In yesterday’s WSJ, Phil Gramm and Don Boudreaux predictably argue for free trade and against tariffs and say:
We are today taking actions to protect manufacturing jobs the same way we did with agriculture a century ago. In the process, we are imperiling our access to the world market in high-tech and AI, which are the economic future.
I have often seen this assertion of a polarity between manufacturing (old, boring, low growth and low margin) and ‘high tech’ (new, cool, high growth and super-profitable) and wonder what the writers think ‘high-tech’ exactly IS.
Would they consider Taiwan Semiconductor Manufacturing (market capitalization $758B) as high-tech? It is certainly a manufacturing company!
How about ASML Holding NV (market cap $274B)?…this is the only company in the world that manufactures the Extreme Ultra Violet machines which are essential for making the highest-performance semiconductors.
Consider GE Aerospace, now trading as a separate company with a market cap of $206B. It may lack the Cool factor of the above two companies, but anyone who thinks that making jet engines doesn’t count as ‘high-tech’ should read this article: Why it’s so hard to build a jet engine at the Construction Physics substack.
The above examples are companies that sell business-to-business rather than to consumers. For a business that sells to consumers, look at Tesla–there are many articles and videos available about this company’s innovations in manufacturing. (Here, for instance)
What, exactly, do Gramm and Boudreaux, and similar writers, think ‘high-tech’ actually means?
Personally, I’m not particularly fond of the term, nor even of just ‘technology’ when used in a narrow and restrictive sense–I think it’s pretty odd to consider a company that sells some garden variety consumer product online (with sparkly AI algorithms!) as being ‘technology’ while excluding the making of jet engines (or power turbines) from that category.
One point that is not well enough understood: process innovation is as important as product innovation. The manufacturing innovations of Matthew Boulton and John Wilkinson were as important for the success of the steam engine as were James Watt’s design innovations. In the case of the Model T Ford, the process innovations which allowed production at low and continuously-declining cost were perhaps even more important than the design of the car itself.
The idea of a polarity between ‘High-Tech’ and Manufacturing is unhelpful to clear thinking about policy.
Wait, they are saying the agriculture tariffs a century ago are completely unrelated to the international dominance of U.S. agricultural exports nowadays? It’s paywalled so I can’t look myself – do they say anything about this or just blow past to start their “high tech” chanting?
As a multi-decade veteran of the dank and muddy cubicals of the semiconductor manufacturing industry, I can assert as fact that it is a manufacturing industry in the absolute sense, managed as such, with employees as expendable widgets, whether they were using in-house fabs (back in the day – get off my lawn) or fabless. And the industry, and indeed the rest of Silicon Valley tech, is so fully addicted to the corrupt H1B indentured servitude scheme that any “high tech” expansion will arguably do more for Bangalore unemployment rates than US.
So buzz off, Phil.
I’m a member of a group of physics teachers who had a great discussion of what was considered “high tech” vs. “low tech”.
We decided the more appropriate term to use was “appropriate tech”.
It’s of little good to bring in technology that the locals can’t operate without extensive training, particularly if they have educational deficits. When government officials give tax breaks and loans for the new manufacturing facility, locals are often NOT the people that get the jobs.
Instead, the tax dollars go to pay people imported from other locations, both USA and foreign.
A couple of links:
Mark Cuban: “People also fail to realize that we have a trade surplus for services. Why ? Because capital flows to where there are profits. AI, Software, tech in general generates huge profits and equity valuations. Making “stuff” doesn’t
No matter the tariffs , capital isn’t going to start flowing to non-tech manufacturing , simply because it’s not profitable enough.
Particularly when Americans won’t pay a premium for made in the USA and we aren’t as good at Robotics as other countries.”
Balaji:
“Everyone wants to reindustrialize.
No one wants to remember why the US deindustrialized in the first place.”
(graph of deaths and fertility rates in mining, 1911-late 90s)
“Basically, tradeoffs exist. The real problems of pollution and industrial accidents led to the proliferation of environmental and labor laws. And after generations in the farms, mines, factories, and fields, many welcomed higher-paying and healthier work.
Of course, the cost of offshoring manufacturing is now clear. But it is important to understand that there were at least medium-term benefits in terms of reducing accidents and pollution. Because those benefits will go away if you naively reindustrialize.
Basically, mining and manufacturing were tough jobs that are now romanticized in the abstract but that can be difficult to recruit for in the concrete, *especially* if the resulting product needs to compete with China in a global market on price. Your people need to work really hard, really smart, and really cost-effectively to compete. That is tough.
(Some are kind of talking about sending the effete intellectuals to the mines, Mao style, which is a “romantic” regression that does have many unfortunate precedents in history.)
Anyway, yes you can maybe increase safety or reduce pollution today with modern techniques — but physical risk will always exist. And without taking some physical risk you won’t ship a globally competitive product at a globally competitive price.”
https://x.com/balajis/status/1901002182146896201
‘Services’ and ‘Manufacturing’ are often linked: for example, the 2024 revenue for GE Aerospace in its Commercial Engines & Services segment was $7.1B for equipment sales…and $19,7B for services.
Let’s consider that lowest of low tech, an agricultural commodity, loaded on a ship and headed for, let’s say, China. Let’s further specify that the commodity in question is soybeans.
We have it on the authority of no less than Michael Bloomberg that anyone at all can farm. You just put the seeds in the ground and wait for them to grow.
