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?
I like David’s distinction of high-tech in manufacturing as well as process innovation.
As for the article… I found it sloppy and logicaly inconsistent. Just sort of the thing a WSJ opinion editor might whistle up to do a drive-by on policies that he doesn’t agree with. I sort of expected more from Phil Gramm given his experience in the Senate, something more than lazy deduction and analogies
So three questions/issues for Phil:
1) Phil wants to use the analogy of protecting politically-powerful agricultural workers of 1922 with the manufacturing workers of today. The analogy sort of falls apart because the issue as he acknowledges manufacturing employment has collapsed.
The 1945 base point for manufacturing employment is just a cruel and viscous use of statistics given the artificial condition, one-time unique condition that a lot of German and Japanese manufacturing was out of commission due to the 8th and 20th Air Force(s) not to mention the rest of European and Soviet industry was flat on its back due to hangover from war mobilization.
The reality is that manufacturing employment peaked in 1979 at 20.8 million and has declined to 12.8 million today (https://www.bls.gov/opub/btn/volume-9/forty-years-of-falling-manufacturing-employment.htm)
So what happened in 1979?
2) Phil thinks that open up the trading system is for the US to use existing tariffs, such as the 25% hot on imported pickups, as negotiating leverage. Wouldn’t then Trump’s strategy of tariffs be seen as accumulating additional leverage?
Perhaps rather than seeing Trump as as a 21st Century McKinley we should see Trump as a 21st Century Trump
Phil used to be am econ professor. I doubt he would have gotten papers published, let alone tolerated undergrad work that made use of such sloppy analogies
3) He uses our lead in high tech and AI as something that would be put at risk by a trade war. Yet high tech and AI in of themselves have little value instead as inputs in larger processes. If I was Germany and Canada why would I kneecap my own economy by depriving myself of the best (in terms of quality and price) inputs of the most leading edge technology?
I have been following that man for 40+ years and he turns out this?
@David Foster … re : the reshoring of chemical processing …
Electricity might have something to do with it but I’ve seen Peter Zeihan explain it differently.
You can start hydrocarbon-based chemical production with one of two bases – crude oil or natural gas. It used to be that in the US (and most of the world) we’d use crude oil for everything because it was easier and nat gas for only specialized products. Since the fracking revolution has made nat gas free for just the cost of transporting it to your facility we’ve rejiggered the processes so that we base most everything on cracking nat gas now. (I’m pretty sure the processes are largely the same once you get the precursors out of the base hydrocarbon.) So those plants are coming to the US not just because the energy costs less but also because the inputs they are using cost much less, and are harder to transport to processing facilities than crude oil (which as PZ likes to note, you can carry in a bucket if you have to.)
However, on the topic of basic materials production, the comments are a little closer to reality. A lot of the ‘rare earth’ production is captured by China because mining and especially processing the ore are very dirty processes and need to be done at scale. That’s going to be a tougher nut for us to crack, and could be why Trump is looking to leverage Ukraine for a processing site as much as a minerals source.
Economic reality is that in the long term — and it is understood that the long term can be decades or more — a country’s international trade has to balance. Notice how many “American” companies are now foreign-owned, as a consequence of the unsustainable trade deficit.
The US either produces & exports more to pay for the high level of imports (apparently running now at about 50% of manufactured products used in the US), or imports less … with an obvious significant reduction in the standard of living.
As a side note on the hypocrisy of offshoring “polluting” industry so that other people suffer instead of us — Germany, Japan, South Korea are pretty decent nations in which to live and work. Yet they have the steel-making and heavy manufacturing industries which Greenies have driven out of the US, and they don’t have workers dropping like flies in those industries. No! A lot of the mumbling about pollution & the rigors of working in productive industries is merely an excuse for the short-term benefits of financialization gained by a small segment of society.
phwest…”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”
An example of this might be apparel production (referring to the cut-and-sew part, not the making of the fabric)…there has been some work toward automating this, such as by Softwear Automation, which I wrote about several years ago:
https://chicagoboyz.net/archives/59010.html
…but only a small % of apparel production has been automated thus far.
In 1970 William J. Bank, president of the Blue Jeans Corporation, predicted that there would be a man on Mars before the production of apparel was automated.
…might still work out that way!
…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.”
The entire point of tariffs is to arrange it such that offshoring production does not result in a vast financial windfall for the offshorer.
Lacking that incentive, production would not be offshored by domestic companies and foreigners would invest inside the US to obtain access to the American market.
…and realistically, most consumers would not pay much premium for “made in the USA.”
Perhaps not, but if so it was odd that a provision in the so-called Trans-Pacific Partnership agreement made it illegal to put country of origin labels on products. It seems our effete elites were worried that maybe people would in fact prefer American made products, which may have made their offshored production slightly less economically viable.
Fortunately, Trump killed that in his first term.
