other interests and ideas, the principle was never fully enforced. But it remained trend-setting. Recent statements can only be understood to mean that free trade is no longer a priority.
The US does not deny that the old order, with its free-market principles, brought prosperity to many countries, including America. But for several decades, the math hasn’t worked out, believe President Joe Biden and his comrades-in-arms. “The premise that deep trade liberalization would help America export goods rather than jobs and productive capacity was a promise that was never kept,” Biden’s top national security adviser, Jake Sullivan, said in a keynote speech.
America’s industry is not hollow
Really? How does the analysis fit with official labor market statistics, which show the lowest unemployment rate in 70 years? In the supposedly miserable last 30 years, 45 million additional jobs have been created in the USA. During this phase, the high-tech sector in Silicon Valley – seething source of worldwide envy – grew into global dimensions. The business models of such giants as Apple, Microsoft or Nvidia are prime examples of the extraordinarily successful international division of labor from which the United States has benefited. Other countries also won. But that is precisely the irresistible charm of trading.
The number of jobs in America that depend on imports or exports has doubled to 40 million in the supposedly miserable 30-year span, the American Chamber of Commerce calculated. She also pointed out that these jobs are paid above average.
The portrayal that America’s industrial base has been eroded as a result of globalization, as Sullivan points out, is an exaggeration. In the two decades after 1990, industrial production rose even faster than before, before collapsing after the financial crisis.
Never recovered from the “China shock”.
But for ten years it has stagnated at a high level. This actually points to eruptive forces: the industry has lost around 4.5 million jobs since 1990 and now only keeps 13 million in wages and bread. Technical progress, which automated production, made the largest quantitative contribution to the decline in employment. But there is no doubt: the “China shock”, China’s entry into the world market, weighed heavily. It has wiped out 1 million US manufacturing jobs and another 1.4 million related jobs. But this battle is over. The industries that were particularly badly affected have shifted. However, new industries are not currently about to migrate.
Tariffs on Chinese imports, such as those imposed by Donald Trump and left in place by Biden, do not help the many regions that have never recovered from the China shock. On the contrary, they harm customers and local companies who have to pay more for Chinese supplies.
A state that qualifies workers who have been left behind for new requirements that are likely to increase in the future would have helped. The foreseeable structural change due to the rapid progress of artificial intelligence could expose Biden’s mercantilism as an old man’s outdated factory nostalgia.
Bad experiences with globalization and the desire to quickly restructure the economy in a climate-friendly manner are intended to legitimize the industrial policy of subsidies and isolation. Conflicting goals are glossed over. If climate policy is important, the import of green technology should not be made more difficult. One has to question the wisdom of the US plan to build its own solar industry. The world is supplied well and cheaply from Asian production clusters.
It remains true that America wants to withhold exclusive high technology from China that the country could use to expand its military. However, most of the trade barriers relate to harmless goods and are intended to induce China to change questionable business practices. The tariffs have had no effect. America is looking for tomorrow’s economic policy for good reason – unfortunately, in doing so, it only falls back on yesterday’s recipes.
