The virtues of 18th-century mercantilism

Nice piece on comparative advantage and the benefits of being the world’s reserve currency.

Kevin D. Williamson writes that Americans have a strange love-hate relationship with our consumer goods: We love our stuff, and we hate the people who sell it to us.

The populist Right’s descent into Trumpism has been accompanied by another chorus of that great daft stupid hymn of American political economy: “We Don’t Make Things Here Anymore.” That is completely untrue, of course: As measured by the Industrial Production Index, we’re producing four times as much today as we did in 1960. Our exports have been flirting with record levels for a while, and we export many times more than what we did in the 1950s or 1960s. The largest markets for our exports are also the countries from which we take most of our imports: Canada, Mexico, and China. This is no surprise.

“But when you go into Walmart, nothing says ‘Made in the USA.’ Everything says ‘Made in China’!” Some variation on that claim can be heard on every talk-radio show, in every mentally dead Donald Trump speech, and on nine-tenths of the barstools across the fruited plains. It got to be so common that a couple of years back Walmart pledged to buy an extra $250 billion in U.S.-made goods over the course of a decade. The firm immediately ran into trouble meeting that pledge. As James B. Kelleher put it in The Huffington Post, would-be Walmart suppliers faced “an experienced workforce, and other shortcomings.” That’s a very polite way of saying that the stuff they sell at Walmart isn’t the kind of stuff that Americans make. Yes, China is an absolute powerhouse in the world flip-flop market — good for them.

Question: Would you rather your grandchildren worked in a Boeing factory, or in a flip-flop factory? Would you rather be a midlevel employee at a textile mill, or at Apple? Of course there is some wage at which working in a flip-flop factory is attractive, but the median American would-be flip-flop engineer’s next-best option is a lot more attractive than that of his counterpart in Wenzhou, and, so, that’s that.

Trade deficits are a generally misunderstood phenomenon. The United States probably will always have long-term trade deficits with, say, Germany and Switzerland, because there are a lot more Americans who buy Audis and Rolexes than there are Swiss who buy Boeing airliners and high-end engineering services. Scale of course matters…

There are advantages to being a very large country such as the United States, India, or China. And there are some disadvantages, too: High-end, high-return, high-skill manufacturing by firms such as Mercedes, Zeiss, and Leica have a relatively large economic footprint in Germany compared with what similar firms have in the United States. Ericsson, the second-largest company in Sweden, could be a relatively small division of Procter & Gamble, with sales that add up to an amount comparable to Wells Fargo’s annual income-tax bill. ExxonMobil’s annual revenue is considerably more than the GDP of Denmark (all of our nouveau national socialists love the Danes!) and isn’t much short of that of Norway, where the energy business plays such an outsized role in the economy. It takes a lot to move the needle in an economy that — for all of our whining about hard times — produces about . . . one-quarter of the entire economic output of human civilization.

With a little less than 5 percent of the world’s population.

Our trade picture looks the way it does for many different reasons. One is that many people overseas like to hold U.S. dollars in vast quantities, in the public sector as reserves and in the private sector as a hedge against the public sector, which in places such as China has been historically unreliable. That means that they hold back some of the dollars they earn selling us things, in effect financing our consumption with zero-cost credit. There are domestic factors to consider, too. One is quality: There isn’t a major U.S. automobile company that makes cars as good as Audi or Mercedes at the high end or as good as Honda or Toyota at the low end. High-income Americans don’t choose Benzes over Cadillacs because the Germans are so clever, but because they are better cars. We also have work-force shortcomings: We have the best workers in the world, and lots of them, but at the same time we have a large body of low-skilled but relatively expensive workers who haven’t shown themselves eager to be trained up for new job and expanded opportunities. You could build a major manufacturing facility in Detroit or California’s Central Valley — but you’d have to import skilled workers to operate it.

The Chinese buy vast quantities of American soybeans not because we have a clever trade policy vis-à-vis tofu-making material, but because American farmers are the world’s best and most efficient producers of soybeans, so much so that it makes more sense to ship them halfway around the world than to grow them in China or in nearby countries that are, in purely agricultural terms, perfectly capable of producing soybeans. (You may not think of soybeans or cotton as a high-tech wonder of American ingenuity, but only because you don’t know much about where soybeans or cotton come from.) It isn’t Italian protectionism that inclines Americans to buy Armani suits and Gucci briefcases. The Italians really are good at that sort of thing.

And, as it turns out, lots of Americans want inexpensive flip-flops. De gustibus and all that.

In the ancient world, kings, chieftains, and emperors fought risky, bloody wars for access to goods from abroad. And yet we Americans, in the midst of all this plenty, have come to believe that the fact that all of the best stuff from around the world shows up in Pittsburgh with no real effort at all from the locals is a conspiracy against us, that somehow we are being had by having access to the cream of human creation. And so we wrap ourselves up in our pink couture straitjackets and contemplate the virtues of 18th-century mercantilism, and wonder, idly, whether it might be the case that the world really is flat after all.

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