Don’t Think the Globalization Debate Is Over? Watch This Video.

And more from this week...

I hope you weren’t expecting some mushy paean to thankfulness today. Far too much going on out there, so let’s jump right in. Your one thing to read this week is something to watch, actually: the Cato Institute’s new video series, “Faces of Globalization.”

The project appears to represent a major investment for Cato—they even sent a film crew to Guatemala—and the final product is fascinating. Here is their best possible case for globalization, made with the most compelling examples they could find around the world, and it is a total capitulation. It acknowledges the costs of the free-trade regime that Cato has advanced, fails to find the promised benefits, and then just wanders off into the sunset. It’s important to watch these videos to understand just how fully their position has collapsed.

Scott Lincicome, Cato’s vice president of general economics and our guide for this journey, begins the hastily beaten retreat with the very first words of the introductory video:

Globalization is a common term that’s commonly misunderstood. When we hear we think of container ships, terms like trade deficit, or dry governmental agreements. But what if I told you that real globalization is the people working at your local restaurant, or the ones behind your favorite TV show?

Well, Scott, I’d say that’s ridiculous, and the sort of thing you tell someone when you’ve spent 25 years pitching a catastrophically failed version of globalization and now want to change the subject. You see, the reason we think of governmental agreements and trade deficits is because those are the major mechanisms and effects of globalization, they are what the debates are about, and they are what has eviscerated American industry, hollowed out communities across the country, and devastated millions of lives. And you don’t have to take my word for it, because we learn more about all this in the next video in the series.

In “From Textile Town to Ghost Town to Car Town,” Cato tells the story of West Point, Georgia, which was crushed by NAFTA, the “dry governmental agreement” we saw President Bill Clinton signing in the first video. “Over 100 years we’ve been a textile town,” says West Point’s mayor. “The North American Free Trade Agreement basically put that out of business, and West Point became a ghost town.” Adds Lincicome, “textile companies that had been in West Point for 100 years left for places where the cost of labor was cheaper.”

But after nearly 20 years of economic distress, a Kia plant opens, bringing the town back to life. With the return of manufacturing and the broader supply chains it attracted, the local pizza parlor is doing better too. “The very same forces that once challenged West Point are fueling its rebirth today and supporting thousands of Americans in the process,” explains Lincicome. “It shows that globalization’s story doesn’t just end after a disruptive event, it’s constantly changing, and usually for the better.” Mmhmm.

What are the actual lessons of the story here? Well, one is that free trade really does impose catastrophic costs—Ross Perot’s “giant sucking sound” was real, and Cato went and made a video about it. Another lesson, which economists regularly ignore, is the importance of manufacturing at the foundation of a local economy. When the textile industry left, people couldn’t all just go into “services” and make pizza for each other. It took the appearance of a new industrial “anchor” to bring the economy back to life.

Most important, though, the story doesn’t end with a new factory that actually delivers the supposed benefits of a trade deal like NAFTA or welcoming China into the WTO. Recall, the premise of free trade is that producers in each country can specialize and sell their goods to each other’s buyers. As Nobel laureate Robert Solow put it, mocking opponents of China’s WTO accession from a White House podium:

The same fear of loss of jobs and outflow of capital has been expressed over the years with respect to other Third World countries, to other poor countries, and here we are in the U.S. now with the lowest unemployment rate in God knows how long. China will compete for some low-wage jobs with Americans. And their market will provide jobs for higher wage, more skilled people. And that’s a bargain for us.

Surely, somewhere in America, a factory brought a town back to life with “jobs for higher wage, more skilled people” making products for the Mexican or Chinese market. If there is one, Cato couldn’t find it. The Kia plant isn’t a significant exporter; more than 90% of the cars it makes are for sale within the United States.

Isn’t Korean investment in the United States “globalization” too? Of a kind. But it’s not the kind facilitated by low trade barriers, leveraging comparative advantage, and so on. To the contrary, without free trade, Kia could still have set up a plant in Georgia to serve the American market, in fact it would have been more likely to do so. Protectionist policy in the Reagan administration is what brought Asian car makers to the American South in the first place, back in the day, because they couldn’t just import their cars from abroad. China’s protectionism is what spurred Tesla to move its manufacturing hub to Shanghai, helping set off that country’s EV boom.

