Trump’s tariffs promise industrial revival. Even if it does, it overlooks the simple fact that fixing American industry alone won't restore middle-class prosperity.
This is a really good essay, as usual but I have a few comments. The first is that this is about more than trade. The big problem for the US is that it cannot sustain its hegemony and very few people seem to understand what this really means. If the US can capture 90% of the value chain when they import manufactured goods, then their economy looks huge. But what if most of the value is really in the technology process? The thing that takes a long time to build (and I completely agree with your industrial commons point). So you lose knowhow, you lose diffusion, you lose learning etc; and all you have is a logo. Which people buy because 1. they have to trade in dollars and 2. the US is perceived as the powerful country. But 10 years from now, China will have a bigger military, a digital currency used exclusively for trade and a very high potential market (good demographics) clustered around the B&R nations. If you're a famous basketball star and you have the choice of slapping your logo on Nike or a Chinese brand - what do you care? So people in the US may look at that and think - God damn, if China runs its own trading area with its own trade currency, who's going to buy our debt? And if no-one buys the debt what's going to happen to the dollar? And the dollar falling would be fine ... if it meant cheaper exports. Except, what if it takes 10 - 15 years to build up the industrial commons to get there? In the meantime, all the service industries - banking, management consultancy, law firms are worth nothing to China. All of it gets cut out and the US is left with ... Europe, stagnating with an aging demographic.
So my main point is: they probably have to try and rebuild their manufacturing knowhow even if it doesn't translate into good jobs immediately. And my second, associated point is that GDP numbers are all based on $ hegemony. So, sure - 'manufacturing' has increased. But what that really means is that Apple, Nike whatever have captured the value chain. So they pay $10 for the import then slap on the logo and then add $200. GDP says: manufacturing has increased by $200. But it really hasn't. The market has grown and the market has grown because China reinvests its $10 take into US Treasuries to fund more $200 purchases! The really disappointing thing is that no-one on the Left has crafted a strong argument that is a version of the Trump story - i.e. you need to compete on equal terms now, not undercut our wages / currency etc; and we need to build strong, de-financialised companies with limited IP protection, modularity and strong trades unions. It is painful to see the Left get trapped in the same old arguments about capitalists vs workers. It should be production vs finance. End
Thanks for your comment Claire. I agree mostly with everything you've pointed out. And yes, the manufacturing output graph you're seeing in my post is quite problematic. On the one hand, Nike would be counted in it (despite not actually doing the production), but Apple i believe wouldn't be. Here, "Manufacturing sector" is defined by one of the industry classifications, so its quite coarse in its definition. That said, the U.S. still has quite a stronghold in actually producing many things- including auto, chemicals, etc, so i don't think we should throw out the overall trend.
I think the conflict runs across two dimensions- both capital vs workers, and inter-firm. Globally, the more important dynamic is inter-firm with knowledge-intensive firms and labor-intensive. Or, as you put it, production vs finance. But within the U.S. alone, which is what I was hoping to focus on in this piece, both dynamics (capital vs worker AND inter-firm) are at play. Even with a revival of an industrial commons, I would expect most job creation to continue to be in services; and for service work to become good jobs, we must look at the conflict between capital vs labor.
I’m just not sure about this. Manufacturing is indeed heavily automated but it clearly absorbs a massive labour force in China? There’s a Tim Cook video doing the rounds talking about skilled American machine toolers filling a room while China can fill football pitches. I also read a really interesting substack on Bell labs last night talking about their research system. V short summary - you had people working on pure research but each was matched 1:1 with a
‘systems engineer’ whose job (according to the Substack) was to guide the research into business facing goals. If I understood it, they were kind of strategy consultant / agile coach / mentor rolled into one. They just roved around Bell matching problems to research & vice versa. I mean that’s hugely labour intensive? But also drives really high impact outcomes. The kind of stuff the US (& Britain) did in their sleep before we became trade deficit countries. Ie our great universities moved good people into corporate R&D which was applied to important business problems creating new technology & infrastructure driving high quality jobs. We surely want more of this? Not just in a few frontier firms but as the absolute underpinning of economic wealth & knowledge?
And the problem with service jobs (which I agree, are needed), is that without high productivity jobs, you don’t get the Baumol effect. Or - if you do, it’s paid for by Govt deficits trying to boost the dying economy. So I don’t think we can guarantee good wages for these jobs. Because essentially, they are being funded with Govt debt not industrial growth. Any growth is coming through finance & speculation in a few tech companies. And they have no inclination to share. That’s why manufacturing is more than an economic issue - its loss goes to the heart of the loss of labour power in Anglo-Saxon deficit countries.
Digital trade currency that cuts out the dollar? They are getting there but not there yet. If China no longer needs the dollar, it won’t buy Treasuries (already deleveraging) & the $$ will fall off a cliff. If that sounds like: tough luck, you deserve it America … well that’s what they said to the Germans at Versailles. They took their manufacturing (the Ruhr) & forced them to pay off debt in a devalued currency. We should all be hoping that this doesn’t happen & that China & the US can diplomatically resolve these tensions.
Manufacturing output growth still visibly slowed down after 2000, which was really when China joined the WTO and manufacturing employment started declining. It has also been a declining share of gdp. Obviously this doesn’t say it’s trade not technology or something, but I think that people pointing at output is overstating their case.
