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John Lennon, Niccolo Machiavelli, and Trade Policy
Over at NationalReview.com, Scott Lincicome posted “On ‘Supply-Chain Repatriation,’ It’s Buyer (and Nation) Beware.” Lincicome claims to be an expert on trade policy and is affiliated with Cato and Duke University. But, as far as I am concerned, he is just an interchangeable part in the chorus of Econ 101 theorists who have advocated for free trade and global supply chains for the past 50 years. For convenience, I will call Lincicome and his like-minded confreres, the FTGSCs.
Lincicome cited a bunch of numbers intended to demonstrate that the apparent grip of China on our oxygen line is not a real problem. Fortunately, Lt. Gen. (USAr Ret.) H.R. McMaster and Scott Atlas, M.D., who are far smarter, far more accomplished, and far more experienced than Mr. Lincicome, wrote in today’s Wall Street Journal:
“While U.S. pharmaceutical companies may preserve redundancy in their sources for patented drugs, the generic drug business, which accounts for more than 90% of all U.S. prescriptions, prioritizes low cost over supply-chain resiliency. Most generics, including antibiotics, are imported from India—and India imports some 70% of its active ingredients from China. America needs to understand and diversify sources of supply, as well as maintain a strategic reserve of antibiotics and the key drugs for the most prevalent serious diseases.”
* * *
“Beyond scale and complexity, details on drug manufacturing are opaque and complex. The Food and Drug Administration requires country-of-origin markings, but the U.S. Court of Appeals for the Federal Circuit ruled in February that processing ingredients into tablets in the U.S. is enough to constitute “manufacturing.” A drug made into tablets in the U.S. with active ingredients from India may list only the U.S. as “principal place of business” for FDA purposes.”
The FTGSCs have claimed that if we followed their recommendations of universal free trade and global supply chains, we would grow rich and suffer not a bit. Their world is one described by John Lennon: “Imagine there’s no Countries.” The China Virus has been a slap in the face. It turns out the world was not the way Lennon thought it was. It was the world described by Niccolo Machiavelli and Thomas Hobbes.
We now know that we live in a world in which our bitter enemies hold the keys to our health and welfare. Not only that but in the last two months, we have burned every nickle that the FTGSC’s free trade fetish has saved in the last 50 years. By the time this catastrophe has passed, we will be in a $20 trillion hole that will take generations to dig out of.
The FTGSCs also promised us that if we opened up trade with China, it would change them and make them open, liberal, and friendly. Instead, China has grown more repressive, racist, tyrannical, imperialistic, and arrogant. They are now a far worse and far more dangerous enemy than the Soviet Union ever was. In fact, the FTGSCs were so spectacularly wrong about China that all the rest of their advice has been rendered simply incredible.
Slowly, the Capitol has wakened to the problem and has begun to propose legislation to reverse the tide. My only problem with the proposals coming from the Capitol is that they are not nearly tough enough. The Trump tariffs were just a down payment. Anything that we import directly from China should be taxed at 100 percent. The parts or ingredients from China used in things imported from other places should also be taxed at 100 percent.
We also need to conduct an inquisition (word chosen deliberately) of all importers as to the composition and origin of the things they import. The results of the inquisition should be a public record. Trade secrets be damned.
I am not an opponent of trade. I think we should trade freely with those nations that are friendly and well-disposed toward us. I back NAFTA/USMC fully. I think we should enter into free trade agreements with many other friendly democratic nations, like the UK and Japan.
But, our enemies should get the back of our hand.
Incidentally, by not enumerating a comprehensive program for stamping out the virus of Chinese aggression in the United States, I am not saying we don’t need one. We do. Ban the Confucius Institutes from our college campuses. Require American trustees for any purchase of property or businesses by Chinese persons. Do not allow Chinese students into the US unless they can prove they have no link to the Communist Party, the Chinese Regime, or its military. And on and on. If the Chinese retaliate by excluding Americans from China, so much the better. I don’t need to see the NBA apologize for their murderous tyranny.
Published in General
The FTGSCs have never understood that trade is about political power. They think the United States is powerful because we are rich. It is exactly wrong. We are rich because we are powerful.
