What to Do About China?

Crises are not only opportunities which should, to paraphrase Rahm Emmanuel, never be allowed go to waste. They also serve as clarifying moments. Unexpected events can shatter even the strongest consensus on a given topic. The coronavirus pandemic is such a moment when it comes to America’s relationship with China.

Until relatively recently, most Western policymakers calculated that a steady integration of China into the global economy would be of mutual economic benefit for China and Western nations. Trade with other countries and an associated growth of commercial freedoms inside China, it was further held, would soften the regime’s authoritarian character, gently create space for other domestic liberties, and help tame China’s more aggressive external impulses.

That consensus has, however, been collapsing for some time. This was signaled by the 2017 National Security Strategy issued by the Trump Administration. Many policies, it stated, had been “based on the assumption that engagement with rivals and their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners.” But, the document then added, “For the most part, this premise turned out to be false.”

A major effect of the coronavirus pandemic has been to confirm that economic integration has not substantially changed the Chinese regime’s nature. The question thus becomes: where does America go from here vis-à-vis China? Even more particularly, what should America do about its trade relationship with China?

China is Not Our Friend

The evidence that China’s gradual entry into global markets has not produced the results anticipated by many Westerners is overwhelming. By no measure of political, religious, or civil freedom can China be described as liberalizing.

The Chinese regime’s long-standing authoritarian character was enhanced when Xi Jinping replaced Hu Jintao as Communist Party general secretary and chairman of the Central Military Commission in November 2012 and then as China’s president in March 2013. Xi then gave several speeches on the topic of China’s “rejuvenation.” Rejuvenation’s practical meaning was made manifest in a further centralizing of political authority, a crack-down on internal dissent, radical curtailments of already-limited religious freedoms, the mass imprisonment of “suspect” groups like the Uyghur Muslims, and an increase in the Party’s control over the Chinese military and security forces.

That pattern generally holds true for the Chinese economy. When China acceded to the World Trade Organization in December 2001, the hope was that it would move in the market-liberalizing directions that WTO members are supposed to go. But China has not been walking down that path of late, a fact recently confirmed by the Heritage Foundation’s 2020 Index of Economic Freedom which classified China’s economy as “Mostly Unfree.” Indeed, China increasingly behaves in a manner akin to an 18th-century mercantilist-state: the Chinese Communist Party not only integrates economic and military power on a scale which dwarfs that of Louis XIV’s France, but it also pursues policies which have been called “colonialism with Chinese characteristics.”

China’s ongoing buildup of its armed forces and steady augmentation of its military presence in the South China Sea has been accompanied by a growing integration of military, strategic, and economic policy. While Chinese investment and construction activities have declined around the world overall since 2016, overseas infrastructure investments by Chinese companies continue to be partly driven by strategic and military concerns.

The coronavirus pandemic has heightened worries that America’s supply chains are too interwoven into the Chinese economy.

Such investment remains concentrated in areas where Beijing wants more influence: Africa, Central Asia, the Middle East, and Southeast Asia. The same dynamic manifests itself in China’s Belt and Road Initiative (BRI). Despite Xi’s internationalist rhetoric of “community with a common destiny,” BRI involves the Chinese regime making foreign investment decisions driven primarily by geopolitical needs rather than good economics. Those “needs” include control of strategic corridors in Central and Southeast Asia. The means for achieving this are infrastructure development and investment made by enterprises partly or fully owned by the Chinese state.

There is also greater recognition that, as one recent analysis illustrated, Chinese technology companies “not wholly owned by the state” but with “deep ties to the Chinese state security apparatus” operate in ways that blur “commercial imperatives” with “the strategic imperatives of the party-state.” The widespread and well-documented intellectual property theft engaged in by such companies exemplifies this pattern of behavior.

Not to Be Trusted

Taken together, these facts illustrate that China’s entry into global markets has not made Beijing “more like us” in some very important ways. Growing evidence that the regime has misled and continues to lie to the world about the coronavirus’s impact upon its own population and economy underscores the fact that Chinese officials cannot be trusted. A government that lies about something as destructive as a pandemic can be safely assumed to be willing to lie about anything else.

This has implications for what has been the most significant flashpoint in U.S.-China relations over the past four years—trade. In 1980, U.S.-China trade was worth only $5 billion. Forty years of growing commerce between the two countries, however, have resulted in China being consistently ranked as one of America’s top-three trading partners since 2004.

