Good piece. Personally, I’d like to draw attention to this bit in particular:
“There has been no next wave of export-led development following on the East Asian success.”
Whilst it has been abused in recent years, as far as I can tell, with the exception of the UK and a few oil rich countries, EOI is by and large the only way countries have ever developed - even the US had to use the UK’s markets to industrialise before successfully switching to a consumption-led model (ironically using the exact same asymmetric abuse of free markets that East Asian states used themselves). As such, whilst the US definitely needs to rebase its advanced demand domestically, I still think there’s room for it to act as a demand sink for certain specific developing countries, provided its done in a more controlled manner than the neoliberal bonanza of the 90s and 00s.
Because of that, whilst I would definitely be in favour of the US, CANZUK and EU cutting out China almost entirely and significantly curtailing other East Asian nation’s access, I would still like to see the US maintain strongly preferential access to CAFTA-DR and to a lesser extent South America (and potentially Liberia as a wild card), with the EU doing the same for ECOWAS and ECCAS, and the East Asian Tigers switching over to consumption to substitute partially for the US in SE Asia. CANZUK also needs to become a thing (ideally incorporating Sierra Leone into the core grouping), and then team up with the likes of Malaysia, Sri Lanka and others to serve as a demand sink for Commonwealth East and Central African nations plus Ghana and The Gambia.
Just because the system has been abused doesn’t necessarily absolve the US of having a duty to assist in international development, and given that most standard cheap EOI fodder like textiles isn’t suitable for demand rebasing anyway, there’s no reason why it should conflict with its current objectives.
well said and reasonable. i see a lot of comments for and against Cass that are super binary and i just don't get it cause any way you look at it we botched our China policy and these conversations are long overdue. seems obvious that if we stay on the current path we are due for an ugly reckoning. Summers argues that the next big tech boom going to be so amazing that it will allow us to retire our debts as long as we act responsibly and massively increase taxation...but earth being a bounded system it seems pretty clear that the present path is unsustainable.
I’m torn whether people like Summers thinks if we're ever in a kinetic conflict with our enemies they will sell us the weapons we need to fight them, or he just knows he is in a good position to cut an advantageous deal with their leaders in exchange for selling the rest of us out.
Oren Cass's article is certainly thought-provoking-- in large measure because it oversimplifies the landscape of trade and production (manufacturing and agricultural). The U.S. is currently in the process of decimating foreign markets for goods we currently produce (would you buy an F-35 from Uncle Sam today?). Throttling developing economies in huge markets for our exports today and in the future (Africa, South America) is self-defeating divestment strategy. The long lead time for expanding industries to shift from offshore to domestic producers means that domestic demand will not have an alternative to existing suppliers for years (if ever), with costs increased because of tariffs and competition for materials (building materials to rare earths). How will those costs be recouped? Through higher prices that will make domestic goods as expensive as foreign, especially as U.S. labor is more expensive and in short supply. Destruction of the U.S, advantages in scientific research and development, higher education and K-14 education, means that our main engine of wealth--creativity, innovation, knowledge, and applications--will make it impossible to do anything other than replicate the industries of the past. We will cede the future to other nations.
I find it interesting that smart folks like Oren don’t even bother responding to these kinds of pushbacks. They are so locked in and doctrinaire about this that there’s no disabusing them off the hard line.
It's wrong to assume that Cass supports the specifics of Trump's program. Industrial policy and trade policy require a reset but neither party is up to the task. The Dems need to openly purge Progressive manias and engage on these issues. I see no indication that this is happening.
Oren, your Republican party I would join. The old neo liberal libertarian party I will not and left in 1990. Hope you youngsters can pull this off. Tell the old ones, we have not benefited from your old economic/ global order system that you all did. We have to move on to a better one for us. Please help or get out of the way. We are in a war for our survival.
IF NOT, then as we continue our decline, we will definitely lose reserve status and become a 2nd tier nation like Brazil and Argentina. Then we will have to go back to work again if we can and our owner or the new hedgemon lets us?
