Are Wrongheaded U.S. Policies Ceding the Future to China?

HMS Hood steaming to meet Bismark - a  heroic but sad symbol of
a failure to recognize the forces of technological and economic change

A piece in the New York Times has a piece that suggests that Donald Trump, a/k/a Der Trumpenführer, may be about to ignite a trade war with China.  The move stems from apparent growing concerns in the United States over a Chinese government-led effort to make the country a global leader in microchips, electric cars and other crucial technologies of the future. Unlike the orthodoxy of the GOP which wants to crush government regulations - including worker and public safety regulations - in China the ideology is to have government work with industry and foster the best possible economic future if for no other reason than the fact that economic success helps the Chinese leadership stay in power.  Thomas Friedman argues that Trump and his isolationist regime where ignorance is embraced and inconvenient facts are ignored or labeled "fake" are taking the wrong course and that the main beneficiary will be China going forward.  In many ways, as explained below, America finds itself where Great Britain was at the end of WWI.  Will American leadership make the same mistakes? Here are column highlights: 

I have a simple view of governing today: We are in the middle of not one but three climate changes at once to which government must help citizens respond — and Donald Trump doesn’t have a clue and China does. 

In the past you could fix any climate/environmental problem later or now. But today later is officially over. Later will be too late. At some point, the deforestation of the Amazon is not reversible.

We are the middle of a change in the “climate” of globalization. We are going from an interconnected world to an interdependent one, and in such a world your friends can hurt you faster than your enemies: Think what happens if Mexico’s economy fails. And your rivals’ falling becomes more dangerous than your rivals’ rising: We will be hurt a lot more by China’s economy tanking than its putting tanks on islands in the South China Sea.

And lastly we’re in the middle of a change in the “climate” of technology. We’re moving into a world where machines and software can analyze (see patterns that were always hidden before); optimize (tell a plane which altitude to fly each mile to get the best fuel efficiency); prophesize (tell you when your elevator will break and fix it before it does); customize (tailor any product or service for you alone) and digitize and automate just about any job. This is transforming every industry.

Governing today is all about how you prepare your society to get the most out of these three climate changes and cushion the worst. Sadly, that’s not our society’s priority right now. In the age of Trump we are treating governing as entertainment. Some conservatives argue that’s fine. The less D.C. does, the better. Let the market rule. I disagree. What actually made America great was a government that prepared the right soil in education, regulation, immigration, research and infrastructure, and a dynamic private sector that grew all kinds of flowers in that soil.

Which brings me to China. China takes governing seriously — in a cruel way and in an impressive way. Its leaders wake up every morning and ask themselves two questions. First, how do we stay in power?

China’s leaders are just as focused on asking a second question: What world are we living in? Which leads to: What are the biggest forces shaping this world? And what kind of national strategy do we need so our people can get the most out of these forces and cushion the worst?

They know we’re in the midst of these three climate changes and have formulated a strategy — “Made in China 2025” — to thrive within it. It’s a plan for building the infrastructure, investments, education and regulations that will enable Chinese companies to lead in supercomputing, new materials, computer-controlled machine tools, industrial robotics, space and aviation equipment — including drones — clean cars, clean energy, biomedicine and next-gen medical devices.

By contrast, Trump hasn’t even named a science adviser. He pulled out of the Paris climate accord without any input from scientists, and he proposed a budget for fiscal 2018 that eliminated the Department of Energy’s innovation lab (the “Advanced Research Projects Agency — Energy”) and slashed funding for all of our key national science and medical labs, which provide the basic research for the very next-gen technologies in which China is now massively investing. He’s spending the money instead on a wall against Mexico. Is there anything more stupid?

And then you watch the health care debate. And then you realize that in addition to the executive branch, one of our two parties has gone nuts. For seven years the G.O.P. made replacing Obamacare, which needs improving, its top goal . . . . it was clear that it had done no homework on a better plan or built any intraparty consensus for it. It was all a fraud.

And then you look at all the knife fights between rival Trump aides and you realize that none of these fights were over how to thrive in a world challenged by these three climate changes. They were all about who could get closest to and flatter our Dear Leader most. But our Dear Leader — as we saw in the health care debate — has done no homework on the future, either. He’s been too busy promising to restore the past.