For some time, however, many Americans have insisted that the trade relationship lopsidedly favors China and has negatively affected particular industries and regions of America. I and others have disputed the economics of that argument and the particular cause-and-effect logic which it implies. But the coronavirus pandemic has heightened worries that America’s supply chains are too interwoven into the Chinese economy. Thus when China’s economy gets into trouble—as it did when the coronavirus forced Beijing to lockdown various Chinese cities—American businesses found themselves scrambling for alternatives.

It is precisely at such moments, however, that you need access to open and competitive markets. They make it easier and more cost-effective for American companies to switch supply chains in emergencies. Protectionism makes such adaptation slower, harder and more costly.

A very different problem is the growing tendency of Chinese businesses to invoke the prospect of direct retaliation by the Chinese government whenever they think they are not getting their way. This was recently on full display when the Chairman of Huawei Technologies Inc.—a company credibly deemed to be effectively owned by the Chinese regime—warned America in March to “expect countermeasures from the Chinese government if it further restricts the technology giant’s access to suppliers.”

The reason those restrictions were imposed in the first place is that Huawei was indicted for racketeering and stealing trade secrets earlier this year. But that, in turn, is symptomatic of a wider issue: the expectation that Huawei will always do Beijing’s bidding whenever the regime believes this will advance China’s broader strategic and military agendas. Huawei and other Chinese technology companies have been accused of aiding the regime’s security forces in carrying out repression inside China. Why, it’s reasonable to wonder, would Huawei’s subservience to the regime not continue beyond China’s borders?

Disentanglement Is Costly

Given these manifold problems, we shouldn’t be surprised that some now believe that America’s economy must be radically disentangled from China. That, it is suggested, would cut the Gordian knot in which they think much of America’s economy and national security now finds itself bound. An eye to America’s long-term well-being, however, suggests a different approach.

Is it really in America’s long-term economic interest to disengage, holus-bolus, from a market of 1.4 billion people, and an economy that is and will continue to be—whether we like it or not—one of the world’s largest? Does anyone believe that the subsequent gap will not be filled by businesses from other countries?

America should not respond to Chinese mercantilism by adopting policies similar to those pursued by Beijing.

In 2018, China was America’s third-largest export market overall and its fourth-largest agricultural export market. The bulk of American goods exported to China consisted of high-tech manufacturing such as aircraft, electrical machinery, and medical and optical instruments. This is good for American exporters and those Americans who work for these businesses. Put another way, the costs and lost opportunities for American businesses of mass disengagement from an economy that accounts for “16 percent of global [economic] activity,” “40-50 percent of global marginal growth,” “the world’s largest middle class,” “four of the world’s top 10 banks,” and “the largest e-commerce market” should be neither ignored nor trivialized.

Nor should we make light of what would likely be significant price-increases for many consumer goods for Americans if various supply chains were repatriated to America. Let’s not forget that one reason for such supply chains being in China in the first place is that it is less expensive to make or source various goods there than in America. Wealthy Americans can absorb the costs associated with supply-chain repatriation with relative ease. The same cannot be said for less-well-off Americans. They would end up paying much more for some necessities of life and find access to many other goods increasingly beyond their financial means. At a minimum, this indicates that obstacles should not be put in the way of American companies who disengage from China from shifting their operations and investments to other, friendlier countries where production or sourcing costs for certain goods are lower than in America.

An Inevitable Reset

More generally, it should be possible for American businesses to continue to trade extensively with China while the U.S. government simultaneously addresses the associated national security challenges. Under any circumstances, this would be a delicate exercise. Three things should be kept in mind.

First, America should not respond to 21st-century, Chinese-style mercantilism by adopting policies similar to those pursued by Beijing. In a 2018 Foreign Policy article, Tanner Green laid out the manifold ways in which pursuing BRI has seriously backfired on China. Among other things, this includes 1) little return on the huge investments made by state-directed Chinese companies involved in this project; 2) significant political backlashes against China’s presence in countries such as Burma, Pakistan, Malaysia, Bangladesh, Sri Lanka, and the Maldives; and 3) perhaps most tellingly, the acceleration of corruption in Chinese political and business circles in a nation already awash in corruption. America has no reason to draw similar problems down upon itself.