An important point that needs more examination is how do we get to a point where we have a competitive landscape to the new US manufacturer to US consumer market. It sounds like we need to split up existing leading American manufacturers to ensure that the market to American consumers has competition to encourage price declines. Without this American manufacturers are going to immediately raise prices to match the new imports+tariffs prices. This will not meet the objective of market share going to American companies, it will just result in internal inflation. The more barrier to entries in an industry the more aggressive the splitting up to ensure multiple us producers needs to be. Otherwise we are at the mercy of foreign companies to direct manufacturing into the US, this is always going to result in them maintaining some manufacturing out of the US and then therefore a weekening of those market forces.
The recommended piece at American Affairs (Julius Krein's "The Lessons of Liberation Day") is excellent- it provides a great summary of the missteps of the Trump administration, and echoes this bit from Oren, which is the key concept:
"[T]he top priority and major opportunity for the United States is not higher exports, it is recovering the capacity to meet domestic demand with domestic supply. "
I agree with a lot of the comments here but want to add something I rarely ever hear discussed. As a rapidly developing economy during the post-war period, isn’t it expected that as the country (not everyone of course as capitalism by definition leaves some behind) becomes wealthier, it’s ‘production’ would rebalance to higher value-add, higher tech, more services, and less menial, labor intensive work. Isn’t this how it has always been as economies grow wealthier?
So if that’s at all true, and even if it’s not completely true, why hasn’t education kept pace? Why do we have this apparently massive demand from a relatively large population (10-15% of the over-18 age group is the range I seem to find) of workers look for low to moderate skilled manufacturing work. Shouldn’t our schools be graduating more students and preparing them for the highly skilled or innovation-heavy jobs befitting the most prosperous economy in the world?
Quote:"This assumption makes good sense in the typical developing-country situation where the domestic market is small . . ."
"Where the domestic market is small "is the key clause in this argument. The American domestic market, so far from being small, is by far the largest in the world. In fact foreign trade, even to this day, represents a relatively small part of the overall US economy. Companies that can successfully compete in a US market shielded from low-wage competition coming from poor countries overseas, will do very well. It doesn't matter whether they can compete in markets overseas, especially in third-world markets overseas.
Ideally, of course, you would still prefer to have low or no tariffs on goods manufactured in other advanced industrial democracies, where workers enjoy roughly the same high wage-and-labor standards that we have long enjoyed in America.
As a physicist, nothing short-circuits my brain faster than watching internationally acclaimed economists skip the basic step of defining and bounding the system before sprinting into their little sandbox models. The giveaway? Summers holding up Argentina like it's some kind of universal cipher. Newsflash: in 2000, China wasn’t plotting its rise by cracking the code to Argentina’s red-hot consumer demand. But hey, if we’re taking Summers seriously, let’s go all in—mobilize the nation, hand Elon Musk the keys to the Treasury, and fast-track our export strategy for the booming Martian middle class.
(Disclaimer: This is not an endorsement of what Trump is doing. On the other hand it is perfectly clear that serious conversations like these cannot and will not happen until something forces the issues...perhaps a populist bull-in-the-China model is just what the doctor ordered. Thanks Oren for your important work.)
Oren, thank you for making measured non-demagogic arguments for the so-called new-right movement. I was struck by the end of your interview with Jon Stewart where he called the system you’re describing, Socialism and you didn’t really push back. Is it a fair way to describe your thought process? Do you see yourself pulling conservatism more towards Left or is that a mischaracterization?
So much of the discussion to date has focused on efficiency and prices, but there is no mention of the benefits of competition on the offerings to consumers based on quality. One of the benefits we have seen from open markets is competition on quality. Who remembers the quality of appliances and cars in the 70’s?