Insofar as globalization means foreign firms setting up shop in new countries to serve their domestic markets, it can indeed bring substantial benefits. No surprise, then, that’s what the Cato Institute would like to spotlight. Unfortunately, that’s not what globalization has in fact meant, or for the most part delivered. Under the model promoted at Cato, the United States runs a $1 trillion trade deficit, representing foreign production serving American consumers in lieu of anything at all being produced here. Meanwhile, Foreign Direct Investment in new projects totals only $5 to $10 billion per year. (Incidentally, the leading source of new investment these days is in semiconductors, thanks to the CHIPS Act, which folks like Lincicome oppose.)

What the free-traders are doing here is the equivalent of pitching “defund the police” for 25 years and then, amidst an unprecedented epidemic of crime and disorder, making a nice video about the benefits of community policing.

Cato’s other two stories require far less discussion, because they don’t even try to show globalization somehow benefiting Americans. “More Than Just a ‘Cheap T-Shirt’” depicts the wonders of globalization for Guatemalans when, unlike with Kia in Georgia, free trade does lead to new opportunities. “Factories in places like Guatemala often take flak for using low wage labor to steal American jobs, but that’s not the full story,” says Lincicome, and the viewer assumes he is about to try and make a case that the factories do not in fact steal American jobs. But no, that part seems true. The full story is that “cheap t-shirts and other imports don’t just help Americans stretch their budgets, they’re also a lifeline for millions of others in some of the world’s poorest places.” Globalization: cheap stuff and jobs for others somewhere else.

Indeed, the narration continues, “a U.S. free trade agreement, the same kind of deal that challenged [i.e., crushed] places like West Point Georgia, helped nurture the textile business in Guatemala.” Points for honesty here—not even a claim of a win-win, just a straightforward tradeoff where policymakers can crush American communities to support ones in Guatemala. And that’s a tradeoff the Cato Institute wants them to make.

Finally, we get to “Globalization for Fun and Profit,” which explains that “gamers are the new, fresh faces of digital trade and 21st-century globalization.” Honestly, you can skip this one if you want, it doesn’t have anything to do with globalization, it’s just about people who like playing video games against people in other countries, which, I mean, OK, sure. But for entertainment value, it’s worth a click.

You’ll meet “Jaron, who makes enough money streaming video that she can quit her job to pursue her bigger dream of being an on-camera gaming personality.” As Jaron explains:

I can see why people are so confused about this world because it’s just totally nonsensical. It’s the Internet. I’m talking to myself, if you think about it, for hours on end, looking at a camera. But in a sense it feels like there’s people there because they’re commenting on everything that’s going on.

Remember, Cato scoured the economy and the globe for the most compelling examples of globalization’s successes and value. This is what’s available.

One line from the introductory video most stuck with me. Describing Whitney, a young woman working at the Kia plant in Georgia, Lincicome says, “her working there gives Whitney's son opportunities she never had, thanks to globalization.” In the West Point video, we learn that Whitney’s son is five, about the same age she was when NAFTA was signed and her town gutted. So indeed, thanks to globalization, she missed out on a great many opportunities… but somehow I don’t think that’s what Lincicome meant.

THIS WEEK AT AMERICAN COMPASS

A Great Time to Restrict Outbound Investment: “One does not need to be a central planner or a war hawk to recognize that the principle of ‘free markets’ should not extend to investments in the military and surveillance technologies of America’s greatest adversary,” argues American Compass’s Mark DiPlacido. “Outbound investment restrictions for obviously strategic technologies are an eminently reasonable baseline that would undoubtedly pass overwhelmingly on a bipartisan basis if given a vote.”

The Rise of the Pro-Worker Republican: “That Trump has married his proposed tariffs and hawkish immigration policy with such an aggressively pro-labor secretary for the Department of Labor shows how serious he is about representing the working-class Americans who gave him his victory,” writes Newsweek’s Batya Ungar-Sargon.

Breaking China’s Pharma Death Grip: “There is perhaps no other instance in history of a great power relying on its main adversary for its medicine,” warns the Vandenberg Coalition’s Ben Noon. “Depending on China for goods essential to the daily well-being of the American public invites Beijing to flex that leverage to inflict a strategic defeat on the United States. Washington should not wait to see where and when China might do so.”

