Nothing during this wildly unconventional presidential campaign has anchored the economic conventional wisdom more strongly than the claim that only know-nothings like presidential candidates Donald Trump and Bernie Sanders could possibly think that better U.S. trade policies can bring back lots of high-paying manufacturing jobs from countries like China to the United States. And nothing during this same campaign has revealed more Establishment ignorance than this attack on these White House hopefuls.
An excellent recent op-ed in USA Today by former U.S. trade negotiator Clyde V. Prestowitz, Jr. explains why. As Prestowitz (with whom I worked in the early 1990s at the Economic Strategy Institute think tank he founded) writes, anyone thinking that free market forces have turned China, for example, into a major producer of advanced manufactured goods needs to get a clue. China’s natural manufacturing advantage lies in labor-intensive products like apparel and toys, because its workforce is so gargantuan and its technological development still has a long way to go.
But Beijing wasn’t content to keep making such low-value products an instant longer than necessary. So it’s used a raft of active policy carrots and sticks to lure even information technology manufacturing to its shores. My book on globalization, The Race to the Bottom, has exhaustively documented how these policies have long been standard operating procedure for governments all over the world – except America’s. And the supposedly all-powerful multinational companies they’ve mainly targeted? Instead of standing on their high horses, and refusing to jump, they’ve simply asked “How high?”
If you still doubt any of this, forget about what Prestowitz and I have reported. Listen to Morris Chang. He started up and still chairs the Taiwan Semiconductor Manufacturing Company (TSMC), which is the world’s largest contract manufacturer of computer chips, and in fact, pioneered the “foundry” model for the industry.
Chang’s company just announced that it’s building a $3 billion semiconductor fab in China, where it will produce advanced (if not leading-edge) semiconductors. How come? There’s no question that part of the reason is that so many of TSMC’s customers – in the information technology products industry – now manufacture so many of their goods in China. But as Chang also admitted, “We say that with some degree of assurance from the authorities, some degree of assurance that building a plant there will indeed enhance our access to the Chinese market. And reversely, not building a plant there will not enhance.”
That is, China’s policy is “Pay to play” – because it wants to develop its own semiconductor sector, regardless of what economic theory says it should be doing. And Chang doesn’t think he can afford to Just Say No.
Revealingly, no one is more aware than the Chinese that the United States is capable of playing this game effectively, too. As a Chinese company told Bloomberg last year, it chose Alabama as the site of a new factory both “to bring it closer to clients in the South and avoid anti-dumping tariffs on copper products.”
Also revealingly, American leaders haven’t always been brain-dead on this score. In 1981, for example, President Ronald Reagan successfully pressed Japan’s auto makers to curb their exports to the United States “voluntarily.” The following year, Honda began assembling cars in Ohio. By 1990, all the major Japanese auto makers had gone the transplant route.
Can using America’s market power bring back all production and jobs lost to trade? Of course not. Can it bring back or create lots? Of course it can, especially in high-value sectors where a technologically advanced country with well developed capital markets like the United States should be fully competitive. The actual trade know-nothings are those unfamiliar with the historic record and current global realities. Assuming of course that any of them really want to know.