I read this editorial early last month when it was published on the Bloomberg opinion pages. It was by Andy Grove, former CEO of Intel. It is a thought provoking, if somewhat incendiary piece.
Mr. Grove argues that the move of manufacturing jobs to low cost locations, especially in Asia, have resulted in the loss of “scaling skills”, i.e. the ability to move from a startup to an established, market leading industry. He worries that this will lead to a terminal disadvantage for US industries when it comes to emerging or green industries (like advanced batteries). He suggests the US imposing a tariff on all goods that have been manufactured off-shore. The revenue should be earmarked for supporting industries that will create jobs in the US in strategic industries.
To read such comments coming from a man whose company has benefited immensely by offshoring, and by exploiting new markets (and lower wages) abroad is shocking. It goes to show the existential angst the current economic conditions are causing. Slapping import tariffs on all good manufactured abroad is starting a trade war, and is naked protectionism. None of the The US’s key trading partners would take take kindly to such a move.
What could be the possible implications of such a move?
- It would cause a jump in the prices of imported goods. Politically, this would be a risky move. While people in the US have been agitating to “Take America Back”, it is difficult to see them taking a sudden jump in prices at Walmart without a murmur.
- Lets say they go ahead, and after a couple of decades these new industries do take off. With unilateral import tariffs, unless the goods made in the US have a huge advantage in quality or cost, there is nothing stopping competing products being created in other countries that could also have invested in new industries around the same time.
- With the ability now to send huge amounts of data instantaneously anonymously, it would be almost impossible to protect US intellectual property abroad. By imposing unilateral tariffs, the US would also lose political leverage, making it difficult to try and enforce US patent law abroad.
- As the industry manufacturing our hypothetical future commodity grow, they would come up against limits of domestic consumption. To continue growing, they would have to find markets abroad. There are guaranteed to be retaliatory tariffs imposed on US exports. So who will pay for these US jobs?
What Mr. Grove seems to be suggesting is a form of Mercantilism. What was a dominant economic theory of the 18th century might not work in a world that offers a much more level playing field.
Please find Mr. Grove’s original article here on Bloomberg.