Second, legitimate economic activities must be distinguished from those which are not. Competition, for example, is one thing. Stealing is an entirely different matter. Chinese businesses and nationals are engaged in aggressive theft of intellectual property in the service and knowledge sectors of the U.S. economy. It’s not just that such theft is wrong in itself or that it directly undermines America’s high-value-added manufacturing companies. Much of the purloined technology will be used to enhance the Chinese military and security forces.

Addressing this problem requires the U.S. government to continue confronting China’s leadership about this topic, and aggressively prosecute Chinese nationals and businesses engaged in these practices. Many Americans, I suspect, would be surprised to learn that, until 2018, there were relatively few such prosecutions. Now they have accelerated and, as Huawei’s reaction shows, China does not like it.

The third aspect of resetting the trade relationship has less to do with China and more to do with America. We need a serious discussion of what products and services genuinely have a national security dimension and which do not.

Free traders from Adam Smith onwards have acknowledged national security as a legitimate political exception to trade liberalization. But making such determinations is more easily said than done. On the one hand, very simple products—such as, we’re recently discovered, surgical masks—can suddenly become necessities. No country should want to be at the mercy of a regime like the Chinese government for the supply of these and other medical products in times of crisis.

At the same time, elastic conceptions of national security are invariably stretched to rationalize all sorts of unwarranted government interventions into the economy. They also provide opportunities for widespread cronyism as various businesses insist on flimsy grounds that they make an indispensable contribution to national security and therefore merit tariff protection, subsidies, or other such government support.

However difficult making such assessments may be, they are nevertheless essential for any rethinking of the U.S.-China trade relationship—a reset only made more urgent by China’s behavior during the coronavirus pandemic. America cannot pretend that China will inevitably become “just like us.” The economic determinism underlying such claims should be repudiated. America also cannot pretend that systematic disengagement from a market of 1.4 billion people would not represent forfeiture of enormous economic opportunities for American businesses, the cost of which would be borne by many American workers and all consumers.

Squaring these realities will require subtlety of mind and a clear grasp of distinctions. But if there was ever a time for true economic and political statesmanship vis-à-vis China, it is surely now.

Reader Discussion

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on April 17, 2020 at 09:44:20 am

I greatly respect Samuel Gregg’s thinking; he understands economics. But he misunderstands China. China under Xi is not mercantilist. It is totalitarian and bent on world domination. It’s a grave error to confuse the two. China not simply trying to “win” at international trade, it is subverting other countries and international institutions, and arming itself for global conflict, especially in outer space and cyberspace. This is not mere mercantilism.

Economist Ludwig von Mises was a fierce advocate of free trade, including continuing to trade even with a protectionist country, but argued that (classical) liberal countries cannot reasonably trade with aggressive “omnipotent governments.” His argument is correct. Free people cannot peacefully coexist with aggressive totalitarians. It’s a very unpleasant fact that China is such, but we fail to recognize it at our own peril.

Gregg repeatedly refers to the economic costs of disengaging with China, which he correctly characterizes as considerable. But they are not nearly as dreadful as a world dominated by China would be.

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Charles N. Steele
on April 17, 2020 at 10:17:17 am

Doesn't this sentence of yours describe the United States as well? "it is subverting other countries and international institutions, and arming itself for global conflict, especially in outer space and cyberspace."

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Eric S Morris
on April 17, 2020 at 12:14:21 pm

That depends if our intentions are defensive or offensive. Time and time again atheistic materialist governments have demonstrated through their inhumane behavior, that we need to protect ourselves from those who aggressively seek to do us harm.

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on April 17, 2020 at 13:14:09 pm

As a practicing Catholic and former (deployed) Army Judge Advocate, I don't think most of the post-WWII US government actions, hot and cold, comport with the just war doctrine, except specifically the actions against Al Qaeda (not even against the Taliban).

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Eric S Morris
on April 17, 2020 at 15:33:38 pm

There are, however, many who would argue to the contrary. I suppose it depends upon what "justifying" proposition or principle one is willing to accept or even recognize.
One may also consider whether the JAG corps arrogation to itself of such warfighting functions / responsibilities as "targeting decisions", rules of engagement and the tradeoffs between imperiling our warfighters vs the risk to non-combatants (such as that term meant anything in the locale) comported with good war doctrine.
Being Catholic and a member of JAG does not inherently provide any unique insight into "justification" not otherwise available to others to include the warfighter.

