Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

24 June 2018

Waging War With No Plan

[For a brief note on how corporate rule is encroaching on American cities, click here. For our desperate need for voters to focus on good character, click here. For an analysis of facts and Kim’s myth about North Korea, click here. For a second post on training new voters, click here. For links to popular recent posts, click here.]

Do you like the taste of defeat? Did you enjoy our ignominious exit from Vietnam, ending with this iconic image? Are those of you from our American South nostalgic for General Sherman’s march through Georgia?

If so, you are in for a treat. Coming soon to a venue near you will be the most monumental defeat in American history. In economic impact and long-term effect, it will easily eclipse Vietnam and Sherman’s march through Georgia. It will change the status of our nation and the future history of the world. It will end with China on top and us a has-been nation.

Unless we change course or strategy radically, that’s how the trade war that our president just started will end.

How do I know? Our Commander-in-Chief, age 72, has no strategy and no battle plan. Our General Wilbur Ross, aka Commerce Secretary, is eighty years old. In a recent conference, he didn’t have the faintest idea what was going on in the field of battle. He had no data, no answers, only the type of vague excuses that you would expect of a bad prepubescent student asked a question for adults.

Think about that: a “war” with no plan, no strategy, not even battle tactics. Think more: a “war” run by senile men whose chief claim to fame is their own personal riches and luxurious lifestyle, and whose top games are “show” and blame. Think a third time: a “war” in the computer age with no plan and no data.

The Chinese have a plan. In fact, they have three. They have even given them names and made them public. Their “Belt and Road” initiative is a long-term plan to focus trade and development on their neighbors in Asia, who collectively have five times our population and need everything. China is already beginning implementation.

As this plan takes shape, China won’t need us as an export market. But we will need China as a market because the Chinese are about one-quarter of the entire human race. That’s a big market, and as China pulls ahead it will become a global trend setter. So much for Trump’s usual breezy, thoughtless pronunciamento, this time that trade wars are “easy to win.”

China’s second plan is called “Made in China 2025.” By that year China plans to be a leader in research and manufacturing at the cutting edge of technology. That plan “aims to shift China’s economy into higher value-added manufacturing sectors, such as robotics, aerospace and energy-saving vehicles[.]” It also targets electric cars, quantum computing and artificial intelligence. In other words, China’s plan is to dominate the high-tech fields that will create the jobs of the future.

If China succeeds, it likely will do so with the aid of American ideas and technology. Some of them will have been stolen by cyber theft or routine espionage. Some will have been coerced from Americans as a condition of market access. (For recent evidence of China’s intellectual-property theft and copying and their relationship to its “Made in China 2025” policy, see this article, which discusses police raids, criminal charges and civil suits stemming from an alleged theft of microchip memory technology in Taiwan.)

Apparently the Trump Administration has not curtailed previous efforts to document and prosecute this sort of theft. But if Trump and his team have a plan to reduce, let alone stop, the theft—or coerced “voluntary” transfers of American technology—they have not made it public.

The problem is of such scope and scale as perhaps to require active cooperation at the highest levels of China’s government. That would require some sort of deal with China, not a trade war. And either a deal or a trade war requires a plan. There is none.

China’s third plan is really a battle tactic. It’s focusing its retaliatory tariffs on agricultural products and whiskey (a product of Mitch McConnell’s state). The purpose is to do maximum damage to the American pols (and their constituencies!) who got us into this unnecessary, random war.

By raising their prices in China, this third plan will reduce demand in China for American soybeans and other American farm products. Chinese buyers are already looking for alternative suppliers in the Southern Hemisphere. As global demand for American farm products drops, prices for them will, too, directly reducing the income of American farmers in Trump-friendly Midwestern states. How’s that for micro-targeted retaliation?

In contrast, we in America have no plan at all. All we have is a few lonely figures: China’s $509 billion imports to America in 2017, and a desire to whittle that number down, beginning with tariffs already imposed on $50 billion of Chinese goods and more ($200 billion) to come if China doesn’t immediately surrender. How likely is that surrender?

These are not plans. They are goals. They are like saying, in a real war, “the enemy has twenty million people. If we kill off three million of them, the enemy will surrender.”

