Nobel Prize Vindicates Economic Nationalism, Part III: When Creative Destruction Fails
Today is the third and final part in our series exploring the theories of Joel Mokyr, Philippe Aghion, and Peter Howitt — the winners of the 2025 Nobel Prize in Economics — which explore how innovation drives growth.
In Monday’s Breitbart Business Digest, we examined Mokyr’s research on political fragmentation and sovereignty. Yesterday, we explored how Aghion and Howitt’s theory of creative destruction reveals why China’s IP theft kills innovation. Today, we will review Aghion’s empirical discovery that offshoring destroys communities in ways that domestic innovation does not.
We’ll examine what happened when economists tested those theories against real-world data and discovered a truth that validates what Rust Belt voters have been saying for decades.
Not all job destruction is created equal. The effects on communities depend entirely on what’s destroying the jobs.
Offshoring Destroys Innovation: Aghion’s Later Discovery
Building on the creative destruction framework that won him the Nobel Prize, Philippe Aghion later conducted empirical research that revealed a politically explosive finding: not all job destruction leads to the creative benefits the theory predicts.
In a 2015 paper with colleagues including Angus Deaton (himself a 2015 Nobel laureate), Aghion examined how different types of job turnover affect community wellbeing. The findings provide rigorous confirmation of what factory workers have been saying for years.
They found that job turnover driven by domestic innovation increases people’s well-being. When a new tech startup displaces an old manufacturer, the creative destruction is genuinely creative. New opportunities emerge, displaced workers can find jobs with more productive firms, and communities benefit from higher growth.
But job losses driven by offshoring to China showed the opposite effect. Communities experienced lasting welfare losses that persisted even after controlling for unemployment and even with unemployment insurance. The problem wasn’t just temporary joblessness. It was the permanent absence of the new opportunities that normally accompany creative destruction.
When a factory closes because a better American company out-competed it, that’s progress. When a factory closes and moves to Shenzhen, that’s destruction without the creative part.
Why Factory Workers Were Right
This distinction validates what factory workers understood intuitively. The welfare effects of different types of job churn are fundamentally asymmetric.
Voters in manufacturing regions weren’t being irrational or protectionist when they opposed normalized trade relations with China. They weren’t motivated by racial resentment or xenophobia. They were responding to a genuine economic phenomenon that rigorous research now confirms.
The economists and journalists who dismissed their concerns as “economic anxiety” or worse were simply wrong. The data proves it.
The findings also explain why “trade adjustment assistance” programs consistently failed. The programs assumed workers just needed retraining and temporary support.
But the real problem was structural. When entire industries offshore, the domestic creative destruction mechanism breaks down. There’s no new, more productive firm waiting to hire displaced workers. The jobs are simply gone.
You can retrain a Midwest factory worker; but if there are no jobs in their community, the retraining accomplishes nothing. The absence of employers isn’t a skills issue.
Industrial Policy Preserves Creative Destruction
Here is the reframing that follows from Aghion’s research: policies that keep industries domestic aren’t protectionism in the old sense of propping up inefficient industries. They’re preserving the conditions for welfare-enhancing creative destruction.
When industries stay domestic, competition forces innovation between American firms. Productive companies expand while unproductive ones contract. Workers can move between domestic employers. The Aghion-Howitt cycle functions as the model predicts: creative destruction generates growth and rising living standards.
When industries offshore to subsidized foreign production, job destruction happens without domestic job creation. Workers face permanent displacement. Communities experience genuine welfare losses. You get only the destructive part—exactly what Aghion’s empirical research documented.
The choice isn’t between free trade and protectionism. It’s between maintaining the conditions for domestic creative destruction versus allowing those conditions to be destroyed by offshoring.
China doesn’t compete on pure efficiency. It subsidizes production, provides below-market land and energy, requires foreign companies to manufacture locally for market access, and engages in systematic IP theft—as we discussed yesterday. That’s not comparative advantage. That’s state-sponsored dumping designed to destroy foreign industrial capacity.
Trump’s Tariffs Triumphant
Donald Trump’s tariffs correct for China’s market distortions and preserve the domestic competitive environment where creative destruction can function as Aghion and Howitt’s theory predicts it should.
The confident predictions that Trump’s tariffs would cause economic catastrophe proved spectacularly false. Economists decided to play half-educated political scientists, predicting massive retaliation, spiraling trade wars, global recession, soaring consumer prices, and collapsing exports.
Instead, most countries reacted to tariffs by offering to negotiate, lower their own trade barriers, and invest in the United States. There has been no global trade collapse, continued U.S. economic growth that has accelerated this year, and prices of consumer goods subject to tariffs are not rising rapidly.
The data validated the policy—exactly as the Aghion framework suggests it should. Preserving domestic competition preserves the creative destruction mechanism that drives innovation and wellbeing.
A large domestic market with healthy internal competition generates plenty of innovative pressure—exactly the kind of dynamic competition that the Aghion-Howitt framework shows drives innovation and growth.
The argument that we need Chinese competition to keep American firms innovative is empirically false. We need competition—but that competition can and should be domestic, where the creative destruction cycle functions properly and benefits American communities.
Economic Nationalism Vindicated
Across three days, we’ve explored how this year’s Nobel Prize validates economic nationalism at every level:
- Mokyr’s historical research: Political fragmentation and sovereignty—not centralized harmonization—drive innovation. The EU’s regulatory unification threatens the very conditions that made Europe innovative.
- Aghion-Howitt’s theoretical model: Innovation requires that firms can capture returns from breakthroughs. China’s IP theft destroys that mechanism. The model also shows that moderate competition drives innovation, which domestic markets can provide without offshoring.
- Aghion’s empirical findings: Offshoring destroys communities in ways that domestic innovation does not. The welfare effects are asymmetric. Factory workers who opposed the China trade deal were responding rationally to genuine economic harm.
The folks who give out the Nobel Prize in Economics likely didn’t set out to endorse economic nationalism. But by honoring the work that explains why sovereignty, fair trade, and domestic competition drive prosperity, that’s exactly what they did.
The post Breitbart Business Digest: Un-Creative Destruction — How Offshoring American Jobs Destroys Innovation appeared first on Breitbart.