I certainly do!!! We got dragged to the woodshed and I think we got the message. Everywhere I go I hear all about lean manufacturing and all my business affiliates have become experts in the Japanese school of manufacturing. And it works! In many ways I think everyone the world over learned the lesson and thank G_d for that, I bought a mexican made P-bass that is amazingly tight and way better than American made units from the 80's. Meanwhile I have been buying my blue jeans from Origin Maine and they are the best quality clothing I have ever owned. :) :)
I don't know why more folks haven't raised the American System through its various iterations from Hamilton to Clay and McKinley. I also don't know why more people aren't raising the point that a portfolio approach to economic development is inherently more stable than a comparative advantage approach to economic development. In the latter, if Boeing has a down year, 1970s Seattle is decimated, in 2020s Seattle, when you have CostCo, Starbucks, Microsoft, etc. it's much less so.
Hmm.. ok. What does the economics text say about having a free market and pricing where some participants can use slave labor and is from the get go - sitting on 95% on mining and or refining of rare earth minerals. The west has to come together to match the Chinese - Europe is as screwed as USA when it comes to supply lines.
Competing in global markets is a the specific path by which domestic firms become competitive. Even if they don't successfully take over the world. If the author can think of a way to stimulate competition behind a protective wall, that would be an important innovation. Not trivial to do.
I'm afraid you'd more likely end up with a situation analogous to the US auto industry, which despite global integration and occasional assistance from the federal gov, figured out that the money is in semi-protected segment of light trucks and SUV's, but on the whole remained a laggard in quality and innovation by global standards.
In 2021, manufactured goods accounted for 61.5% of U.S. goods exports and 11.1% of the total value of U.S. exports was derived from foreign inputs. Tariffs will hurt exports. If our exported goods are not competitive, production scale will drop significantly and prices will rise dramatically. Also, the Trump tariffs are in direct violation of hundreds, perhaps thousands, of trade agreements. This has led many countries to look for trade partners that are more trustworthy than the U.S. That will also reduce sales for U.S. manufacturers, reducing production scale and driving up unit costs for American consumers--probably by more than the cost added by the tariffs. What do countries with a trade surplus do with that trade surplus? They invest in U.S. bonds, stocks, and other American assets. That has been extremely beneficial for the U.S. Without that investment, interest rates will rise.
Good piece. Personally, I’d like to draw attention to this bit in particular:
“There has been no next wave of export-led development following on the East Asian success.”
Whilst it has been abused in recent years, as far as I can tell, with the exception of the UK and a few oil rich countries, EOI is by and large the only way countries have ever developed - even the US had to use the UK’s markets to industrialise before successfully switching to a consumption-led model (ironically using the exact same asymmetric abuse of free markets that East Asian states used themselves). As such, whilst the US definitely needs to rebase its advanced demand domestically, I still think there’s room for it to act as a demand sink for certain specific developing countries, provided its done in a more controlled manner than the neoliberal bonanza of the 90s and 00s.
Because of that, whilst I would definitely be in favour of the US, CANZUK and EU cutting out China almost entirely and significantly curtailing other East Asian nation’s access, I would still like to see the US maintain strongly preferential access to CAFTA-DR and to a lesser extent South America (and potentially Liberia as a wild card), with the EU doing the same for ECOWAS and ECCAS, and the East Asian Tigers switching over to consumption to substitute partially for the US in SE Asia. CANZUK also needs to become a thing (ideally incorporating Sierra Leone into the core grouping), and then team up with the likes of Malaysia, Sri Lanka and others to serve as a demand sink for Commonwealth East and Central African nations plus Ghana and The Gambia.
Just because the system has been abused doesn’t necessarily absolve the US of having a duty to assist in international development, and given that most standard cheap EOI fodder like textiles isn’t suitable for demand rebasing anyway, there’s no reason why it should conflict with its current objectives.
well said and reasonable. i see a lot of comments for and against Cass that are super binary and i just don't get it cause any way you look at it we botched our China policy and these conversations are long overdue. seems obvious that if we stay on the current path we are due for an ugly reckoning. Summers argues that the next big tech boom going to be so amazing that it will allow us to retire our debts as long as we act responsibly and massively increase taxation...but earth being a bounded system it seems pretty clear that the present path is unsustainable.
I’m torn whether people like Summers thinks if we're ever in a kinetic conflict with our enemies they will sell us the weapons we need to fight them, or he just knows he is in a good position to cut an advantageous deal with their leaders in exchange for selling the rest of us out.