That was exactly how we thought and what we did in Vietnam. Johnson and Nixon kept thinking, in effect, “We’ll bomb them into submission.” Eventually (and to our eternal shame), we killed an estimated 3.5 million people in Southeast Asia. But we lost the war and left with our tail between our legs.

To win, you need a plan and a strategy, and they’ve got to make sense. At least they’ve got to make more sense than one child bragging to another, “My tariffs or nuclear button is bigger than yours!”

As Colin Powell proved in running our shortest and most successful modern war (Gulf I), you’ve also got to have an “exit strategy:” a plan for how you get out of the war and what to do afterward. If Trump and his team have an exit strategy, I haven’t heard of it. Hoping and predicting that a formidable and resourceful foe will surrender is not a strategy. It’s wishful thinking.

The purpose of tariffs, supposedly, is to bring good manufacturing jobs back into the United States. How are they supposed to do that?

Tariffs raise the prices of foreign products to American businesses and consumers. But raising domestic prices of anything doesn’t create jobs. According to the universal law of supply and demand, raising prices lowers sales.

The only way tariffs can create jobs here is with the help of American investors. If investors see an opportunity created by the tariffs and the resulting higher domestic prices for certain imports, and if the investors respond to that opportunity by investing in new American factories or reopening old ones, then (and only then) might there be new, good jobs for Americans. Those jobs will remain only as long as the tariffs stay in place and our citizens can make things cheaper than the tariff-augmented prices of comparable foreign wares.

And one other thing. However high, our tariffs affect only our own market. For the other 95% of humanity, they have no effect. The playing field there is level, except for whatever retaliatory and other tariffs foreign countries choose to impose. So if successive rounds of retaliatory tariffs reach their logical conclusion, the result will not be an America globally dominant again, but an America economically isolated. How’d that strategy work out for Russia?

Even if isolating our country economically is a proper goal, what’s next? What’s the first step in a battle plan to win a tariff war whose primary goal is to bring back American jobs? It’s making sure that American investors are ready, willing and able to invest in factories to make the stuff on which we impose tariffs. Doesn’t that require some preparation, a plan, and maybe some data collection?

Has anyone in Trump’s government actually done any of that? To my knowledge, there have been no surveys of investors, no conferences of industrialists or financiers. Not even pep talks. There have been no attempts to generate interest among our plutocrats, whose pockets are bursting with cash from the Trump Tax Scam. Nothing.

Apparently, the Trump administration has based its huge tariffs on steel and aluminum entirely on a “Hail, Mary” approach: “If you tax it, they will come.”

Not only that. The Trump administration apparently hasn’t even tested which sectors of the US economy might be amenable to greater domestic investment in products now imported. As far as you can tell from press reports, Trump put high tariffs on steel and aluminum because they are “strategic.”

Yes, steel goes into a lot of things, from buildings to cars to railroads to washing machines. Yes, aluminum is a key metal for aircraft and more-efficient cars and trucks. But no one is going to create new jobs making steel or aluminum in America without voluntary private investment. And Trump and his team haven’t even begun to assess any willingness to make that investment here at home, let alone in which sectors and specific industries. How’s that for a plan?

There is a way to bring jobs back home, and it might have avoided this unnecessary, random trade war. It’s rebuilding our disgracefully outmoded and dilapidated national infrastructure. Our own American Society of Civil Engineers says we need to invest $2.0 trillion (with a “t”) in infrastructure.

The $1.5 trillion we just wasted on Trump’s Tax Scam would have made a good start on that project. And it would have created good jobs here at home. You can’t “outsource” building a bridge, highway, airport or cell phone or Internet backbone here at home.

If we had spent that money on our own infrastructure, instead of on tax giveaways that the rich and corporations didn’t expect, didn’t need, and don’t deserve, there would be plenty of money to invest in building here at home. Then our tariffs might have “bite:” they might have motivated private investment in our own infrastructure. But now, in the absence of so much as a survey of investment interest among our plutocrats, the tariffs are like throwing drunken roundhouse punches, at random, at a trained boxer.

