Because the United States’ unrivaled resources of human and physical capital have only been idled, not obliterated, the recovery might begin with a bang, propelled by a burst of pent-up animal spirits. The recovery could, however, be unnecessarily anemic, for two reasons.
First, the receding pandemic (caused by a virus roughly one ten-thousandth of a millimeter in diameter) will leave a residue of skepticism about globalization — the free movement of capital and ideas. Second, the president inaugurated next January will be problematic regarding the free-trade policies that have fueled global enrichment since 1945.
The current president’s only consistency is hostility to free trade, and his party now contains a malleable faction that favors “managed” trade as an instrument of industrial policy. Joe Biden has defeated but not vanquished his party’s left wing, which resembles the Republican faction just described.
Biden should use his virus sabbatical to read Fred P. Hochberg’s book “Trade Is Not a Four-Letter Word” and Richard M. Reinsch’s “Can American Capitalism Survive?” in National Affairs. Hochberg, former head of the Export-Import Bank, notes:
In 1975, before free trade agreements, the average U.S. supermarket carried 9,000 different products; today, almost 47,000. In 1900, 57% of U.S. household income was spent on food and clothing; since the integration of the world’s economies, 17%. As recently as the 1990s, avocados were mostly confined to California in summer. Today Americans must import 85% of the 4.25 billion avocados they devour in order to satisfy their appetites, which owe much to three trees acquired in trade with Mexico in 1871. The average American eats seven pounds of avocados, often in taco salads (Romanian corn, Mexican tomatoes, Peruvian onions, etc.). The best-selling car in the United States for most of this century has been Toyota’s Camry, assembled in Kentucky. The most all-American car — measured by American parts, labor and assembly — is Honda’s Odyssey from Alabama. Germans buy BMW SUVs made in South Carolina. Many iconic “American” products (e.g., Rawlings baseballs, Gerber baby foods, Converse shoes, Fender Stratocaster guitars, Levi’s jeans) are made entirely elsewhere. The iPhone has 748 suppliers in dozens of countries. (Assembled in China, it is counted by U.S. trade bookkeeping as an import, but China’s value contribution is about $8.46.)
The United States annually “exports” more than $40 billion in higher education bought by foreigners. (There are more U.S.-trained PhDs teaching in China than here.) The United States’ No. 1 service export is tourism — 77 million foreign visitors spending half a trillion dollars and sustaining 5 million U.S. jobs. Although the value of the dollar declined in 2017, making tourism less expensive, the United States is only one of two developed nations — the other: turbulent Turkey — to experience a decline in tourism since 2016. The precipitous decline since then, Hochberg says, has cost the United States more than $32 billion in tourist spending. And 2018 was the second consecutive year of declining numbers of foreign students matriculating as undergraduates, a crucial component of U.S. higher-education funding.
Reinsch, editor of Law & Liberty, says today’s conservative critics of capitalism, whose policies would enlarge government and make GDP smaller than it otherwise would be, want government planning to enlarge the manufacturing sector (currently 8% of employment; manufacturing employment has declined in almost every Western nation) because of its supposed wage premium. But as of December 2019, the average hourly wage for production and non-supervisory workers in manufacturing was $22.46; for such workers in the private-sector service industry it was $23.53.
Furthermore, Reinsch says, “about 56% of what we pay for something ‘made in China’ goes to U.S. workers and companies” because while these products are generally assembled in China, their components often come from America. “The manufacturing share of nominal GDP declined from 28% in 1953 to 12% in 2015, but manufacturing’s share of real GDP has been fairly constant since the 1940s, hovering between 11% and 13%.”
COVID-19 highlights the perils of excessive reliance on Chinese supply chains, and demonstrates Donald Trump’s worst mistake, abandonment of the Trans-Pacific Partnership trade agreement. In 2015, Hillary Clinton, who as secretary of state called TPP the “gold standard” of trade agreements, truckled to Bernie Sanders’ legions and opposed ratification. In August 2016, Biden, perhaps hoping to appeal to a president-elect Clinton, reaffirmed the Obama administration’s support for TPP, correctly saying that it was “as much about geopolitics as economics” because the 12 economies linked by TPP “account for 30% of global trade, 40% of global GDP, and 50% of projected global economic growth.” Perhaps the trial through which the nation is passing will make such facts powerful, to Biden and others, in the post-pandemic world.
George Will can be reached at firstname.lastname@example.org.