One of the things I noticed in Gramm & Boudreaux’s article was that he was taking a different tack against tariffs than the usual one. The usual argument re: how tariffs come to be is that a dying industry, the businesses themselves, put pressure on the government to erect protectionist barriers. The business ate the special inetrest
The historical analogy Gramm & Boudreaux draws from are the agricultural tariffs which represent protection of relatively smaller landholders. In other words the “special interest” seeking protection is not business owners directly (they could indirectly mobilize workers), but rather voters
The analogy is clear to the present day, Trump is establishing tariffs to protect/rebuild a sector – manufacturing – in order to appeal to a politically important constituency. In this case the sector is one Gramm & Boudreaux think is outdated now in much the same way agriculture was in the 1920s. Just as agriculture tariffs in 1920s would imperil the brighter future of manufacturing, manufacturing tariffs today only imperil the brighter future of high tech and AI
Of course the analogy doesn’t quite hold true because Trump’s MAGA supporters are not a swing consistency but part of his core – the Democrats have abandoned that part of the population. Trump is unique in that rather than betraying campaign promises to voters safely in his camp, he actually delivers
What Gramm & Boudreaux are presenting is the Right’s version of the Left argument from the past 15 years which is that the future doesn’t need a certain part of American society and that it should just go away to die – for the Left it was bunch of far-right Christian nationalists, for the Right it was lower-class, non college-educated.
The problem that Gramm & Boudreaux (and the WSJ) doesn’t grapple with is that the basic dynamics of free trade over the past 40 years hasn’t worked in delivering across the board prosperity for Americans The idea that we would off-load lower value economic sectors onto the 3rd World/Global South and move up the value chain may boost GDP in the aggregate but only works socially if there are replacements for departed industries such textiles, steel, and furniture. These are not new questions if you go back to the 1970s and 80s with Japanese steel and autos
Part of the implied social contract was that as the country deindustralized there would be other jobs for the former manufacturing workers, of course there never were and in fact the key aspect of that up movement (K-12 and training) is a joke. K-12 has become an ideological jobs program for the Democrats delivering mediocre results and post-secondary education is geared toward colleges and universities with hundreds of billions of tax dollars used/written off to support it,
The epithet used for the unemployed coal miner was “learn to code”, well the problem is that nobody was that interested in training them in that or any sort of viable post-industrial future. A serious upskilling strategy for the past 40 years would have been to put education as a core national security asset – and I don’t mean “No Child Left Behind.”
I wish I kept the stat from a few days ago that pointed out the share of wealth held by the middle class has shrunk dramatically in relation to upper classes
To David’s post, Gramm & Boudreaux seem to turn their nose up at manufacturing. Here’s the stinker about democracy (for those 2), people get a say-so. Let’s call MAGA for what it is, the revenge of those that our betters wish would just go away and die and stop blocking that great future Better yet let’s call for our “betters” MAGA the “Revenge of the Stinky People” Free trade, liberal economics is one of the greatest ways of generating economic prosperity but to implement them you need an accordant set of social policies, especially in education, that allows people to adjust through the resultant economic upheaval. That means going to the mattresses with alot of entrenched interests and getting your hair mussed. Free trade serves Americans, not Americans serving an ideology. Gramm spent a long time in politics, you would think he would understand this
I will know that people like Phil Gramm are serious about making “free trade” work when they provide a leg up for those displaced by it. Things that might lead to charges of betrayal of their class – Gramm after a;; was a former professor. Here’s two suggestions, at a minimum:
1) Treat school choice and vouchers as a civil rights issue… stop trapping people in bad schools
2) Stop the federal funding of student loans, moving the funding toward STEM scholarships (which would dramatically improve K-12) and trades training.
No more AEI policy gabs. If Gramm, Boudreaux, and their ilk want to take the free trade train, then they need to pay the fare
Mike: “Part of the implied social contract was that as the country deindustralized there would be other jobs for the former manufacturing workers …”
More than part of the implied social contract, that is a key element of the theoretical benefit of “Free Trade” — the idea that workers are trapped doing jobs that have to be done (like making clothes) instead of being free to move upmarket to making higher value iPhones. In this silly theoretical construct, the ability of the US to make iPhones is limited because all the workers are needed in essential but lower value-adding jobs.
If we look at what actually happened in the real world when industries like steel and shipbuilding were offshored, the lost jobs were replaced by economically-unproductive make-work. There was a vast expansion in higher education (disguised unemployment) and in government bureaucrats (mostly also disguised unemployment). And of course this explosion in overhead allied with the loss of tax revenues from no-longer productive workers resulted in the twin unsustainable deficits — Budget Deficit and Trade Deficit.
The problem ultimately will fix itself. But it is going to hurt!