How well-trained and disciplined is China? How formidable a trade foe? Well, China has four times our population. Several hundred million of its people, maybe twice our entire population, just emerged from extreme poverty in the last generation, primarily due to China’s trade policy. As a result, they are willing to work harder and under worse conditions than most American workers. To add to that, China’s people are far more unified under China’s authoritarian government than we are under our disputatious, bigotry ridden, oligarchy-tending “democracy.” Finally, there’s that huge “Belt and Road” market for Chinese manufactures, with five times our population.

So who’s going to “win” this trade war? Probably no one decisively. No one ever “wins” a war. The “winner” only loses less.

We Americans have a disastrously unrealistic view of war because we were the only participant in World War II to end up with our territory, economy and industries largely intact. But this trade war will not (directly) kill people or reduce buildings to rubble. It will just slowly and steadily shift productive power and economic might from America to China (and maybe also to Europe). It will shift wealth from the Americas to elsewhere. The “New World” will become a shadow of the oldest world, in Asia.

China is a formidable foe, with a huge population raised on hardship. It’s a mega-Sparta. We are a luxury-ridden, gossip-obsessed, politically splintered society, with one-fourth of China’s population. We have no plan, and China has three.

So who’s going to “win” this unnecessary and plan-less economic war that Trump has started? Go figure. Just remember you read it first on this blog.

Endnote: A Possible Plan for Solar-Panel Tariffs. In a recent essay, I expressed cautious optimism for the effect of Trump’s first real (as distinguished from threatened) tariffs, on solar panels. In four ways, those tariffs differ from more general tariffs on cars and basic commodities like steel or aluminum.

First and most important, solar panels have only one use: in solar arrays. Second, in that application the tariffs raise the cost or price of the finished product (working solar arrays) by only a fraction. The net effect of stepped-down tariffs beginning at 30% on the panels alone is a 7.5% initial increase in the price of finished solar arrays. The initial effect on the price of solar-array energy is less than 10%—an amount that does not reduce solar energy’s bigger price advantage over conventional electricity. So the tariffs, which step down automatically after the first year, will have little effect on the cost incentives for installing and using solar arrays, the final product.

The third point of difference relates to the technology. Solar photovoltaic energy is a nascent technology still climbing a steep learning curve. The Chinese have a big cost advantage in conventional silicon solar panels, perhaps due to government subsidies and benefits that violate the WTO’s trade rules. But there are nascent technologies on the horizon—including one that promises light and flexible, fabric-like photovoltaic receptors—that could give American industry a decisive advantage in cost or performance.

Finally, the American solar industry is not a mature industry like steel, aluminum, cars or soybeans. It’s a sector full of visionary risk-takers like Elon Musk. So the chance that investors will seize any tariff-based opportunity to invest in new factories is much higher. Even so, I recommended that the tariffs be phased out if no new investment in panel manufacturing materializes, because tariffs trade off disincentives for investing in businesses that install and maintain solar arrays for incentives for solar-panel manufacturing.

I have no idea whether the Trump Administration studied the industry and discovered these points before applying the solar-panel tariffs, which start at 30% and step down to 15% by 2021. If it had, its doing so would constitute the sort of plan for attracting (or verifying the likelihood of) private investment discussed above. I have seen no evidence that such favorable conditions for additional investment exist, or have been studied, let alone encouraged, in industries like cars, steel, or aluminum. (Trump’s tariff on aluminum will further raise the prices of installed solar arrays using foreign solar panels, as many supports for solar panels are made of aircraft-grade aluminum.)

In short, conditions in the solar-energy industry are ripe for additional private investment in solar panel manufacturing, ripe enough to justify a tariff on solar panels alone that begins high and steps down annually. I’ve seen no evidence that conditions are similarly ripe in the industries in which Trump has imposed high and permanent tariffs, or that there is any plan to attract investment. Those tariffs seem nothing more than a crude attempt to scare our trading partners, with no plan for what to do if they don’t frighten.

From the “I told you so!” Department: Local Corporate Rule

Three years ago, I began exploring the topic of corporate rule on this blog. (See also, this essay on corporate rule and individual rights.) It’s one of the megatrends of our age. Eventually it will change the world as much as the transition from monarchy to democracy that began four centuries ago, or the transition from Church to State that began early in the Renaissance. (The term “corporate rule” refers not to how corporations govern themselves, but to how they are coming, collectively, to rule the world.)