This is a really good essay, as usual but I have a few comments. The first is that this is about more than trade. The big problem for the US is that it cannot sustain its hegemony and very few people seem to understand what this really means. If the US can capture 90% of the value chain when they import manufactured goods, then their economy looks huge. But what if most of the value is really in the technology process? The thing that takes a long time to build (and I completely agree with your industrial commons point). So you lose knowhow, you lose diffusion, you lose learning etc; and all you have is a logo. Which people buy because 1. they have to trade in dollars and 2. the US is perceived as the powerful country. But 10 years from now, China will have a bigger military, a digital currency used exclusively for trade and a very high potential market (good demographics) clustered around the B&R nations. If you're a famous basketball star and you have the choice of slapping your logo on Nike or a Chinese brand - what do you care? So people in the US may look at that and think - God damn, if China runs its own trading area with its own trade currency, who's going to buy our debt? And if no-one buys the debt what's going to happen to the dollar? And the dollar falling would be fine ... if it meant cheaper exports. Except, what if it takes 10 - 15 years to build up the industrial commons to get there? In the meantime, all the service industries - banking, management consultancy, law firms are worth nothing to China. All of it gets cut out and the US is left with ... Europe, stagnating with an aging demographic.
So my main point is: they probably have to try and rebuild their manufacturing knowhow even if it doesn't translate into good jobs immediately. And my second, associated point is that GDP numbers are all based on $ hegemony. So, sure - 'manufacturing' has increased. But what that really means is that Apple, Nike whatever have captured the value chain. So they pay $10 for the import then slap on the logo and then add $200. GDP says: manufacturing has increased by $200. But it really hasn't. The market has grown and the market has grown because China reinvests its $10 take into US Treasuries to fund more $200 purchases! The really disappointing thing is that no-one on the Left has crafted a strong argument that is a version of the Trump story - i.e. you need to compete on equal terms now, not undercut our wages / currency etc; and we need to build strong, de-financialised companies with limited IP protection, modularity and strong trades unions. It is painful to see the Left get trapped in the same old arguments about capitalists vs workers. It should be production vs finance. End
Thanks for your comment Claire. I agree mostly with everything you've pointed out. And yes, the manufacturing output graph you're seeing in my post is quite problematic. On the one hand, Nike would be counted in it (despite not actually doing the production), but Apple i believe wouldn't be. Here, "Manufacturing sector" is defined by one of the industry classifications, so its quite coarse in its definition. That said, the U.S. still has quite a stronghold in actually producing many things- including auto, chemicals, etc, so i don't think we should throw out the overall trend.
I think the conflict runs across two dimensions- both capital vs workers, and inter-firm. Globally, the more important dynamic is inter-firm with knowledge-intensive firms and labor-intensive. Or, as you put it, production vs finance. But within the U.S. alone, which is what I was hoping to focus on in this piece, both dynamics (capital vs worker AND inter-firm) are at play. Even with a revival of an industrial commons, I would expect most job creation to continue to be in services; and for service work to become good jobs, we must look at the conflict between capital vs labor.
I’m just not sure about this. Manufacturing is indeed heavily automated but it clearly absorbs a massive labour force in China? There’s a Tim Cook video doing the rounds talking about skilled American machine toolers filling a room while China can fill football pitches. I also read a really interesting substack on Bell labs last night talking about their research system. V short summary - you had people working on pure research but each was matched 1:1 with a
‘systems engineer’ whose job (according to the Substack) was to guide the research into business facing goals. If I understood it, they were kind of strategy consultant / agile coach / mentor rolled into one. They just roved around Bell matching problems to research & vice versa. I mean that’s hugely labour intensive? But also drives really high impact outcomes. The kind of stuff the US (& Britain) did in their sleep before we became trade deficit countries. Ie our great universities moved good people into corporate R&D which was applied to important business problems creating new technology & infrastructure driving high quality jobs. We surely want more of this? Not just in a few frontier firms but as the absolute underpinning of economic wealth & knowledge?
And the problem with service jobs (which I agree, are needed), is that without high productivity jobs, you don’t get the Baumol effect. Or - if you do, it’s paid for by Govt deficits trying to boost the dying economy. So I don’t think we can guarantee good wages for these jobs. Because essentially, they are being funded with Govt debt not industrial growth. Any growth is coming through finance & speculation in a few tech companies. And they have no inclination to share. That’s why manufacturing is more than an economic issue - its loss goes to the heart of the loss of labour power in Anglo-Saxon deficit countries.
Digital trade currency that cuts out the dollar? They are getting there but not there yet. If China no longer needs the dollar, it won’t buy Treasuries (already deleveraging) & the $$ will fall off a cliff. If that sounds like: tough luck, you deserve it America … well that’s what they said to the Germans at Versailles. They took their manufacturing (the Ruhr) & forced them to pay off debt in a devalued currency. We should all be hoping that this doesn’t happen & that China & the US can diplomatically resolve these tensions.
They already have all of this. And Pax Americana ended a long time ago.
Manufacturing output growth still visibly slowed down after 2000, which was really when China joined the WTO and manufacturing employment started declining. It has also been a declining share of gdp. Obviously this doesn’t say it’s trade not technology or something, but I think that people pointing at output is overstating their case.