Oren Cass's article is certainly thought-provoking-- in large measure because it oversimplifies the landscape of trade and production (manufacturing and agricultural). The U.S. is currently in the process of decimating foreign markets for goods we currently produce (would you buy an F-35 from Uncle Sam today?). Throttling developing economies in huge markets for our exports today and in the future (Africa, South America) is self-defeating divestment strategy. The long lead time for expanding industries to shift from offshore to domestic producers means that domestic demand will not have an alternative to existing suppliers for years (if ever), with costs increased because of tariffs and competition for materials (building materials to rare earths). How will those costs be recouped? Through higher prices that will make domestic goods as expensive as foreign, especially as U.S. labor is more expensive and in short supply. Destruction of the U.S, advantages in scientific research and development, higher education and K-14 education, means that our main engine of wealth--creativity, innovation, knowledge, and applications--will make it impossible to do anything other than replicate the industries of the past. We will cede the future to other nations.
I find it interesting that smart folks like Oren don’t even bother responding to these kinds of pushbacks. They are so locked in and doctrinaire about this that there’s no disabusing them off the hard line.
It's wrong to assume that Cass supports the specifics of Trump's program. Industrial policy and trade policy require a reset but neither party is up to the task. The Dems need to openly purge Progressive manias and engage on these issues. I see no indication that this is happening.
I would point to Eastern Europe as an area that has done well with export lead development over the past 30 years along with the Carolina’s.
Definitely. And its a good point. But that seems like a one way street since the entire eastern Europe economy is roughly 1/42 the size of ours.
Oren, your Republican party I would join. The old neo liberal libertarian party I will not and left in 1990. Hope you youngsters can pull this off. Tell the old ones, we have not benefited from your old economic/ global order system that you all did. We have to move on to a better one for us. Please help or get out of the way. We are in a war for our survival.
IF NOT, then as we continue our decline, we will definitely lose reserve status and become a 2nd tier nation like Brazil and Argentina. Then we will have to go back to work again if we can and our owner or the new hedgemon lets us?
An important point that needs more examination is how do we get to a point where we have a competitive landscape to the new US manufacturer to US consumer market. It sounds like we need to split up existing leading American manufacturers to ensure that the market to American consumers has competition to encourage price declines. Without this American manufacturers are going to immediately raise prices to match the new imports+tariffs prices. This will not meet the objective of market share going to American companies, it will just result in internal inflation. The more barrier to entries in an industry the more aggressive the splitting up to ensure multiple us producers needs to be. Otherwise we are at the mercy of foreign companies to direct manufacturing into the US, this is always going to result in them maintaining some manufacturing out of the US and then therefore a weekening of those market forces.
The recommended piece at American Affairs (Julius Krein's "The Lessons of Liberation Day") is excellent- it provides a great summary of the missteps of the Trump administration, and echoes this bit from Oren, which is the key concept:
"[T]he top priority and major opportunity for the United States is not higher exports, it is recovering the capacity to meet domestic demand with domestic supply. "
I agree with a lot of the comments here but want to add something I rarely ever hear discussed. As a rapidly developing economy during the post-war period, isn’t it expected that as the country (not everyone of course as capitalism by definition leaves some behind) becomes wealthier, it’s ‘production’ would rebalance to higher value-add, higher tech, more services, and less menial, labor intensive work. Isn’t this how it has always been as economies grow wealthier?
So if that’s at all true, and even if it’s not completely true, why hasn’t education kept pace? Why do we have this apparently massive demand from a relatively large population (10-15% of the over-18 age group is the range I seem to find) of workers look for low to moderate skilled manufacturing work. Shouldn’t our schools be graduating more students and preparing them for the highly skilled or innovation-heavy jobs befitting the most prosperous economy in the world?
Quote:"This assumption makes good sense in the typical developing-country situation where the domestic market is small . . ."