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Guttenburgs Press and Brewery
on April 18, 2020 at 01:01:11 am

It might be so, Nancy, that the U.S. military actions since WWII mostly didn’t meet standards of just war doctrine. But what’s the relevance? The U.S. should still disengage from China and realize that it is an aggressive totalitarian enemy.

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Charles N. Steele
on April 18, 2020 at 09:45:43 am

Hi Charles, It is Eric Morris who is a former (deployed) Army Judge Advocate and who made the comment you referred to. I am hoping that we can hold the communist government of China accountable in a Global Court Of Law, while empowering the people of China to be able to have both Liberty and a Happy Death

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on April 18, 2020 at 00:57:23 am

I don’t think my characterization really does apply to the United States, particularly the subversion part. I *do* want the U.S. heavily armed and ready for global conflict, of course, because as a libertarian I absolutely do not want communist China, Russia, the deranged mullahs of Iran, or other dictators dominating some or all of the world.

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Charles N.Steele
on April 17, 2020 at 10:33:07 am

The author is totally off-base. The current Chinese--launched world-wide health disaster should be the catalyst for cutting all links with the Communist regime. The author gives two reasons not to. One is the loss of American exports to China. But most of the non-agricultural exports serve to strengthen Chinese military strength. As for the loss of agricultural exports, this can be rectify by actions to open such outlets as India and the EU that are presently closed by their protectionist policies. The second is that the result would be higher prices for some articles. One answer is that national security
comes first. The second is that cutting off Chinese exports would increase demand for labor in the United States that would increase wages. Let me cite one of the most rotten examples of the present reliance by American corporations on outsourcing--Apple. As a previous blog on this site showed, Apple has been complicit with Chinese government control of its population. I would stress another indictment--Apple makes most of income in the U.S., but much of its spending for labor and supplies is done abroad.

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John Braeman
on April 17, 2020 at 10:39:46 am

If only Nixon could have opened the door to Red China because Nixon had closed it, once he opened the door he let the dragon out.

For the next 44 years, until President Trump, the U.S. played a fools game. At first we professed to hold to the democratic principle that Nationalist China was still the real China while we sought and failed to use the Red Dragon as a pawn against the Soviets. That was a fool's game as even a fool would know had he observed the close military and diplomatic alliance between Red China and the Soviets in killing 110,000 Americans while defeating the U.S. in the Korean and Vietnam Wars. Then we played the fool's game of attempting to make peace with our rising enemy by pretending it was our friend. We agreed to a process of rethinking our relationship with Nationalist China while at the same time giving Red China control of vital national security assets, first relinquishing to Red China our control of the Panama Canal and second pushing the Brits to relinquish to Red China control of Hong Kong, the world trade center of the Pacific.

Then Red China saw its green light and began the insidious process of embedding itself deeply into American political and economic life. It illegally funded Clinton's presidential campaign in 1996, forever winning support of the Clinton Cartel, and with the allure of the world's largest consumer market, Red China incited Wall Street's endemic greed, thereby winning the eternal support of W. Bush and the Republican Party. Red China solicited and obtained from three U.S. presidents very special, preferential trade advantages with the U.S. and also the incomparable power and free trade privileges of WTO membership. On this rock-solid foundation Red China very quickly built the new, powerful, massive contemporary China Lobby of Wall Street banks, K-Street lobbyists, U.S. mega-corporations, the Chamber of Commerce, the Business Roundtable, American universities, Senators and Congressmen on key committees and Governors in key states, all of which in order to gain access to and profit greatly from Red China's market were obliged to became beholden to Red China's will and to support Red China's way. "Nationalist China" became Taiwan, the one China policy became a "two China policy" cum a "China policy." The power of Madison Avenue public relations set about the task of working magic, of convincing the U.S. public to believe a patently obvious lie, that a market that was anything but free should be seen as a "free market" and that a "free market," as Adam Smith and everyone who isn't against capitalism knows, can work magic, especially the magic of "Shazzam," converting those nasty old Communists and that hostile old Red China (with whom we had just fought two wars) into friendly capitalists who would join with the U.S. to make us rich and the world peaceable.
At last, the second coming of Samuel Huntington's "end of history," the eschaton America had sought in vain since the disintegration of the Soviet Union.

