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Adam Posen has an excellent piece in Foreign Policy:
Beginning with the Trump administration, and accelerating under the Biden administration, U.S. trade and industrial policy has prioritized relocating manufacturing production back to the United States. For all their differences, both administrations disregarded other countries in this pursuit. Both also attacked international trade and investment as harmful to U.S. economic and national security, even though the rules for that very system were established by the United States and serve its interests. Along with members of Congress from both parties, the Biden administration has sought to take away production from others in a zero-sum way—explicitly from China and a bit more courteously from others.
This policy approach, while having considerable popular appeal at home, is based on four profound analytic fallacies: that self-dealing is smart; that self-sufficiency is attainable; that more subsidies are better; and that local production is what matters. Each of these assumptions is contradicted by more than two centuries of well-researched history of foreign economic policies and their effects.
The US has benefitted from leading a rules based system of global trade but it is throwing the rules away to go after individual countries on a one-on-one basis.
In big-league sports, the best job is to be league commissioner. As commissioner, you make money whichever team wins or loses on a given day, you are welcome at every stadium (even if occasionally booed), and you can ultimately decide the big questions of how the game is played and who is allowed to own a team. If you instead become identified with a single team, sometimes you win, sometimes you lose, but most importantly, others have an interest in your losing. You might even get repeatedly punished for cheating, instead of being the one to decide who is cheating.
Buy American doesn’t work.
The idea of “Buy American” has broad populist appeal. It connotes an economy that is self- sufficient, producing all it needs, and “putting American workers first.” Yet detailed research has repeatedly shown that policies aimed at maximizing domestic manufacturing employment rather than the development and adoption of new technologies are not only doomed to fail but crowd out the very industrial and trade policies that contribute the most to innovation, national security, and decarbonization.
The US should bet on rules and growth.
At its core, a successful U.S. industrial policy is one that promotes the widespread diffusion and adoption of the best technologies, even if that means the United States purchasing them from production located abroad. Innovation and technical progress are accelerated by having common standards at global scale, not by politically captured industries with barriers to entry. This approach is especially necessary for decarbonization but also to increase supply chain resilience and the ability of other countries to stand up to Chinese threats.
Read the whole thing.
The post America’s Zero-Sum Economics Doesn’t Add Up appeared first on Marginal REVOLUTION.
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