Industrial policy has been a frequent subject on Smith's blog, for those who don't follow it. (He's for it, and thinks that Biden's industrial policy was mostly good - it's worth following the links in this post.) This post focuses on defense-related geopolitical industrial policy goals and pros and cons of anticipated changes under the incoming Trump administration and Chinese responses. Particularly, he highlights two major things China can do: Restrict exports of raw materials (recently announced) and use their own industrial policy to hamper the West's peacetime industrial policy (de facto policy of the last 30 years). These are not extraordinary insights, but it's a good primer on the current state of affairs and policies to pay attention to in the near-future.
Noah Smith: Manufacturing is a war now
noahpinion.blog
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I saw this blog article too and I think it's a convincing case why we need tariffs with China.
Noah even undersells the benefits of tariffs when he says something like "with peaceful partners (i.e. not China) the best economic policy is free trade plus redistribution to the losers of free trade". While that may be true when it comes to maximizing GDP, it is not true on a more holistic level.
People who live in a burned out city in the Midwest probably don't reflect warmly on the destruction of their community just because they now qualify for food stamps, Section 8 housing, and other forms of welfare. They would much rather have a good paying job and a thriving hometown.
But going back to Noah's argument, he's spot on. There has been a lot of cope in the Western world about the rise of China.
Cope exhibit 1) Look at Germany, they are still making stuff!
Cope exhibit 2) The U.S. still has a massive manufacturing sector!
Cope exhibit 3) The U.S. and Europe will continue to make high value products while China takes only lower end items
These arguments have all been brutally shattered in the last decade, as China continues to take more and more of the pie, and is moving into higher end items. Germany and Japan in particular are being hollowed out by Chinese competition. China will soon produce as much as the rest of the world combined.
Moving into industrial policy, Noah accurately points out that we need something like it. And he rightfully acknowledges that government spending isn't enough. California has spent $100 billion on high speed rail, has created 13,000 jobs, and has almost nothing to show for it. But he seems to be too sanguine on the Chip Act, which is itself a massive boondoggle, and not a great success for Biden as he frames it.
Tariffs and the free market will solve a lack of domestic manufacturing in a way that bloated government programs cannot.
I like the end of your post the most.
Noah Smith can admire the problem all he wants, but his solutions have a big problem; they're Government operated or implemented solutions.
Philosophical questions about the role of the Government aside, pretty much all the literature I can find clearly demonstrates that state capacity and ability are utter dogshit, and have been trending that way since the 1970s. It's largely a regulation problem, but, more deeply, a matter of difficulty in managing complexity. Market systems manage complexity much better because there is "skin the game" and cost-benefit is more well informed. Market participants crash towards an equilibrium in a way that a central planning authority simply cannot.
I am not only suspicious, but highly doubtful that any sort of Federal level industrial policy will bear fruit. The CHIPS act is a great case in point.
So let's tag in free markets and de-regulate, right? Well, first, absolutely yes! But there's also the unfortunate reality that one of the byproducts of this is unpopular at the moment; a very small number of people will get incredibly rich.
We can set Wall Street and the Tech Bros loose on re-building American industrial capability and they will do it faster, better, and cheaper than the government. Jobs with good salaries will be created (though I am suspicious enough of those jobs will be created). And something like 100 new billionaries could be minted, with even more money being chopped up between VC/PE investors, banks, etc. I think this creates a cultural problem where people will want the good jobs, but hate the New Elons that emerge from the new companies.
This is the cultural tradeoff for economic growth; for the median to do better (much better) you have to allow for the fact that a tiny minority will do astronomically better.
Right now, there are major parts of both American political parties that look at wealth as inherently unearned at the best or morally wrong at the worst. If that attitude doesnt' change, a return to growth ethos is inherently limited.
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I'd like to think so, but I'm also pretty bullish on the ability of bloated government regulations to get in the way. We really could just strangle ourselves here.
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