Mr. Gregg agrees now, at last, that the U.S. must reassess its economic attitude toward China, and he touches on a few of the economic matters of our relationship that must be addressed. And I find nothing to argue about with Gregg so far as he goes, which isn't very far.

But as should be clear from my summary of the origins, history and true nature of the U.S.'s current incestuous relationship with Red China, the matter of disengaging and re-engaging with Red China are far more fraught with economic complexity, political obstacles and national peril than Mr. Gregg suggests.

Complexity, obstacles and peril aside, Mr.Gregg offers some simple steps that can be quickly taken. I agree with him but would add to a few more simple, easy steps that could be taken now:
1) Bar all of Red China's students from admission to U.S. universities, as an important step toward cutting the theft of intellectual property and a common sense step of not educating one's enemy.
2) Prohibit U.S. corporations from relocating manufacturing operations in Red China.
3) Prohibit the transfer of US intellectual property to Red China's agents and businesses.
4) Require full SEC 10-b5 risk disclosures by all corporations seeking to sell on US stock and commodity markets of any and all ties, directly or indirectly, to the CCP, to any Red Chinese government entity and to any entity owned, operated, controlled or influenced by the CCP or the Red Chinese government. The risks that must be disclosed to investors would include the ubiquitous threats a) of government disruption of corporate markets and interference in corporate management, b) of market disruption due to man-made disaster caused by endemic political and economic corruption, d) of market disruption due to the government's intrinsic inability to respond adequately to natural and man-made disaster and d) of market disruption caused by the ubiquitous absence of the rule of law and the pervasive repression of civil liberties.
The last requirement, that of enforcing full and adequate SEC 10b-5 disclosure, gets at the lifeblood of China's economy because it affects the investments of US and world investors. It is the most simple and most important of the simple steps, yet it is the greatest, most immediate economic challenge the US can direct at Red China's hostile economic intentions.

And, last but not least, let's stop calling the China "Taiwan" and Red China "China." The world is Orwellian enough without we freedom-loving Americans voluntarily contributing to the Communist lexicon of newspeak.

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on April 17, 2020 at 11:39:57 am

What to do about China? First and foremost, we must Pray for the people of China as we hold the communist government, and all those who enable the communist government to deprive the People of China of their inherent Right to Life, to Liberty, and to The Pursuit Of Happiness, accountable, in a Global Court Of Law, while investigating and holding accountable members of the Technology Industry that serve as a threat to our Republic, and the people of China, and thus The Common Good, by their abuse of power, and disregard for the Law.


Second, we must determine whether the fact that Covid-19, fatally targets the elderly and most vulnerable, is accidental, or intentional, and while holding the communist government of China accountable, fumigate and close every Bio Lab in China, until the communist Chinese government is transformed into a government that serves to secure and protect The Common Good of the people of China. This would include a Proclamation calling for releasing the tyrannical control on not just the Uyghur Muslims, but all the Chinese People, who have the inherent Right to both Liberty and a Happy Death and thus to all information that may help them achieve this goal without empowering those who desire an atheistic materialistic globalism that promotes an end to overpopulation, through abortion and euthanasia.

We must continue to Pray for a solution to the Coronavirus Virus that would not include supporting an atheistic materialist globalism, that denies that God, The Most Holy And Undivided Blessed Trinity, Through The Unity Of The Holy Ghost, Is The Author Of Love, Of Life, And Of Marriage, and desires to destroy the family foundation, by condoning sexual immorality, abortion, and euthanasia, which can never serve for The Common Good.
Pray that “Nothing will be Lost”, as we affirm the inherent Dignity of every beloved son and daughter and thus affirm the inherent Right of every beloved son or daughter to experience Life-affirming and Life-sustaining Salvational Love.

Pray for a New Springtime, grounded in authentic Life-affirming and Life-sustaining Salvational Love.
No Greater Love Is There Than This- The Love that can set all men free, if we believe in The Power and Glory Of The Truth Of Love.