Putting them in the ground: $400,000 planter behind $500,000 tractor, guided by GPS.
Seeds: Hybrid, optimized to the soil and weather conditions of of the particular field, bred by a combination of conventional and genetic engineering to resist drought, pests, and herbicides over more than a century.
Let them Grow: Fertilizer produced from petroleum and minerals, applied, again, by implements costing a significant fraction of a million dollars, again guided by GPS and digital prescriptions that match the application to the plots as small as a fraction of an acre derived from yield data collected at harvest as well as tissue and soil samples collected and analyzed by instruments capable of detecting one part in a million or better.
Let them grow: Controlling weeds both by precise application of herbicides, now sometimes guided by computer vision systems able to tell the difference between crops and weeds 16 or more rows wide and 8 miles per hour.
Harvest: Combines now cost north of $1,000,000, again, GPS guided with monitors capable of measuring and keeping track of yield for each particular fraction of an acre over thousands of acres harvested in a given season.
And so on, every step depends on technology, Nearly every one of which was invented here and exported to those few other countries capable of producing on the same level.
Of course, anything with Gramm’s name on it should be considered just more never trumper nonsense. Trump is mostly using tariffs to focus attention and goad some of our erstwhile allies into a less one sided relationship. I’m betting most will never be put in place.
Free trade would be nice but has never existed and certainly doesn’t now.
“Everyone wants to reindustrialize. No one wants to remember why the US deindustrialized in the first place.”
No, everyone remembers why “we” deindustrialized- because moving industry elsewhere and firing Americans was more profitable. I’m not going to pretend otherwise, even if this guy wraps his nonsense in hazy arguments about economic theory.
“Basically, tradeoffs exist. The real problems of pollution and industrial accidents led to the proliferation of environmental and labor laws.
Tradeoffs exist, thank you. I’m glad I’m not paying for this… analysis. The problem of pollution and industrial accidents led to new law, which to a great degree solved the problem, as was intended.
And after generations in the farms, mines, factories, and fields, many welcomed higher-paying and healthier work.
Excuse me? Higher paying work where? At Walmart? Or at a government make-work job that exists only because of heavy taxes levied upon Walmart workers and everyone else? Many say this is utterly unsustainable and will end badly for everyone, including government workers with their healthier and higher paying jobs.
Basically, mining and manufacturing were tough jobs that are now romanticized in the abstract but that can be difficult to recruit for in the concrete, *especially* if the resulting product needs to compete with China in a global market on price. Your people need to work really hard, really smart, and really cost-effectively to compete. That is tough.
It’s *especially* tough to recruit for tough jobs when the pool of potential applicants has spent generations watching people working those sort of jobs become unemployed because the jobs were relocated to other countries. And it’s *especially* tough to compete with China when trillions of dollars of American capital has been invested there, along with all the knowledge America spent yet more trillions of dollars developing.
“Anyway, yes you can maybe increase safety or reduce pollution today with modern techniques — but physical risk will always exist. And without taking some physical risk you won’t ship a globally competitive product at a globally competitive price.”
This sort of sniveling comment is exactly why *some* want to send the effetes to the mines. Industry didn’t leave the US because because of “physical risk.” It left because our effete elites could extract more rent via higher stock prices if Americans were thrown under that proverbial bus.
Of course, the cost of offshoring manufacturing is now clear.
I’m pretty sure the *cost* he’s worried about is fear that the Trumpian hordes might do to our *elites* what they have done to rank-and-file Americans.
I agree with him there. He should be afraid.
37 years in the chemical industry, 10 in production and another 11 in direct support of operations. The US industry is so strong that BASF is dismantling its facilities in Germany and shipping them to Texas, where they can actually operate at a profit. I’d also throw in the fact that while we handle all sorts of toxic and otherwise dangerous materials, over the course of my career my company lost more people in traveling accidents (we had two engineers die at Lockerbie) than died on the shop floor. The industry is heavily automated, the work highly skilled and very well paid, with the main stress being that it is 24/7 work and shift work is stressful by nature. But it’s a cleaner and generally safer job than pretty much anything not day work in an office.
The biggest problem US industry has with Chinese competition is not safety or environmental (although those do matter) but simply that the Chinese government does not care about economic returns at all, and is perfectly willing to force loans to industry regardless of profitability as long as they can control the markets they want. There is a reason China’s public and private debt dwarfs US debt. Nothing in that economy actually returns the real profits required to pay back debt. Export controls keep capital from leaving the country and all private savings are forced into banks to fuel the endlessly expanding debt bubble. No country that is interested in a sustainable economy that benefits its citizens can compete with that in an open market.
I’m fine with free trade with countries that share our business values. There is plenty of work in the global economy that our workforce is not well suited for (mainly difficult to automate hand work), and having open trade with other countries for those parts of the value chain makes sense. But free trade with command economies playing by mercantialist principles is for suckers.
Xennady…”It left because our effete elites could extract more rent via higher stock prices if Americans were thrown under that proverbial bus”…although if US companies hadn’t offshored production to lower-cost countries, non-US companies would have…and realistically, most consumers would not pay much premium for “made in the USA.”
phwest…”he US industry is so strong that BASF is dismantling its facilities in Germany and shipping them to Texas, where they can actually operate at a profit”….wondering how much of this is due to comparative energy (especially electricity) prices?