There was a time when most business was relatively small, most economies primitive, moving goods slow and relatively expensive so we worked to bring their costs down, steam ships, railroads, roads, and we did well, amazing actually, becoming more prosperous than ever imagined so it made a lot of sense to preserve the system that made the world so prosperous. Now our economy alone is bigger and more diverse than the world economy just 30 years ago. Alone, and especially with close allies we are vastly larger, big enough to reach any imaginable economies of scale and prosperity. Moreover, disinterest in individuals grows with size, so size that was the source of our prosperity, no longer works in that direction. We need to rethink the whole thing beginning with China. We should become more decentralized and freer with reduced controls, including international controls, but closer to specific allies and more remote from some countries. Countries must engage in free trade, actually the original idea, or don’t get to play with us by the same rules.
Free Trade.
That was the rubric under which the British waged the Opium Wars against China, which had banned the trade in opium. The British goal was to force China to accept opium grown in Britain’s colonies in trade for the Chinese goods the British wanted. China demanded silver.
Britain was discovering the wonders of printing paper money, but the Chinese demanded silver. Britain had colonies in which to grow opium and had a superior military.
The upshot was that the British Navy exercised what later became known as “gunboat diplomacy;” the RN wrecked the Chinese navy and supported the landing of ground troops. A treaty was forced on the Emperor which included China ceding Hong Kong to the British; other humiliating treaty provisions were the result of the two defeats China suffered in the Opium Wars.
Oh, sure. There were certainly many Chinese merchants who grew wealthy under the system that had been forced on China. Sure, China was a dynastic empire then, and today China is ruled by the CCP, and its rulers aren’t all from the same family. Totally different.
But do you think China restricts its definition of “war” to employing the People’s Liberation Army’s military forces?
What about the factories, the port facilities around the world which the PLA owns or runs, the students permitted to study in the US, the bureaucracies that deal with foreign businesses in China?
Do you think China has forgotten the definition of “free trade” imposed on it by force?
First and foremost, China needs to be immediately expelled from the WTO. They lied to achieve membership (they are not and never will be a market economy), and should be thrown out for that reason.
It was a little more complicated than that. China refused to allow the export of tea plants and insisted on silver for tea, which was the solution for typhoid and cholera. Boiled water was the most important ingredient of tea. The opium trade was to complete the trade circle. Eventually, the tea plants were smuggled out of China and established in Ceylon.
The closing of the last US deep fermentation plant for penicillin (The US invented the method) was the result of a Chinese cartel that undercut prices at a loss until the plant closed.
You can make the case–Adam Smith did–that national defense concerns can override the benefits of free trade, but why in heavens name would you ban all imports from a country? If the Chinese government cuts off our supply of coffee tables, should we really worry? Is national security really the concern?
The national security argument is being stretched way out of shape by the Protectionist Crony-Capitalist Crowd (call ’em PCC, just to cheese off Pasadena City College). Current aluminum and steel tariffs are strong evidence of bad faith by the current administration. We import not that much of either and most that we do import comes from our allies (mostly the perfidious Canadians, admittedly). China got spanked for dumping (by the FTGSC WTO) years ago. On worries about Huawei, someone needs to explain the potential problem (encryption back-door?*) and then explain why we should trust Cisco or Nokia or Ericcson either. Maybe the problem’s system certification, not country of origin.
Drug supply sounds like a winner, but it would be so nice if someone would get specific. The trust well is poisoned. What’s in question, how long does it take replace from other sources, and are drug companies really so incompetently run as to depend on single sources for basic compounds? On most commodities it’s probably good to be mindful that we somehow prevailed in WWII when our enemy controlled the world supply of natural rubber. Germany gave it a good run without much of a supply of petroleum for the same reason we had little reason to worry in 70s about oil–it can be replaced at a price. We’re still really good at chemistry.
*Not entirely sure this is even a problem if true. If you want secure communications, public systems has never been the way to go.
I don’t want any of my family’s medications sourced from China. I bet I’m not alone in my intolerance.
Globalism delenda est.
Yeah, what’s the plan? How much will it cost American taxpayers to create incentives for private companies to locate manufacturing plants in the US?
I’m all for a world where I pay a few bucks more for jeans made in the USA. But usually almost always the road to that objective is lengthy, complex and filled with both known unknowns and unknown unknowns. We can’t just turn the calendar back to 1965. And anyone who tells you that, is selling something.