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on April 17, 2020 at 12:12:13 pm

Bear with me, boyos, for a short aside. I think it relevant to what I will say and what Mr Gregg has said, or more precisely what he has failed to say.
Brian Dennehy, an actor, died yesterday. He won a number of Emmys, Tonys, etc for his accurate portrayals of truck drivers, bartenders, salesmen (Willy Loman) etc. Dennehy, in his early years, actually worked in those jobs and came to understand the characters.
Mr Gregg derides the notion of extensive national security considerations for the US manufacturing sector implying that critics of what we presently know of as Free trade are overstating the case. I would contend that the overwhelming majority of academic / media commentariat are understating the case and they do so because unlike Mr Dennehy, they have neither worked in nor *observed* that critical activity. Observe, here, is meant to mean an *active* comprehension / engagement of an activity in all, or most of its permutations and interconnections. I doubt Mr Gregg has ever run a machine tool or understands how that one tool is the consequence of innumerable subsidiary inputs and technologies.
A personal anecdote: (briefly, I hope)
I once ran a medical imaging manufacturing plant. Our supply chain ran into the thousands. But it is not the number of suppliers but the nature of those suppliers AND the technologies and the technical personnel involved that is important. From image processing engineers to developmental machinists to industrial engineers to mechanical engineers to tool and die specialists, etc etc etc etc etc etc we were dependent upon a variety of different skill sets, expertise AND other critical MANUFACTURING capabilities and CAPACITIES for our own success.
Mr Gregg, and others, may not realize this but some of that very same technology, talent AND manufacturing capability was directly related to military and national security considerations. Indeed, for many years we were prohibited from providing certain technologies to the Soviets.
Deidre McCloskey has asserted that the Great Expansion may be explained via an understanding of the role of "innovation." In this she is correct. It has also been written that (I forget the author) that innovation, growth and sector dominance which ultimately spreads throughout economies / technologies, is a function of related and offshoot or downstream technological progress / prowess. This is to say that technological innovation / prowess in one sector WILL inevitably lead to related and similar innovation in other sectors. Innovation spurs innovation. As a whole, such an innovative center constitutes the dominant force / character of a vibrant economy. I would add that it is this phenomenon that constitutes the core of a nations capacity to grow its economy, to have favorable trade relationships with the world AND to provide both those technologies and manufacturing capacities to assure its own national security.
AND that sector is not simply a minor sector, a small component of a large economy. It is far larger than the commentariat wishes, or is able to acknowledge.
Recall that in WWII, manufacturers of soup cans were soon producing artillery shells. We were able to do this because we still maintained a considerable complement of machine tools AND machinists, related engineering disciplines, etc.
Would Mr Gregg have us continue to diminish the size of these disciplines and manufacturing capacities?
Would he continue to allow us to be robbed of our intellectual properties?
Would he continue to allow us to let wither the necessary creative and productive capacities / personnel required for a robust and secure economy / defense posture?
(Sorry for going on so long. However, this is as concise as I can be given the inter-relatedness of manufacturing and technology).

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on April 18, 2020 at 17:01:33 pm

“It has also been written that (I forget the author) that innovation, growth and sector dominance which ultimately spreads throughout economies / technologies, is a function of related and offshoot or downstream technological progress / prowess. This is to say that technological innovation / prowess in one sector WILL inevitably lead to related and similar innovation in other sectors. Innovation spurs innovation. As a whole, such an innovative center constitutes the dominant force / character of a vibrant economy. I would add that it is this phenomenon that constitutes the core of a nations capacity to grow its economy, to have favorable trade relationships with the world AND to provide both those technologies and manufacturing capacities to assure its own national security.
AND that sector is not simply a minor sector, a small component of a large economy. It is far larger than the commentariat wishes, or is able to acknowledge.”

One thousand thumbs up!

Probably not the source you have forgotten, but the book “Job Creation: How It Really Works and Why” by David Newton and Andrew Puzder, also emphasizes the role that innovation plays in job creation, rather than the set of economic causes often cited – demand stimulus, interest rates, etc.

My own experience is probably not as compelling or hands on as yours, but during my career with a major defense contractor in advanced manufacturing technology, manufacturing engineering, managing production control scheduling, and developing manufacturing the engineering systems, it became clear to me that “manufacturing” was really the use of information to manipulate materials for the production of goods (and goods that later supported economic services). This applied whether it involved the 18th century craftsman duplicating multiple muskets from memory, the 19th century machinist writing his speeds and feeds in pencil on the column next to his machine, or later equivalent versions in paper or digital form (manufacturing process documentation, fabrication and assembly instructions, inventory kitting and delivery status, intermediate and final delivery demands and schedules, test plans and results, support documentation (training and repair manuals, call center rules, etc.)

