From WSJ today, an op-ed by Peter Navarro:
The national-security externalities associated with Trump trade policy may be even more consequential. A case in point is the tariffs being used as leverage to defend America’s technological crown jewels from being forcibly transferred to Chinese companies—from artificial intelligence, robotics and autonomous vehicles to quantum computing and blockchain. These industries comprise the core of the next generation of weapons systems needed to repel threats from rivals like China, Russia and Iran. One must ask the antitariff forecasters: Where are the benefits of a freer and more secure American homeland counted in your models?
From Peter Navarro, The Policy Game (Wiley, 1984), p.82, on the national security/trade policy nexus.
National Security Benefits and Costs. On the benefit side, protectionism within certain basic industries like autos, steel, and electronics helps to create and sustain and industrial base that, in times of war or national peril, can be shifted to defense purposes. However, this national security argument–and the existence of any benefits resulting from protecting these industries–can legitimately be called into question for several reasons.
First, the existence of any sizable benefits rests on the assumptions that import competition in our defense-related industries would not only reduce the size of these industries but also shrink them to the point where they would be too small to support our defense needs…
Second, it is highly possible that our defense capability might actually be enhanced–not damaged-by import competition. Without the umbrella of protectionism, our defense-related industries would be forced to operate at lowest cost, engage in more research and development, aggressively innovate to stay one step ahead of the competition, and modernize their plants at a faster pace. …
On the national security cost side, the major effect of protectionism is to threaten the stability of the international economic order through a global trade war. …
Full disclosure: I worked as a research assistant on this book.
Update, 1/15:
A picture of steel production and employment; Section 232 period shaded orange.
Figure 1: Employment in raw steel production (blue, left log scale), and industrial production (brown, right log scale). Light orange shading denotes Section 232 announcement and thereafter. Source: BLS, and Federal Reserve Board via FRED.
I’m puzzled by this assertion:
“A case in point is the tariffs being used as leverage to defend America’s technological crown jewels from being forcibly transferred to Chinese companies—from artificial intelligence, robotics and autonomous vehicles to quantum computing and blockchain.”
Our tariffs are making foreign produced washing machines more expensive and are raising the cost of importing things like steel and aluminum. The Trump trad war has had no material impact on the Chinese getting these technologies. So how on earth is requiring us to pay more for washing machines defending our precious technologies?
Clean socks are precious.
I’m having one of those days today.
tariffs being used as leverage to defend America’s technological crown jewels from being forcibly transferred to Chinese companies
For the most part these “crown jewels” are not America’s crown jewels. As a general rule neither the taxpayers nor the American government own those technologies; they are privately owned by multinational corporations. A lot of national security types like to use the language of Soviet style state-owned war industries, but that’s not how it works. I remember that way back in the 1970s you’d hear a lot of cold warrior types talk about reconstituting the national industrial base after some imagined nuclear exchange as though DoD owned and controlled the US economy. It’s as though they secretly envied a command style Soviet economy because it was seen as “more efficient.” In this case efficiency didn’t mean getting the most output for a given set of inputs, but was rather the speed and directness with which the economy reacts to commands. Today there are only three major economic entities that still believe in the superiority of a command economy: North Korea, Venezuela and the Pentagon.
I seriously doubt that Peter Navarro has so much as even the slightest understanding of how stockpiling and warm basing are integrated (or not) with national security.
Maybe Cuba too, probably more than Venezuela. Laos is also still pretty much a command socialist economy, although gradually loosening.
Needless to say, that Navarro is contradicting himself is no big surprise. I know he was once sort of reasonable, but I do suspect Menzie might have found it a bit hard to work with him, alhtough maybe not. I have never met the guy.
BTW, he ran at least once, if not more than once, for some sort of political office in Cal as a Dem, I think back in the 90s. Don’t know details.
i have found that when dealing with old conservatives, hypocrisy and contradictions typically do not deter them from their agenda. in their minds, they are right. logical arguments are not a priority in the big scheme of things. this is how a guy like trump can dispute his bone spurs while denigrating mccain or a gold star family. navarro may have been a valuable economist in the past. but age and ideology seems to have gotten the better of him today.
