Fareed Zakaria Has No Idea What He's Talking About

And more from this week...

To start on a positive note, your one thing to read this week is Amber Lapp’s spectacular essay in Commonplace on America’s Missing Men. Lapp, who lives in southwestern Ohio, goes behind the statistics on young men’s struggles and deaths of despair to tell the stories of the young men on her own street. Go read it. Then come back, because…

Your One Thing Not To Read this week is Fareed Zakaria’s column in the Washington Post, arguing that Trump’s Manufacturing Dream Is a Mirage. Technically, this was published at the end of last week. But you shouldn’t read it this week either, or at least you should read it with appropriate disdain, because it so perfectly captures everything wrong with the self-satisfied, know-nothing neoliberalism that passes for sophisticated punditry among American elites.

I received multiple requests to discuss this so, sorry, we’re going to have to go through the whole thing:

Manufacturing’s Share. “The idea that America should make more things,” Zakaria begins, conjures “huge factories belching smoke,” which he describes as “an image of the past, not the future.” His evidence for this is that “most advanced economies in the world today are almost all dominated by services.” Take the United States, where U.S. consumers allot “only 33 percent” of consumption to goods. By comparison, manufacturing employment is “less than 10 percent.”

Hmm. So in fact, demand for goods is massively larger than our economy’s production of them. If we produced in proportion to what we in our advanced economy consume, the manufacturing sector be massively larger. (Note: His comparison of goods consumption to manufacturing employment is somewhat inapt, better approach here.)

Manufacturing’s Importance. Zakaria also suggests that we focus on “America’s distinctive exports to the world,” which he says are services rather than goods. It is admittedly the case that, with the humiliating failures of industrial crown jewels like Boeing, Intel, and General Electric, and the broad deindustrialization of the heartland, we are rather lacking in distinctive goods exports. What’s not clear is why that’s a good thing.

Rather embarrassingly, his link to our “distinctive services” is a Biden White House report, which highlights that “manufacturers are an important source of the U.S. comparative advantage in digitally-enabled services.” It notes that “manufacturers are the second largest exporter of digitally-enabled services after the finance and insurance sector” (yes, larger than the “information” sector), and that “U.S. manufacturers account for 54 percent of overall industrial R&D, which is a key input into goods production as well as service solutions.” Seems important. The fact that our trade deficit in goods is four times larger than our trade surplus in services seems important too.

World’s Worst Business Analyst. Also in support of services, Zakaria puts forward one of the strangest economic analyses I’ve seen in a major newspaper: “And the money for companies is not in goods but services. A sneaker might cost 25 or 30 dollars to make; the value is in the design, marketing and sales that allows you to sell it for $100. Which part of this product would you rather your workers be involved in?”

• The share of value-add at various points in the supply chain doesn’t determine which part workers want to participate in. You’d want to know about productivity levels for various processes, the skills required, the conditions, and so on.

• Why sneakers? They hardly seem the archetypical product of the modern industrial economy. Wouldn’t the share of production cost in the retail price of a car, airplane, or advanced computer chip be more useful?

• Most importantly for purposes of underscoring the column’s failure, this is not how the sneaker business works! A good rule of thumb is that for an apparel product like a sneaker, the retail markup is at least 2x. Meaning, if you pay $100 for the sneaker, Nike is only getting $50. (Here’s a good breakdown from WearTesters and Matthew Kish.)

Zakaria gets the “$25 to $30 to make” correct, so I guess he has that going for him. But the jobs at Nike in “design, marketing and sales,” which would fall under “SG&A,” account for maybe $15 (i.e., much less). The rest is the wholesaler, the warehousing, the logistics and transportation, the operation of the retail business, everyone’s profit margin… if you want to know where the workers who lose manufacturing jobs go, as I discussed on this week’s American Compass podcast with David Autor, it’s into those precarious and lower-paying retail jobs; not marketing and design at Nike.

To be clear, “let me pick a random industry and tell you about what share of its value-add is in manufacturing” is an awful way to analyze industry value and job quality. But if you do want to do that, and you do want to choose sneakers, you still end up making exactly the opposite of Zakaria’s attempted point.

What About Japan? Zakaria’s big example is Japan. “Japan is particularly important as a case study because it did pretty much everything that Trump wishes that the U.S. had done over the past 60 years.” Listing high tariffs, industrial policy, veneration of manufacturing, and an educational system that prized technical skills as the Japanese formula, he suggests “many Japanese industries declined because of these policies.” Hoo boy.