The magnitude of the modern world’s manufacturing accomplishment is shown by Michael Shermer in “The Mind of the Market”, where he cites studies of hunter gather societies that have at most 300 product types (bowls, baskets, bows and arrows, clothing items, etc.) and contrasts that with modern Manhattan where 10 billion (with a B) distinct types of items could be found, a 33 million fold increase.

And lest we become complacent about the idea that only the US or Western style free (classically) liberal societies and markets can provide the type and level of innovation discussed here, David P Goldman has written many articles in PJMedia, Asia Times, and elsewhere, including his 9/22/19 book review in Law and Liberty ( https://lawliberty.org/we-need-our-mojo-back-vis-a-vis-china/ ), explaining that his extensive experience with Chinese professionals shows they are and have breached whatever innovation barrier their culture might have placed in front of them. From that essay he says:
“The recommendations that Gertz offers at the book’s conclusion do not convince me. He proposes to disengage economically from China; I should think that our object should be to introduce innovations that disrupt and discredit China’s state planning. We have none at the moment, but that is because American high-tech industry has invested overwhelmingly in software and left the manufacturing to Asia. We require a revival of American R&D on the scale of our response to Sputnik.
[…] We can only best China through innovation, and we are losing our edge in that regard. Nothing short of a grand national effort on the scale of the Kennedy moonshot or the Reagan Cold War defense buildup will get our mojo back.”

As a financial and intellectual beneficiary of our nation’s focused STEM response to Sputnik, it is well past time we understood the nature of our enemies (including the ideology of Islam) and acted accordingly.

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on April 19, 2020 at 12:33:00 pm


"...they are and have breached whatever innovation barrier their culture might have placed in front of them."
It would appear that we in the US have re-instituted those barriers to innovation as a conscious choice. Succinctly, it was the "financialization" of the American economy that has provided the (mal)incentives for the reimposition of this barrier to innovation.
A friend in Boeing's Strategic Market Development group once commented:
1) The chiComms have1+ billion people. Do you think that they do not have any geniuses or highly capable people amongst them?"
2) Head of Mitsubishi Heavy Industries to Boeing Outsourcing Team:
:First, you gave us, ailerons, next stabilizers, next wing spars and all flight control surfaces. How long before we can build the entire plane ourselves?"
Boeing Response: "Well, we see ourselves as System Integrators."
Mitsubishi later went on to design develop and is building ( and testing in Washington State of all places) its own mid range commercial aircraft.
Are we to blame the japanese for this? or did we create new and unnecessary barriers for ourselves.
Financially, it apparently made sense AND stock option values soared. But Boeing is tanking and not simply because of the MAX.

Too many deride the notion of "industrial policy" as ripe for cronyism, "picking winners and losers (a la Solar energy). However, this need not be the case. Industrial policy need not be anything more than a rather broad inducement via the Tax Code to provide incentives NOT just for startups but for transition into manufacturing. Review of funding strategies and actual outlays within the US Financial sector shows a still considerable rate of funding for startups (innovation) but an abysmally low level of funding for transition to manufacturing.
This should be part of any response that the US makes to counter the ChiComm State Planners.

BTW: The book I was referring to actually dealt with late 18th and early 19th century innovation and cross fertilization of innovative technologies. (I am just too old and lazy to go find it).
take care and spread the Word!

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on April 20, 2020 at 21:18:43 pm

Did your book also address the invention of the cotton gin in 1794? I have just read that it was what enabled the economic growth and trade in cotton, leading in turn to extending slavery that might otherwise have died out. Not all innovation is merited, I fear.
But I gather that was also the time frame when machining tools got good enough to use in making the next generation of machine tools, and so forth.

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on April 17, 2020 at 12:36:28 pm

In addition to this incisive article, there should be more concern about the Chinese labor market. Much of this includes directed labor, a not too distant relative of slavery, allowing the Chinese state to extract profits with which to build aircraft carriers. Chinese wages would likely have risen more by now in a freer market, which would have resulted in fewer US firms becoming reliant on joint ventures (and fewer aircraft carriers).

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Antony Dnes
on April 17, 2020 at 12:50:00 pm

Now here is something we OUGHT NOT to do:

wherein we find that our financial masters are planning to invest US Military retirement Funds in an index heavy on ChiComm companies.
Are we unable to observe the world? or simply unwilling to accept that which we do observe?

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