You say you got a real solution.
Well, you know
We’d all love to see the plan.
— “Revolution 1,” the Beatles
The scariest thing about what President Trump is doing with his tariffs-for-all strategy, I believe, is that he has no clue what he is doing — or how the world economy operates, for that matter. He’s just making it all up as he goes along — and we are all along for the ride.
I am not against using tariffs to counter unfair trade practices. I supported Trump and President Joe Biden’s tariffs on China. And if all of this is just Trump bluffing to get other countries to give us the same access that we give them, I am OK with it. But Trump has never been clear: Some days he says his tariffs are to raise revenue, other days to force everyone to invest in America, other days to keep out fentanyl.
So, which is it? As the Beatles sang, I’d love to see the plan. As in: Here’s how we think the global economy operates today. Therefore, to strengthen America, here is where we think we need to cut spending, impose tariffs and invest — and that is why we are doing X, Y and Z.
That would be real leadership. Instead, Trump is threatening to impose tariffs on rivals and allies alike, without any satisfactory explanation of why one is being tariffed and the other not, and regardless of how such tariffs might hurt U.S. industry and consumers. It’s a total mess. As the Ford Motor chief executive Jim Farley courageously (compared to other chief executives) pointed out, “Let’s be real honest: Long term, a 25 percent tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we’ve never seen.”
So, either Trump wants to blow that hole, or he’s bluffing, or he is clueless. If it is the latter, Trump is going to get a crash course in the hard realities of the global economy as it really is — not how he imagines it.
My favorite tutor in these matters is the Oxford University economist Eric Beinhocker, who got my attention when we were talking the other day with the following simple statement: “No country in the world alone can make an iPhone.”
Think about that sentence for a moment: There is no single country or company on earth that has all the knowledge or parts or manufacturing prowess or raw materials that go into that device in your pocket called an iPhone. Apple says it assembles its iPhone and computers and watches with the help of “thousands of businesses and millions of people in more than 50 countries and regions” who contribute “their skills, talents and efforts to help build, deliver, repair and recycle our products.”
We are talking about a massive network ecosystem that is needed to make that phone so cool, so smart and so cheap. And that is Beinhocker’s point: The big difference between the era we are in now, as opposed to the one Trump thinks he’s living in, is that today it’s no longer “the economy, stupid.” That was the Bill Clinton era. Today, “it’s the ecosystems, stupid.”
Ecosystems? Listen a bit to Beinhocker, who is also the executive director of the Institute for New Economic Thinking at the Oxford Martin School. In the real world, he argues, “There is no such thing as the American economy anymore that you can identify in any real, tangible way. There’s just this accounting fiction that we call U.S. G.D.P.” To be sure, he says, “There are American interests in the economy. There are American workers. There are American consumers. There are firms based in America. But there is no American economy in that isolated sense.”
The old days, he added, “where you made wine and I made cheese, and you had everything you needed to make wine and I had everything I needed to make cheese and so we traded with each other — which made us both better off, as Adam Smith taught — those days are long gone.” Except in Trump’s head.
Instead, there is a global web of commercial, manufacturing, services and trading “ecosystems,” explains Beinhocker. “There is an automobile ecosystem. There’s an A.I. ecosystem. There’s a smartphone ecosystem. There’s a drug development ecosystem. There is the chip-making ecosystem.” And the people, parts and knowledge that make up those ecosystems all move back and forth across many economies.
As NPR noted in a recent story about the auto industry, “carmakers have built a vast, complicated supply chain that spans North America, with parts crossing back and forth across borders throughout the auto manufacturing process. … Some parts cross borders multiple times — like, say, a wire that is manufactured in the U.S., sent to Mexico to be bundled into a group of wires, and then back to the U.S. for installation into a bigger piece of a car, like a seat.”
Trump just waves off all of this. He told reporters that the U.S. is not reliant on Canada. “We don’t need them to make our cars,” he said.
Actually, we do. And thank goodness for that. It not only enables us to make cars cheaper, but also better. All that a Model T did was get you from point to point faster than a horse, but today’s cars offer you heating and cooling and entertainment from the internet and satellites. They will navigate for you and even drive for you — and they’re much safer. When we can combine more complex knowledge and complex parts to solve complex problems, our quality of life soars.
But here’s the catch. You cannot make complex stuff alone anymore. It’s too complex.
In a 2021 essay on the website of the Yale School of Public Health, Swati Gupta, head of emerging infectious diseases at I.A.V.I., a nonprofit scientific research organization, explained how mRNA vaccines for Covid-19 were developed in record time:
“Vaccines traditionally take 10-20 years to develop, and research and testing costs can easily mount into the billions of dollars. So the natural question in light of the Covid-19 pandemic is: How were the currently available vaccines developed so quickly? … There was unprecedented global collaboration through coordinated partnerships among governments, industry, donor organizations, nonprofits and academia. … It’s the only way we could have achieved what has been seen in the past year, as no one group could have done this alone.”
Ditto today for the most advanced microchips. They are now made by a global ecosystem: AMD, Qualcomm, Intel, Apple and Nvidia excel at the design of chips. Synopsys and Cadence create sophisticated computer-aided design tools and software on which chip makers actually draw up their newest ideas. Applied Materials creates and modifies the materials to forge the billions of transistors and connecting wires in the chip. ASML, a Dutch company, provides the lithography tools in partnership with, among others, Carl Zeiss SMT, a German company specializing in optical lenses, which draws the stencils on the silicon wafers from those designs. Lam Research, KLA and firms from South Korea to Japan and Taiwan also play key roles in this coalition.
The more we push the boundaries of physics and materials science to cram more transistors onto a chip, the less any one company or country can excel at all the parts of the design and manufacturing process. You need the whole global ecosystem.
On Christmas Day 2021, I got up at 7:20 a.m. to watch the launch of the James Webb Space Telescope to peer deep into space. According to NASA, “Thousands of skilled scientists, engineers and technicians” from 309 universities, national labs and companies, primarily in the U.S., Canada and Europe, “contributed to the design, build, test, integration, launch, commissioning and operations of Webb.”
Adam Smith famously identified the division of labor, and that is surely important — you can make more pins with fewer workers if you divide up the labor correctly. “That was great,” Beinhocker notes. “But the more powerful engine is the division of knowledge. That is what is required to make more complex things than pins. You have to harness a division of knowledge, a division of expertise.”
If you stand back and look at the big sweep of economic history, Beinhocker explains, “it is really a story of scaling up our networks of cooperation to harness and share knowledge to make more complex products and services that give us higher and higher standards of living. And if you are not part of these ecosystems, your country will not thrive.”
And trust is the essential ingredient that makes these ecosystems work and grow, Beinhocker adds. Trust acts as both glue and grease. It glues together bonds of cooperation, while at the same time it greases the flows of people, products, capital and ideas from one country to the next. Remove trust and the ecosystems start to collapse.
Trust, though, is built by good rules and healthy relationships, and Trump is trampling on both. The result: If he goes down this road, Trump will make America and the world poorer. Mr. President, do your homework.
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