Let’s start here: Zakaria’s first “high tariffs” link goes to an L.A. Times story from 1994 that notes, “in 1972, Japan had the world’s second-highest tariffs—an average of 11%—on manufactured goods, after Britain. Now, it maintains the lowest average—1.9%—of any advanced nation.” So, in other words, Japan’s economic decline coincide quite closely with the period after it had adopted low tariffs.

Likewise, on industrial policy, Zakaria has his timeline backward. I was struck during my conversations with Japanese officials last week how much frustration they direct toward the United States and the neoliberal “Washington Consensus,” which they say they drove them away from industrial policy in the 1990s, a choice for which they are now paying the price (and working to reverse).

But you don’t have to take my word for it. Zakaria’s second “high tariffs” link goes to a new paper making exactly this point, that “after steadily declining in intensity and prominence from the 1980s through the 2010s, industrial policy took on a new importance in 2020.” On the matter of Japanese tariffs, the paper explains, “Rather than protecting the domestic market with tariffs, [Japan]’s trade policy increasingly focused on promoting bilateral, regional, and global trade and investment agreements.” Who is providing him with these links?

The truly bizarre turn comes when Zakaria tries to make things concrete: “Government bureaucrats favored certain sectors — such as VHS tape recorders and Walkman-style audio players — and missed the technological shifts that rendered them obsolete.” Ah yes, who can forget when VHS gave way to the DVD technology pioneered by [checks notes] Sony and Toshiba, or the competing push for Blu-Ray from Panasonic and Sharp? Indeed, as the New York Times reported in 2000, “the DVD story is an unusual twist to the globalization trend, where most companies score in home markets first and expand abroad later. Instead, Japanese makers are trying to duplicate their U.S. success in Japan.”

And funny thing about the iPod, its origin story begins in Tokyo with a visit to Toshiba, Apple’s hard-drive supplier, which had just developed a much smaller drive. The Toshiba hard drive was by far the costliest component of the iPod, three times more expensive than any other and accounting for one-quarter of the sale price. This is pretty common knowledge. Honestly, how do you try to come up with an example of declining Japanese dominance and land on DVD players and MP3 hard drives? And then attribute the (non-existent) failure to (phased-out) industrial policy?

No, the truth, and the problem for Zakaria, is that Japan was experiencing its own China-dominated hollowing out of its manufacturing ecosystem, as it attempted to pursue the neoliberal model of globalization promoted by folks like Zakaria. Japanese companies were in the lead, they just weren’t manufacturing in Japan any more.

I commend to you in full this fine article written for the New York Times in 2002 by James Brooke (who, incredibly, now lives in the same rural Massachusetts town as me!): Japan Braces for a 'Designed in China' World. As Brooke explained:

In recent decades, Japanese companies invested to make China the "factory to the world." In recent months, Japan's blue-chip manufacturers announced investments to make China the “design laboratory to the world.”

…

The crumbling of an informal wall that long kept assembly in China and research here may spell the end of Japan's last great competitive advantage over its low-wage neighbor. And it is yet another step in China's rise, one that means both new opportunities and wrenching change for Japan, which has lately been coasting on wealth built up in earlier, high-growth decades.

…

As more and more Japanese manufacturing migrates to China, the research and development activity is gradually following, to be close to production.

This is also the story of Silicon Valley, as told by Intel’s Andy Grove, which I addressed in depth back in October. Indeed, it’s an eerily prescient foreshadowing of the path the United States was beginning to trod down, cheered along by… well you get the point.

And Some Tropes for Good Measure. Zakaria closes on a few of the least compelling tropes available. First he notes that “professional and business service jobs pay an average of $43.60 per hour in the U.S. compared with $34.83 for the average manufacturing job,” as if the workers in these two fields are interchangeable and these are just two career paths between which your typical young man without a college degree might choose.

Then he gives us, “in a free market, people and countries are forced to specialize, moving to those things they can do best,” as if an international trading system dominated by China and distorted by widespread mercantilism is a “free market,” and as if the U.S. is benefiting from specialization rather than suffering from a sector-gutting trillion-dollar trade deficit. Taiwan just has a comparative advantage in advanced semiconductor manufacturing, I guess. Something in their soil.

