If you need just 2 charts to understand just how disconnected from reality the Trump administration’s narrative and actions are, these are it.
If you were to listen to them, you’d think that the “China shock” de-industrialized America and, in the words of Scott Bessent himself (in his interview yesterday with Tucker Carlson), that “China’s export level relative to their GDP” are so out of proportion that “we’ve never seen anything like this”.
The only problem is that none of this is true.
Which is a big problem because when you act upon a wrongful understanding of reality, your actions will at best be ineffective, at worst be self-harmful.
The truth is that China is actually NOT anywhere near an “export economy”. They export a lot in absolute terms, that’s true, but as a percentage of their GDP China actually depends surprisingly little on exports.
Have a look yourself: https://en.wikipedia.org/wiki/List_of_countries_by_trade-to-GDP_ratio China is 159th out of 195 countries in the world when it comes to the importance of exports in relation to their GDP. Exports represent 19.74% of their GDP when the world average is 29.27%.
Germany for instance can be said to be an “export economy”: exports represent 47.14% of their GDP. Or South Korea at 44%. But China? Definitely not.
So the notion that tariffs on the whole world and a major disruption in global trade would be uniquely harmful to China is completely wrong. In fact China will be one of the countries out there that’s the least impacted by this.
You should be much more worried about Germany or South Korea, for instance.
Similarly, the notion that it is the “China shock” or the era of neoliberal free trade that “stole good-paying manufacturing jobs” in America is just as wrong.
Check the chart: both NAFTA and China joining the WTO had virtually no impact on the manufacturing share of U.S. employment: it just continued on the same downward trend it had been in since the beginning of the 1950s.
Which means that it makes no sense to solve a problem with trade policies when it has very little to do with trade in the first place. It’s like treating a patient’s broken leg with heart medication. The diagnosis is wrong, so the prescription can’t possibly work.
Heck, in this case, the prescription will even probably be detrimental to the patient: by definition, to manufacture more stuff, you need the customers for it. And tariffs will lower disposable incomes at home (because they’re a tax on consumers and businesses) and reduce the market for U.S. products abroad.
And not only will the tariffs reduce U.S. companies’ customer base, they’ll also dramatically increase their costs.
Think of a company like Apple that has invested tens of billions developing intricate supplier networks spanning dozens of countries—networks that would take 5-10 years minimum and astronomical costs to replicate domestically. They can either absorb the massive tariff costs—severely impacting their profitability—or pass these costs to consumers through higher prices, making their products less competitive globally.
So what should be done? First of all to solve a problem, you need to be clear on what the problem is.
Is the problem that manufacturing jobs have disappeared? If that’s the case, I have bad news for you: they’re not coming back, ever. The real reason why they disappeared is automation and productivity gains so, unless you want an America populated by sweatshops and assembly lines early 20th century style, you probably don’t want this.
If the problem however is that the U.S. is losing its competitive edge in advanced manufacturing and emerging industries - which is an actual thing - then the last thing the U.S. should do is its current policy of autarkic tariffs.
No country that is currently on the cutting edge of advanced manufacturing - be it China, Germany or South Korea - did it through tariffs. They did it via patient decades-long investments in education, infrastructure, massive public R&D support, long-term industrial policy, etc.
And, in most cases, they did it by opening themselves up to the world, with free trade. China’s EV and smartphones successes is a perfect example of that: did they succeed by shutting their door to Tesla and Apple? No, on the contrary: they did so by welcoming them with open arms because they understand that to beat the best, you actually need to compete with the best.
At the end of the day, America’s greatest vulnerability doesn’t come from abroad but from within, specifically its growing inability to distinguish between its own simplistic propaganda and reality.
Of course it’s much more comforting to tell yourself that China “stole” your manufacturing jobs and to believe in the silver bullet of tariffs. And it’s certainly more politically expedient to promise quick fixes than to explain that transforming industrial capacity requires decades of consistent investment in education, infrastructure, and R&D.
Unfortunately, it’s not true.
Which is a big problem because when you act upon a wrongful understanding of reality, your actions will at best be ineffective, at worst be self-harmful.
At the end of the day, America’s greatest vulnerability doesn’t come from abroad but from within, specifically its growing inability to distinguish between its own simplistic propaganda and reality.
Marx failed to consider that capitalism would collapse because the ruling class are fucking stupid.
And that stupidity of the ruling class is in turn a consequence of the system, of its incentives and its ideological structures. This is the kind of leadership that such a system will inevitably produce in order to perpetuate itself in the short term, since a less stupid leadership would not continue with a model that is not fit for purpose and clearly failing, even though doing so dooms it in the long term.
They seem to be operating under the assumption that tariffs are free money cheat codes. If you put 10% tariffs then the other party is just going to pay you 10% more. Quick maffs.
They are operating under the assumption that tariffs are a way to punish or threaten other countries. In reality they are punishing American consumers.