Trump will destroy a world economy that has us at the apex and only getting stronger
Judging by the results, the United States should be the last country that wants to re-order the world economy.
We’ve thrived in recent decades, while other advanced democracies have fallen behind.
If we’ve gotten “ripped off” as President Trump and supporters of the trade war like to say, the supposed thieves have gained little and the purported victim has continued to march ahead.?
That doesn’t mean that we shouldn’t seek to change unfair trade practices, and to gain more independence from Chinese supply chains.
Yet it’s foolish to disrupt willy-nilly a system that has us at the apex, and getting stronger rather than weaker.?
We’ve been outpacing the rest of the advanced world since the early 1990s.
As the Economist magazine noted in a cover story last year, “In 1990 America accounted for about two-fifths of the overall GDP of the G7 group of advanced countries; today it is up to about half.”
We roughly doubled the gap in our per-person output over Europe and Japan across those decades.
Since 2020, we grew three times as fast as the G7. Overall, whereas we were 21% of global GDP in 2012, now we are 26% — right about where we were in 1980.
Our labor productivity has skyrocketed compared to other developed economies, and we spend more on R&D as a percentage of GDP than any other country except South Korea and Israel.
Countries that had allegedly figured out a powerful mercantilist alternative to our free market have stagnated.
Germany was once hailed as a model of industrial policy; its GDP hasn’t grown since 2019, and manufacturing has declined for years.
Japan was once the object of fear and envy for its industrial policy; it’s been a low-growth economy for more than three decades now.
Canada, too, was considered an alternative model, but its national income per capita was 80% of ours not too long ago and is now about 70%.
Rather than overtaking the United States in GDP, meanwhile, China has ceded ground in recent years, and has an output per person that isn’t even a third of ours.
According to the Economist, “Average wages in America’s poorest state, Mississippi, are higher than the averages in Britain, Canada and Germany.”
Hasn’t our manufacturing sector been devastated?
As the Financial Times notes,?our manufacturing output has actually increased since 1990.
We are employing fewer people and making different, higher-end goods than we did before — more tech and aerospace, less shoes and textiles.
The paper notes that the United States is the best in the world in terms of manufacturing output per worker.
As we have lost jobs in manufacturing (5 million since 1990), we’ve picked them up in services (nearly 12 million) and in transportation and logistics (more than 3 million).
The aim of the Trump tariffs is to increase employment in one sector of the economy at the expense of the rest of the economy, which is inherently a bad deal.
The sweep of the tariffs means that they are poorly designed to achieve even this particular goal, since the price of steel, aluminum and other inputs that manufacturers use will go up.
One estimate is that Trump’s first-term steel and aluminum tariffs resulted in roughly 75,000 fewer manufacturing jobs for this very reason.
The normal impulse is to want to change the rules in the middle of the road when you are losing, not when you are winning the race.
Economic shock therapy is what failing countries attempt, whether Russia under Boris Yeltsin, the former Eastern bloc countries, or Bolivia in the 1980s.
Here, Trump is using a defibrillator on a patient who not only passed his stress test with flying colors, but is beating everyone else in the 100-yard dash.
Trump has talked about accepting “a little disturbance” with his new tariff regime.
The danger is that we will simply have less economic growth than we would have had otherwise — since the president isn’t rescuing an economic basket case, but changing what’s been a winning formula.
Twitter: @RichLowry