My essays focused on the macro level, i.e., on nation-states and their national politics. In a must-read piece in the New York Times, Farhad Manjoo looked at the micro level of this megatrend: our cities. He described how high-tech companies have bowled over city governments in Seattle, San Francisco and New York, how they introduced their products and services without, and sometimes despite, significant city or public input. As I noted in my macro essays, the corporations’ chief advantages were money (the power to do good), adaptability and speed.

In a rhetorical flourish, Manjoo questioned whether this megatrend is turning our cities into “dystopian technocapitalist hellscapes.” But I think it’s far too early to tell whether this transition will be for good or ill. What’s clear today is that it is real and gaining momentum, at least throughout the capitalist West.

The megatrend has four main drivers. First, corporations promote decentralization. They solve the problem of organizing incredibly complex human societies of tens or hundreds of millions of individuals, when our common species evolved in clans of thirty of fewer. Second, corporations are far more flexible and adaptable than governments.

Third, as governments become increasingly starved for money, their residual powers are mostly coercive: enforcing criminal law, providing a safety net (and taxing citizens to do so), making war (or “defense,” which only war potential justifies), and accumulating the power to wage war. Today corporations have most of the money—i.e., the power to do good.

This trend is most advanced in the United States, where the Republican Party has quite successfully starved government at all levels in order to shrink it. The Trump Tax Scam, which creates a $1.5 trillion deficit to fund tax giveaways to the rich and corporations, is just a small part of this ongoing phenomenon.

The megatrend’s fourth and final driver is communication. The Internet has allowed clever corporations to bypass and surpass the means of communication by which politicians and public officials traditionally have communicated with the public. Manjoo’s piece has examples at the city level, but there are many at the state and federal level as well. Trump’s presidency itself is the product of small corporations like his own and Cambridge Analytica, aided by Russia’s intelligence services (whether “colluding” or not), and (unwittingly) by clueless social-media platforms like Facebook. Together these corporate actors have run rings of communication around not just traditional media and pundits, but also the State’s massive intelligence and law-enforcement organs.

Corporate rule is not all bad. It’s mostly non-ideological, except for some small businesses that make religious principles part of their business plan. It’s amenable to public pressure, perhaps more so than today’s pols, who tend toward simplistic ideologies and demagoguery. And business is mostly devoid of bigotry: big corporations value customers’ money and patronage no matter their race, religion, nationality, gender, ethnicity and sexual identity or orientation.

But whether for good or for ill, corporate rule is here to stay. When (as Manjoo recounts) a pizza-delivery company begins filling potholes in city streets, you know something basic has changed in how we humans organize ourselves.

The greatest danger, in my view, is size. Left to their own devices, corporations could undergo the same transition that city-states did during the last millennium, as they coalesced into nation-states and eventually into mega-states like China, India, Russia, and the United States.

Our human evolutionary predilection is for alpha-male rule. So the larger the organization run by a single (usually male) CEO, the greater the risk of tyranny and atrocities. Only competition and limits on size can reduce the risk of corporations further eroding our civil rights. (In America, none the rights in our Bill of Rights, or elsewhere in our Constitution, protects us against corporations or private businesses. They only protect us against “state action.”)

So as the megatrend of corporate rule progresses, what we Americans call “antitrust law” (and the rest of the world calls “competition law”) will become increasingly important. Insuring competition and avoiding the social and political dominance of large, rich organizations will be the primary means of keeping human rights a practical reality. (For some of the human depredations of which large organizations are capable, click here and here.)

Approval of the Time-Warner-AT&T merger here in the United States, and likely the coming merger of Disney or Comcast with part of Fox, is not an auspicious sign. Without stiff competition and limits on size, corporations run by a single alpha male (the CEO) could become just as tyrannical and heedless of ordinary people’s needs in our new century as great nation-states sometimes were in the last. As the megatrend of corporate rule progresses, the greatest risk to human happiness will be corporate arbitrariness unrestrained by competition or regulation.

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