For decades, the United States provided an almost unlimited market for exporters. That allowed countries large and small to turn their populations from marginally productive farmers, struggling in overcrowded villages, towards low-tech industries making clothes, shoes and other consumer goods. At that stage, poor people worldwide became wealthier because the American market was wide open, with the American ruling elite of both parties uncritically devoted to free trade.
How did the US pay for that first wave of cheap low-tech imports? Partly with earnings from American agricultural exports, as well as some irresistible consumer products such as Coca Cola and cigarettes. Increasingly, though, America paid for its Adidas by selling Treasury bonds, eagerly bought by up exporters. That, in turn, drove up the dollar, and made foreign wares even more competitive.
But this model came with a downside. In the US, producers of low-tech and craft products started going out of business, even as the newly unemployed were encouraged to abandon hard industrial jobs for splendid new positions in the services sector. Go into foreign-exchange trading, they were told, whose winnings could earn you more money in a day than a lifetime spent turning out garden tools — which now anyway arrived more cheaply from overseas.
In speeches, articles and lectures, the country’s elite hailed the passing of our grim industrial economy, instead looking forward to a future where everyone could be a marketing consultant or a financial adviser.
It was only small-minded people, fixated on the hourly-wage data published by the Bureau of Labor Statistics, who noticed that industrial workers who made $30 an hour working on assembly lines did not in fact become foreign-exchange traders earning $3,000 an hour. When their competition-hit factories shut down, rather, they were much more likely to turn up as shopping mall security guards paid a pittance.
As far back as 1993, I myself published a book called The Endangered American Dream, in which I tested the claim that the replacement of the industrial economy by the service economy was a Good Thing. In the event, I found that it was only a Good Thing for South Korea, Taiwan, the lower end of the Japanese economy and the poorest European regions. All these places kept out foreign — including US — imports while exporting vigorously to the US. Stateside, where lower-tech industries were collapsing, the American heartland suffered too.
Fentanyl had yet to arrive. But in those towns, fathers could no longer provide a dignified life for their children, heading off with their lunchpails to work in the factory down the street. Instead, they counted themselves lucky if they could get a job at Walmart, at much lower pay, and selling cheaper imported versions of what they once made themselves.
My book included a warning that social breakdown would open the way for some form of product-improved fascism in the US. But reviewers failed to notice that, as they contemptuously slammed my protectionist idiocy, daring as I had to question the secular religion of the ruling elite: unlimited free trade that would make the whole world richer. That is true, but globalisation also made American industrial workers poorer, certainly too poor to send their children to college, at a stroke destroying the American Dream that was.
“Globalisation made American industrial workers poorer, destroying the American Dream that was.”
Worse was to follow. Instead of prudent and limited protectionism — replacing industrial collapse across the US with a much slower transition, providing enough time to upskill at least the sons of industrial workers — Bill Clinton and the Davos free trade consensus opened the US to unlimited imports from North America. That was a great blessing for local industry, and the foreign companies from all over the world that started producing in Mexico, which then trucked their products across the Rio Grande without any limits.
Nobody in the US elite noticed that every other industrial country impeded US industrial imports, either via arbitrary regulatory hurdles or even outright conspiracy. Consider South Korea. The government finally removed its de facto prohibition of US car imports (rich Koreans loved utterly impractical Cadillacs), only to ensure that General Motors would not be able to rent a showroom anywhere in Seoul. Traitorous landlords tempted to offer their space were threatened with harsh retaliation: by the very same officials who had smilingly signed the auto free trade agreement with the US. South Korea, of course, is a country that enjoys the protection of US troops until today.
Then, China’s industrialisation accelerated. That carried the country from Mao’s deep misery — which I experienced first-hand in 1976, when the whole of Beijing smelled like an open sewer — to great prosperity. Once again, this wealth was largely built on industrial and craft exports to the US, whose market was totally open to China, even as China’s market was largely closed to US exporters. Some of these barriers have since come down, but the process is not complete even now.
It was Chinese imports that finally drove most US factories out of business, taking much of our remaining industrial base with them. Increasing quality at a steady clip, while constantly expanding capacity, Chinese industrialists were also helped by continued purchases of US dollar bonds. Artificially pushing up the greenback, this again made Chinese imports even cheaper.
Why balk at China’s generosity in offering 97-piece toolsets that can be picked up for a few bucks at Walmart? No reason at all — if Americans are only viewed as consumers. But while the entire US elite celebrated free trade, an astonishing number of Americans lost the last of the good jobs that upheld families, towns and cities.
Trump’s tariff plan is simple: impede free trade so that surviving industrial and craft enterprises can survive, while other firms both old and new are re-launched with better technology, allowing them to become global exporters while still paying good wages. True, global wealth is favoured by unlimited free trade. But, in the process, lower-income workers in developed countries are impoverished, even as higher income people everywhere get wealthier. While Clinton, the Bushes, and the lord of Martha’s Vineyard Obama supported free trade, as did the wealthy elite they hang out with, Trump is keen to reward his lower income supporters. Unsurprisingly, the Wall Street Journal and the Financial Times are outraged.
And then there is another thing. It turns out that without a civilian shipbuilding industry, the US Navy can only make hugely expensive prototypes, not the 200 warships we need. The same is true of other sectors, including civilian aviation: Boeing is currently years late in delivering tankers to US and allied air forces (the Israelis must rely on 65-year-old converted airliners), and also terribly behind in fulfilling orders for commercial airlines around the world. Why? Because of the collapse of those machine shops, which trained skilled workers, and which ensured they could walk into any Boeing factory at a pinch.
As for the labour supply, cutting gigantic Federal gifts to rich universities — which turn out unlimited numbers of sociologists and sexologists, and who often end up working for the government in some capacity — will give us more workers, and perhaps some more plumbers too.
All of the above is more than enough to justify today’s temporary global turmoil, but there is one more consideration too. Unless the US industrial economy is vigorously rebuilt, the US armed forces will have to import their vehicles and weapons. From where? Likely China, so good luck with that.