This is so dangerous. When the pace of change accelerates in climate, technology and globalization all at once, small errors in leadership navigation can have huge consequences. It’s like a 747 pilot who enters the wrong navigational coordinates. You can find yourself so far off course that the pain of getting back will be staggering.

We have such a pilot. It is time for the adult Republicans and Democrats in Congress to come together and take the helm.

Back to Great Britain.  On the eve of WWI, Britain was the most powerful nation on earth with a military, especially its navy, second to none.  It had lead the way in industrialization in the 19th century and had reaped huge economic benefit.  But things were changing.  Germany was rapidly gaining on Britain industrially and economically and science and the technology of the day was changing rapidly.  By the end of WWI, Britain's industrial base had become antiquated and leading industrial strength was moving towards the United States and even Japan.  Britain's leadership turned inward, failed to see the crucial need to modernize with the government leading the way.  By the eve of WWII, while still powerful, Britain had been eclipsed by America, Germany and Japan, the latter two of which had governments that pushed and controlled the modernization of their industrial bases, albeit for militaristic and imperial purposes. Will Trump and the GOP take America on a course akin to Britain's mistaken path?  Right now, I fear the answer is yes.  If this happens, Americans need to get used to the idea of America no longer being the world's leading power and economy.   

Trump's Dangerous Economic Nationalsm

For Donald Trump and his most loyal followers, real objective facts do not matter.  Rather, for Trump, when not satiating his own ego, "facts" are whatever he needs to support his demagoguery. For his followers, "facts" are whatever allows them to blame others for their bad decisions - e.g., dropping out of high school or not pursing a college degree - and misfortunes.  The problem is, however, that objective reality and true facts  do not change to fit the needs of a demagogue or those who live detached from reality.  Nowhere is this more true than in economic and foreign trade policies.  Trump readily blames foreign trade and/or trade agreements for the decline of American jobs, but the true cause overall is something far different: automation and technological advances.  Plants that once needed thousand of workers can now operate - often at higher outputs - with a fraction of the number of workers. A column by an economist in the Washington Post looks at the dangerous falsehoods in Trump's economic nationalism.  Here are excerpts:

For starters, it vastly exaggerates the role of trade in destroying U.S. jobs. Of course, many American factories have shut, and their production has moved abroad (Mexico, China) or been replaced by the imports from foreign competitors. But these losses don’t explain the steep declines in manufacturing jobs, which dropped a third since 1990 (from almost 18 million to 12 million in 2015), even though factory output — of planes, earth-moving equipment, pharmaceuticals, computer chips — nearly doubled over the same years. Automation is the main cause. 

The often-overlooked truth is that the U.S. economy, despite much rhetoric to the contrary, is less globalized than virtually all other advanced countries. We produce most of what we consume. True, we imported nearly $2.8 trillion of goods and services last year, but we also exported almost $2.3 trillion. As a share of the $18 trillion economy, the deficit was less than 3 percent and about half its 2006 level. 

The danger of economic nationalism is that it deludes us into thinking that our problems mainly originate abroad and can be fixed by “tougher” trade policies. Not so. It’s worth recalling that the two largest economic setbacks since World War II were both domestic in origin: the high inflation of the late ‘70s, peaking at more than 13 percent (caused by easy money); and the 2008-2009 financial crisis (caused by reckless financial speculation). 

Although the United States should pursue its economic interests, it’s doubtful that trade concessions will cure chronic trade deficits. These mainly reflect the dollar’s role as the major international money for trade and international investment. Demand for dollars by foreigners raises the currency’s value, putting U.S. producers at a competitive disadvantage in global markets. This is unfair to American factories and farms, but the alternative — ruining the dollar through high inflation or exchange controls — would be worse.

Trade remains foreign policy. It’s true that today’s circumstances are very different from those after World War II. But the basic reality endures: Who we trade with and how are expressions of national purpose and power. Trump is wrong to reject the Trans-Pacific Partnership, which would encourage trade between the United States and other Pacific-rim countries, creating an alternative to a China-dominated system. 

Trump’s economic nationalism . . . . Down that path lie protectionism, isolationism, more trade conflicts and threatened economic growth. It would redefine America’s relationship with the world.