China had a tremendous appetite for silver. Actual, physical silver. China’s economy ran on silver, due to its frequent problems with fiat currency. But the pound sterling…
OK, so China tried to preserve its monopoly on tea and wanted silver. So the Chinese wouldn’t take Britain’s debased money at face value and the Brits didn’t have the silver they needed to actually, you know, pay. Part of actual free trade is to be able to set the prices you think you should get. It’s the market that’s supposed to punish you if you’re both wrong and stubborn. Not the Royal Navy, the Royal Marines, and the British Army “completing the circle of trade” by force.
That was called “free trade” by the British. And guess what? The US was there. Sure, the British were the major players in the Opium Wars and the suppression of the Boxer Rebellion. But American troops did participate in the Opium Wars, at least the second. And in the suppression of the Boxer Rebellion, and in the looting of the Forbidden City. What China has been doing to the US looks, among other things, a lot like revenge to me.
“But, our enemies should get the back of our hand.”
That’s the kicker that is interchangeable with the chorus of protectionists. Who keeps this list of countries that are our “enemies”? Will this list be subject to special interests?
Like pornography, you know ’em when you see ’em: Nazi Germany, Fascist Italy, Red China. . .
Time to admit bringing the ChiComs into the family of nations — or, at minimum, the WTO — was a mistake.
Adam Smith: Defense or national security is more important
thatthan opulence.Milton Friedman said something similar on Donahue in 1979: we can recover from domestic policy mistakes. We cannot recover from mistakes in foreign policy and national security. Those mistakes can be fatal.
Arthur Laffer: if you go to war, it means you didn’t spend enough on defense to deter your enemies
Me: It’s a disgrace that we spend more on social security than national security
China used Mexico and Canada to evade limits on imports. The renegotiation of NAFTA fixed that.
The other significant fact on importing drugs from China is the abysmal history of quality control in China. The Heparin scandal is only one story.
https://en.wikipedia.org/wiki/2008_Chinese_heparin_adulteration
We have had another semi-scandal on contamination of generic Zantac. The Chinese are notorious for poor hygiene. My daughter has visited a few times and has friends in Shanghai. She was out to breakfast with them one visit and was warned not to eat the fluffy looking muffins as the bakers put detergent in them to make them fluffier.
Legal reform, or shipping 10,000 lawyers to China would be a start. The plague of lawyers got much worse in the 80s and coincided with a lot of manufacturing going offshore. The EPA alone is responsible for a significant share.
There is a third option: trans pacific partnership
China is not part of TPP
That was called “free trade” by the British. And guess what? The US was there. Sure, the British were the major players in the Opium Wars and the suppression of the Boxer Rebellion. But American troops did participate in the Opium Wars, at least the second. And in the suppression of the Boxer Rebellion, and in the looting of the Forbidden City. What China has been doing to the US looks, among other things, a lot like revenge to me.
The Germans played a big role in the Boxer Rebellion. The Americans had a small role. British, Germans and Japanese were far more important , especially at the Taku Forts.
https://en.wikipedia.org/wiki/Battle_of_the_Taku_Forts_(1900)
Ack!
Secretary of State John Hay and the Open Door policy
Drain the swamp: abolish the admin state, the unelected 4th branch of govt
Eliminate taxes on corporation
Deregulate, deregulate, deregulate, deregulate
The military is perhaps our most important social spending program.
All true. But there’s no point in going after the Brits or the Germans. The last British toehold in China is gone, there is no more British hegemony. Germany is in decline, and can’t project much power. The US has replaced the Brits as the bastion of Western Civilization. The Chinese have hundreds of thousands of more recent bones to pick with Japan, too. But without the US in the way, Japan will be easier.
My bet is the Chinese targeting list isn’t “the nation that did the most to hurt us then but is in decline now” but is “the nation that hurt us in the past and is the major obstacle to our fulfilling our destiny now.”
Not that revenge is the motivation. But a nation indoctrinated to support global hegemony and ruled by a regime that enforces conformity using both carrot and stick can be more motivated when the bloody shirt is judiciously waved and a grievance against a barbarian enemy is fanned.
Expand Chinese power and influence without causing a war. And have sufficient credible military power to ensure potential adversaries think twice.