JD Vance speaking this morning at the American Dynamist summit (sponsored by Andreessen-Horowitz). Excerpt:
https://www.c-span.org/program/public-affairs-event/vice-president-vance-remarks-at-american-dynamism-summit/657367
I have thought:
– education is primary, and without it, failure of some sort is almost guaranteed.
– some jobs are not office-work clean and tidy. Learning how to do them and
agree to getting dirty should be a rewarding choice.
– the most recent crop of ‘graduates’, how far back to go being in question, for the
most part have limited education leading to may routes to failure as even holding
an entry level job, and do not expect to get hired even if they want to work.
– it seems many today see no other option to earn a living than either theft of some
sort, or selling illegal substances on streetcorners. There are exceptions, but it
appears neighborhoods inculcate the inevitability of prison or early death. At least
the stories reported by media indicate the hopelessness of essentially city living.
– as long as we continue to provide the funds for ‘successful’ single parent
families to exist and hobble along, we will continue to have crops of children who
tend to grow up without a father figure, in a matriarchal culture lacking in some
one to emulate and strive to earn approval from. Moms have a more difficult time
raising male children when the father is not around. It takes a lot of effort, and it
is doubly difficult if working multiple jobs in an attempt to be self-sufficient, even
with grammaw there to tend for the little ones at no charge.
– the higher education system is selling a fraud to a lot of students that their
‘degree’ will open doors for them. I do not believe that some of the ‘soft degrees
will open doors or assist in gaining employment, but will add some financial
burden to the graduate job seekers. Exceptions occur, but may be an exception
rather than a rule. I see the ads for some colleges, the celebration at achieving
graduate status, but not the accompanying numbers to indicate rate of success
with any particular program. Do they pay off? I venture the rate is not as high as
one might like.
– it seems that Thos Sowell had a formula for success, for about any high
schooler that included three things. Some reward for following his suggestion
could be offered as a ‘bounty’, similar to the tuition paid to graduates from some
high schools in inner cities who attend college.
I realize this is all over the place, but it seems there is no ‘silver bullet’ for improving the employment status of what seems to be ‘make work’ fodder. Rudely, it seems that our ‘education’ system fails, big time. The graduates should
still be in 5th grade, learning reading and math, and perhaps how to learn. Our system has been taken over by the teachers and their union, not for the benefit of the students, but for the teachers. It comes to mind that England of old, perhaps some European and Eastern countries also, had ‘two path’ systems, where some were pushed toward the ‘trades’, and others pushed for ‘higher education’. Not all were given the promise that a college degree would guaranty success. We witness today the graduates that have debt well into the 6 figures, which tends to make them indentured for a long time. Purchasing a home with that level of debt is not something to point to as any sort of success, IMO. Previous POTUS also decided to bury them under the debt of all the borrowed funds poured onto the economy. I can understand their feeling of hopelessness.
I do know some jobs will likely never be automated, and likely will also remain local, not offshored. Young today should be pointed towards those jobs, with decent pay, but likely to never afford the Audi and the Bimmer in the garage, if they have a garage, but it IS a possibility. Too long already.
Let’s look at an IPhone. There is a great deal of skill and technology involved in designing it. Fitting all that functionality into such a small package. There is considerable technology involved in designing and building all the components. There is considerable technology involved in assembling those components into the principal modules which is all done with automatic machines. Actually assembling the phone is about the equivalent of stuffing envelopes, maybe requiring somewhat more manual dexterity. Assembling a piece of clothing probably requires far more skill.
Those “high tech” factories in China building IPhones are simply long tables with thousands of people sliding trays of partially assembled phones from person to person. Much more sweat than tech.
Yeah, it started with “let’s get rid of the dumb lug wrenches and offshore the jobs” in the 80s. Then it went to “Let’s get rid of the paper shuffling stiff in offices and offshore the jobs” in the 90s. Then it went to “Let’s get rid of the poindexters and go with H1B” in the 200s. jRinse and repeat.
Yet they have the steel-making and heavy manufacturing industries which Greenies have driven out of the US…
I still recall many years ago hearing a radio news report after the US and South Korea signed a “free trade” agreement stating that we were expected lose jobs in steelmaking, chemical production, and semiconductors- and gain jobs in pig farming. Insane that an American government interested in American prosperity would ever sign such a deal- but we plainly don’t have one of those.
Anyway, I used to work at a steel mill and I made a point to read about the industry. I found out that the Italian government had built one of their companies an entire five billion dollar integrated mill. Nice, huh? Meanwhile American companies got buried under endless environmental rules that helped them go bankrupt. At some point I noticed that some expensive specialized equipment at the mill was Italian made.
This is what American companies are competing against- not merely other companies that happen to be in another country but also entire nation-states. It should surprise no one that they are failing, for that reason alone. The US government should be responding to this at the government to government level. Until Trump it never even tried.
That’s very interesting and makes wonder just who has actually been ruling the United States lately, because it certainly doesn’t appear to be loyal Americans.