He closes with a lament that “[Vance] explained that the Trump administration would use tariffs to protect domestic industries but promised them lots of tax breaks and government support to innovate. But the long history of capitalism tells us that countries and companies don’t innovate because of tax credits and depreciation.” Really? Does Zakaria know as little about the history of American innovation as about Japan? No, he seems just to have forgotten. Because here is what he wrote in 2015:

If you ask people in Silicon Valley what makes it work, they will talk about many things — the ability to fail, the lack of hierarchy, the culture of competition. One thing almost no one mentions is the government. And yet, the Valley’s origins are deeply tied to government support.

I’ve gone on now for twice as long as the column itself, and my point, ultimately, is not even about trade policy. While there is an important debate to be had about protectionism, this column, in one of America’s purportedly leading newspapers, from one of America’s purportedly leading commentators and members of the intellectual establishment, does not rise to the level of basic awareness and coherence necessary to participate at all.

The quality of thinking that has shaped American grand strategy and economic policy in the post-Cold War period is so, so, so much lower than you imagine.

WHAT ELSE SHOULD YOU BE READING?

A number of other interesting developments on the trade front worth following:

China Explores Limiting Its Own Exports to Mollify Trump (Wall Street Journal)

How China Beat Out the U.S. to Become the Top Player in Rare-Earths Refining (Wall Street Journal)

Trump’s Tariff Threats Freeze Out BYD and Other Chinese Firms (Bloomberg)

Will Trump Make Ships Great Again? (Financial Times)

And in Commonplace, Nicholas Phillips makes the case that understanding Trump’s actions on Canada and Mexico requires understanding the central role that renegotiating USMCA will play in rebalancing global trade: No Pain, No Gain On Canada and Mexico Tariffs

OK, OK, MOVING BEYOND TRADE

Trump Might Let Taxes Rise for the Rich to Cover Breaks on Tips | Axios

Someone in the White House suggested that TCJA’s cut to the top tax rate may be on the chopping block, precipitating the usual meltdown from The Groups of the Right. Ryan Ellis “would lay down in traffic to stop that.” Grover Norquist calls it “disgusting” and “gutter politics.” Others are just making stuff up.

The Country Needs More Electricity — and More Electricians | Brad Smith, Fox News

As I noted a few weeks ago, “Suddenly, the tech companies want to be best friends with the energy companies and promote trade schools too. This is a very good trend.” Great example here from Smith, Microsoft’s president, highlighting the company’s focus on workforce training for electricians in particular.

American Women Are Giving Up on Marriage | Rachel Wolfe, Wall Street Journal

Sorry, a bit more media criticism before I go. This could’ve been a great essay, but instead it’s an illustration of how determinedly elite media ignores the rest of the country’s problems. It opens with a Boston-based accountant and then the founder of a leadership coaching startup in New York City, followed by the observation that, “The challenges of finding a romantic partner have been made more complicated by a growing divide in education and career prospects between men and women. In 2024 47% of American women ages 25-34 had a bachelor’s degree, according to Pew, compared with 37% of men.”

It’s not until paragraph 25 that we learn, “men’s economic struggles seem to be having the biggest effect on women without a college degree, whose marriage rates by age 45 have plummeted from 79% to 52% for those born between 1930 and 1980.” What we never learn at all is that the same research shows that women with college degrees have seen no decline in marriage rates over the past 40 years. They don’t seem to be giving up on marriage at all.

A story about the actual widespread trend should have been almost entirely about the experience of women without college degrees and the struggles they face. Perhaps that’s not what Wall Street Journal subscribers want to read, though.

AND AT COMMONPLACE…

I’ve actually already mentioned most of this, which just goes to show that it’s all relevant and you should be reading it!

MAHA Brings Social Conservatives Back to the Future | Emma Waters

Breakthrough technology holds the best path forward for maternal and natal health.

No Pain, No Gain on Canada and Mexico Tariffs | Nick Phillips

Exercising leverage over Canada and Mexico is necessary to rebalance the global trade system.

America's Missing Men | Amber Lapp

The stories beyond the rise of untimely deaths.

And on the American Compass Podcast, David Autor, professor of economics at MIT and lead researcher on the “China Shock,” joins me to break down his latest paper, which shows the decline in job quality when manufacturing goes away. Fareed Zakaria should tune in.

As always, check out the latest at commonplace.org, follow us on X @commonplc, and subscribe for regular articles directly in your inbox.

Enjoy the weekend!