And, on the American Compass Podcast this week, Dr. Leonard Sax, author of The Collapse of Parenting, joins me to discuss the politicization of parenting and the importance of finding an authoritative middle ground.

WHAT ELSE SHOULD YOU BE READING?

Still in Denial… the New York Times’s Talmon Joseph Smith interviewed Jared Bernstein and finds Biden’s Chief Economist Processes the Election With ‘Confusion, Guilt’

First of all, kudos to Smith for introducing the interview by noting that Bernstein was “calling in from Paris on Friday after serving as chair of an economic meeting of the Organization for European Economic Cooperation at the Château de la Muette.” Really sets the tone. But most interesting to me is Bernstein’s continued insistence that “we get up every day and try to realize the president’s vision of helping the working class” was “basically our agenda for four years.” The administration’s highest-profile initiatives were hundreds of billions of dollars in climate spending, waving millions of migrants competing for low-wage jobs and requiring public services into the country, and trying to forgive as much as $1 trillion in student debt. If that’s your agenda, fine, defend it. But professing to then be confused by its reception among ordinary Americans somehow makes the whole debacle look even worse.

This Is an Intervention… NPR Boston wants you to know What’s In the New Mass. Climate and Clean Energy Law

Speaking of conflicted agendas, this NPR report captures the contradiction at the heart of progressive efforts at “building,” especially when it comes to clean energy. “Massachusetts needs to build a lot of new renewable energy infrastructure—and quickly—to stay on track with its climate plans,” according to the section headed “cutting red tape.” But one of the top items here is “community engagement,” including a new “Office of Environmental Justice and Equity, to help individuals, community groups and municipalities participate in the siting and permitting process,” an “Intervenor Trust Fund to help those stakeholders pay for lawyers and independent experts,” and a new “cumulative impact analysis” that “will go beyond traditional environmental assessments” and “examine whether a community has experienced a lot of industrial development in the past, and how this new project might add to that burden.” In other words, fighting climate change and deploying clean energy is absolutely the most important thing, except for all the other progressive priorities that still take precedence.

Supply and Demand… the Financial Times’s Martin Wolf says Manufacturing Fetishism Is Destined to Fail

Wolf tries to pin the blame for the decline of American manufacturing on consumers, suggesting that it is the shift in demand toward services that explains the labor market’s evolution. But this is very obviously false. Demand for manufactured goods is filled, to a first approximation, by domestic manufacturing output, minus whatever of that output is exported, plus whatever foreign manufacturing output is imported. If exports and imports were balanced, then domestic output would indeed rise and fall with domestic demand. But as loyal Understanding America readers are aware, we have a $1 trillion trade deficit. Consumer demand for manufactured goods wildly exceeds domestic output; or, put another way, if the domestic manufacturing sector were meeting that domestic demand (or meeting foreign demand to the same extent foreign supplies are meeting domestic demand), domestic manufacturing would be as prominent as it was before the post-China-WTO collapse.

Strangely, Wolf seems to know this, and in fact acknowledges it in his “to be sure” paragraph. “The overall US deficit in goods has been around 4 per cent of GDP since just after the 2008 financial crisis. If that were eliminated…, it would indeed increase domestic output of goods. But the very most it is likely to do is to bring employment shares to the levels of a decade or two ago.” Indeed, it would probably bring employment back to the level before we pursued free trade with China and employment fell by one-third. Perhaps “it is so much easier to blame the disappearance of these US jobs on China than on domestic consumers” because that’s who is to blame.

Marco… Polo… the Washington Post reports Location-sharing is making us miserable. It’s time to say ‘no.’

I’m endlessly fascinated by the difficulties that people have navigating decisions and tradeoffs where clear, long-standing norms do not set clear guidelines and boundaries. Presumably, the social meltdown precipitated by the challenge of coping with a pandemic will always be the primary case for my generation. But introduction of new technologies is another place where examples frequently pop up. The terrible judgment and associated strains always go to show that people are not welfare-maximizing rational actors but flawed and limited actors who need strong institutional supports and constraints to flourish.

And For Dessert… at The Atlantic, Caitlin Flanagan investigates The Democrats’ Billionaire Mistake

Just an enormously fun piece from start to finish, very much worth your time. “This is one of the things that white celebrities do best: forge a bond with members of a marginalized community, and then tell them what to do. But this time, it didn’t work.”

Enjoy the weekend!