"Where the domestic market is small "is the key clause in this argument. The American domestic market, so far from being small, is by far the largest in the world. In fact foreign trade, even to this day, represents a relatively small part of the overall US economy. Companies that can successfully compete in a US market shielded from low-wage competition coming from poor countries overseas, will do very well. It doesn't matter whether they can compete in markets overseas, especially in third-world markets overseas.
Ideally, of course, you would still prefer to have low or no tariffs on goods manufactured in other advanced industrial democracies, where workers enjoy roughly the same high wage-and-labor standards that we have long enjoyed in America.
As a physicist, nothing short-circuits my brain faster than watching internationally acclaimed economists skip the basic step of defining and bounding the system before sprinting into their little sandbox models. The giveaway? Summers holding up Argentina like it's some kind of universal cipher. Newsflash: in 2000, China wasn’t plotting its rise by cracking the code to Argentina’s red-hot consumer demand. But hey, if we’re taking Summers seriously, let’s go all in—mobilize the nation, hand Elon Musk the keys to the Treasury, and fast-track our export strategy for the booming Martian middle class.
(Disclaimer: This is not an endorsement of what Trump is doing. On the other hand it is perfectly clear that serious conversations like these cannot and will not happen until something forces the issues...perhaps a populist bull-in-the-China model is just what the doctor ordered. Thanks Oren for your important work.)
Oren, thank you for making measured non-demagogic arguments for the so-called new-right movement. I was struck by the end of your interview with Jon Stewart where he called the system you’re describing, Socialism and you didn’t really push back. Is it a fair way to describe your thought process? Do you see yourself pulling conservatism more towards Left or is that a mischaracterization?
So much of the discussion to date has focused on efficiency and prices, but there is no mention of the benefits of competition on the offerings to consumers based on quality. One of the benefits we have seen from open markets is competition on quality. Who remembers the quality of appliances and cars in the 70’s?
I certainly do!!! We got dragged to the woodshed and I think we got the message. Everywhere I go I hear all about lean manufacturing and all my business affiliates have become experts in the Japanese school of manufacturing. And it works! In many ways I think everyone the world over learned the lesson and thank G_d for that, I bought a mexican made P-bass that is amazingly tight and way better than American made units from the 80's. Meanwhile I have been buying my blue jeans from Origin Maine and they are the best quality clothing I have ever owned. :) :)
I don't know why more folks haven't raised the American System through its various iterations from Hamilton to Clay and McKinley. I also don't know why more people aren't raising the point that a portfolio approach to economic development is inherently more stable than a comparative advantage approach to economic development. In the latter, if Boeing has a down year, 1970s Seattle is decimated, in 2020s Seattle, when you have CostCo, Starbucks, Microsoft, etc. it's much less so.
Hmm.. ok. What does the economics text say about having a free market and pricing where some participants can use slave labor and is from the get go - sitting on 95% on mining and or refining of rare earth minerals. The west has to come together to match the Chinese - Europe is as screwed as USA when it comes to supply lines.
Don’t post non sense
Competing in global markets is a the specific path by which domestic firms become competitive. Even if they don't successfully take over the world. If the author can think of a way to stimulate competition behind a protective wall, that would be an important innovation. Not trivial to do.
I'm afraid you'd more likely end up with a situation analogous to the US auto industry, which despite global integration and occasional assistance from the federal gov, figured out that the money is in semi-protected segment of light trucks and SUV's, but on the whole remained a laggard in quality and innovation by global standards.
In 2021, manufactured goods accounted for 61.5% of U.S. goods exports and 11.1% of the total value of U.S. exports was derived from foreign inputs. Tariffs will hurt exports. If our exported goods are not competitive, production scale will drop significantly and prices will rise dramatically. Also, the Trump tariffs are in direct violation of hundreds, perhaps thousands, of trade agreements. This has led many countries to look for trade partners that are more trustworthy than the U.S. That will also reduce sales for U.S. manufacturers, reducing production scale and driving up unit costs for American consumers--probably by more than the cost added by the tariffs. What do countries with a trade surplus do with that trade surplus? They invest in U.S. bonds, stocks, and other American assets. That has been extremely beneficial for the U.S. Without that investment, interest rates will rise.