Economic Nationalism 2.0

By Kevin D. Williamson

Thursday, February 04, 2021

Republicans embraced some un­likely things in the Trump years — from bonkers conspiracy theories to the music from Cats, which alternated with the Village People’s “Macho Man” at Donald Trump’s campaign events — but the most consequential of these strange new passions is: central planning. Republicans thus ensorcelled should be somewhat relieved by the election of Joe Biden, whose ambitions regarding economic nationalism are identical to those of Trump in almost every aspect save the rhetorical.

Trump was fascinated by China as an economic bogeyman, and so is Biden. Trump aspired to a situation of defense autarky, under which normal market operations are policed in the name of national security, and so does Biden. Trump believed that aggressive reinforcement of trade barriers was the key to cultivating blue-collar employment in the United States, and so does Biden. Trump supported purely protectionist measures such as the Jones Act, which gives U.S.-flagged ships a monopoly on service between U.S. ports, against the advice of advisers such as Larry Kudlow, and Biden can’t get enough Jones Act: On top of “Buy American!” he demands, “Ship American!” Etc.

As President Biden moves to put more of the U.S. economy under direct Washington-based political regimentation, Republicans cannot pretend this came out of nowhere. Central planning of trade, manufacturing, transportation, energy, and other critical sectors of the economy is now a matter of broad bi­partisan consensus, comprising figures as notionally diverse as Tucker Carlson and Elizabeth Warren. When Senator Warren talks about “economic patriotism,” Tucker Carlson says she reminds him of “Donald Trump at his best.”

We are (mostly) all Nehruvians now, eager to see Washington patrol the commanding heights of the economy.

This will, of course, end badly.

It has begun badly, because the bed­rock assumptions of economic nationalism are at odds with the facts, prominent among them the fact that U.S. manufacturing, far from being “hollowed out” by trade, has continuously expanded since the end of World War II, with the United States seeing an increase in manufacturing output of almost 600 percent between 1950 and 2010, as the Federal Reserve Bank of Chicago runs the numbers — even accounting for the steep recession following the financial crisis of 2008–09. U.S. manufacturing output is considerably higher today than it was when China joined the World Trade Organi­zation or when NAFTA was ratified, according to Fed data. What troubles the economic nationalists is not the decline of U.S. manufacturing but the success of U.S. manufacturing: As U.S.-based manufacturing has grown more technologically and logistically sophisticated, it has grown much more efficient, too: What used to take 1,000 factory workers to produce now takes about 167, according to the Fed. Manufacturing’s share of the workforce has declined dramatically, but this no more represents a hollowing out of U.S. manufacturing than the radical decline in the farm workforce represented the decline of U.S. agriculture.

This at least complicates, and in many cases eviscerates, the populist political narrative of U.S. vulnerability in regard to manufacturing. The labor calculus has changed, but the United States is no more vulnerable when it comes to steel and aluminum for military purposes than it is when it comes to wheat and corn: As Secretary of Defense Jim Mattis documented in a report to the Treasury Department, steel and aluminum consumed by the national de­fense apparatus amounts to about 3 percent of U.S. output of each metal, and even in the case of more specialized products such as high-purity aluminum, defense consumption is less than 10 percent of domestic output. And the choice between U.S. providers and Chinese providers is a matter more of rhetoric than of reality: More than 80 percent of Canadian aluminum is exported to the United States, while about 40 percent of U.S. steel exports are Canada-bound. That is not a vulnerability — that is a well-integrated international market enabling cooperation between two advanced countries with broadly overlapping economic and political interests.

Far from exposing a weakness in U.S manufacturing, the coronavirus epidemic has showcased its great strengths — innovation, flexibility, adaptability. When in the early days of the epidemic there were shortages of products such as hand sanitizer, and more consequential shortages of face masks and other personal-protective equipment, U.S. manufacturers responded very quickly — that bottle of Tito’s hand sanitizer is bound to become a collector’s item — and in fact moved so quickly that, as of this writing, there is a glut of PPE in the U.S. market and Demo­cratic lawmakers are pressuring the Biden administration to order big federal purchases to soak up the excess capacity in their districts.

Because the facts don’t support the case, Biden has resorted to making stuff up, as he has done throughout his political career. E.g., Biden complains that under the Trump administration, “federal government contracts awarded directly to foreign companies went up 30 percent,” a claim that is pure four-Pinocchio horse­pucky in the estimate of the Washington Post. Military contracts of all kinds went up during the Trump years, during which overall federal spending in­creased by one-fifth, but the share of DOD contracts (most federal construction contracts are Pentagon contracts) awarded to companies overseas actually declined, albeit only slightly. If you look at the countries with companies receiving a great deal of DOD contract money, you will not be surprised: They are Japan, Germany, South Korea, the United Arab Emirates, Afghanistan, and other places where there are big U.S. bases and operations. When you need to install 50 new toilets in Ramstein, you don’t fly the plumbers in from Milwaukee.

In reality, U.S. defense contracting already is subject to an absurdly protectionist regulatory regime — you can’t feed an American soldier in Herat Province a can of tuna unless that tuna was caught by a U.S. ship and processed in a U.S. facility. To the extent that U.S. military procurement does involve overseas countries, these transactions are governed by the reciprocal military-procurement pacts the United States has negotiated with two dozen other countries, as well as by “security of supply” agreements that allow the DOD to secure priority delivery on contracts with the overseas companies covered by them. These agreements are part of those big, complex bilateral and multinational trade pacts that populists love to hate.

“Economic nationalism” isn’t about national defense — it is about job-farming.

Manufacturing protectionism is a way to make factory jobs into political-patronage jobs — patronage jobs that don’t have to show up on the government’s budget, because these clients (and that is what they are) are not directly on the federal payroll. Looking after hometown jobs and local financial interests, which are the dominant interests here, is in very few circumstances the most efficient, reliable, or direct way to secure our national defense and often runs counter to U.S. national-security interests. And these protectionist policies are bad for U.S. manufacturing and the rest of the economy, too, creating market distortions that favor a handful of politically connected firms and industries at the expense of everybody else. That’s the plain truth about Marco Rubio’s “national security” case for sugar protectionism: Some very nice rich people in Florida get richer and everybody else pays more for their groceries.

Biden’s economic nationalism, like Trump’s, would essentially take the worst thinking behind the General Motors bailout and make it national industrial policy. For the politician, jobs are not a means to some end — Cadillacs, bales of cotton, iPhones — but an end in and of themselves. If Joe Biden could figure out a way to have GM hire 1 million Americans to make nothing, but to make it at $98,000 a year plus benefits, that would be, in his view, a smashing success. If you view people as a liability, as mouths to be fed — which economic nationalism does and must — then giving Bob a make-work job producing nothing of economic value is a fine policy, assuming somebody can pay for it, because it solves the Bob problem. Workers in firms benefiting from Biden-style protectionism don’t make nothing — they make things in a way that is less efficient than the way they would have been made without market-distorting nationalist policies. And that makes Americans, at large, poorer, because they have to pay artificially high prices for their own goods and services and pay artificially high prices for government procurement through their taxes.

If this were a question of, say, contracting with a Colombia-based firm to make guidance systems for nuclear missiles, then there would be a legitimate national-security concern. But such exceptions should be the exception, and they should be narrowly tailored and rigorously managed. We are not talking about that. For the most part, we are talking about cans of tuna and rolls of insulation, roofing materials and computer printers, and the special treatment accorded office furniture made by the captive labor of Federal Prison Industries.

Economic nationalism is corporate welfare in patriotic drag. It was a bad idea for the Trump administration, and the Biden administration may yet discover a way to make it worse.