“they are privately owned by multinational corporations.”
And quite often these same corporations figure out how to profit from exploiting their IP in China. This whole stealing our IP canard is one of PeakTrader’s favorite fantasies. And if the Chinese government can figure out how to limit the monopoly profits to the benefit of their consumers, maybe our policy makers can learn from them.
bill gates and microsoft have changed the world for the better. but even gates has acknowledged the rewards he reaped are far more than he deserved. this is the current problem with inequality in this country, and consequently the current wild west version of capitalism that exists in this country. unfortunately we still have folks, even on this board, who continue to advocate for a system that privatizes the profits and socializes the costs. and they naively argue that they are free market capitalists.
The arsenal of democracy demonstrates uncle sams ability to take command
of our domestic industrial base when necessary
Uncle needs a comprehensive industrial policy
Just As He needs a comprehensive set of energy health education and agricultural policies
To optimize our domestic production system
While insuring continued domestic material security
However none of these policy nodes
require protectionism
if that simply means
protecting
domestic ownership of domestic facilities
And intellectual property protection
Is not about protecting
secret weapons programs
It’s about protecting rents
In fact Chinese production with patented
American IP
That requires payments to US MNCs
hardly means keeping secrets
paine,
The $800 hammer that got Reagan’s goat in the ’83 spending splurge……. has not been remedied.
Most defense design contractors keep the IP rights to the stuff they put in things like F-35…………
When a government procurement officer asks for drawings with “unlimited rights”, the response is mostly “no”. They assert the item was developed “on their dime”.
As much or more troubling, if the contracting officer got the rights, and sent out the drawings for someone else to produce as often as not they are not useable by a manufacturing line who cannot talk to the designers.
I have seen minor rumblings about Lockheed and not giving out F-35 “data”. $40B a year for 40 odd years in F-35 support that could be sole source to Lockheed.
Image that!
Designing a weapon system 10 plus years late don’t meet the specs and make money for 40 more years.
Not sure DoD could mobilize anyone to “second source” much less increase output of most defense items.
Need more than trade policy/tariffs.
A national security “concern” is supply and repair chains. In terms of heavy repair (maintenance, repair and overhaul) about 50% peace time load is contracted out, the DoD depots and arsenals must fight to keep 50%. In the first weeks of a big war; chains’ throughput must increase rapidly, I do not know if any of the contract MRO’s have extra capacity as maintained by Army, Navy and Air depots. Replacements/new complex parts are almost all procured from industry, some whose production lines are long shuttered, doing other things.
Then if the war does not go nuclear, the sides avoid a situation like around Tehran last week, newly organized supply/repair chains need to deliver a huge number and variety of materiel.
A big concern is that US military supply chains include imported parts (technology may be privately owned by multinational corporations but the manufacture is mostly overseas), think integrated circuits. Which implies a concern for counterfeit parts, that is a part labeled like a reliable source which is actually fraudulent, possibly with hardwired viruses.
As to US technology “crown jewels” in some technologies other countries, some unfriendly, are quite good at them.
What would 20% (WWII it was close to 40%) of US GDP going to support a war look like?
In terms of heavy repair (maintenance, repair and overhaul) about 50% peace time load is contracted out, the DoD depots and arsenals must fight to keep 50%.
Right. The law says that at least 50% of maintenance work must be performed by organic entities, which means contract repair cannot exceed 50%; however, PEOs and PMs are always trying to push that limit. The end result is that old technology weapon systems migrate to organic repair while newer, more advanced weapons systems under Level I or Level II management are contractor repair.
I do not know if any of the contract MRO’s have extra capacity as maintained by Army, Navy and Air depots.
The various BRACs pretty much eliminated any extra capacity. Some of the BRAC closures were braindead stupid. For example, one of the BRACs closed the maintenance side of Pueblo Army Depot. Meanwhile, the US govt signed an intermediate missile treaty that required the dismantling of Pershing II missiles. Except that all of the technical expertise needed to dismantle and disarm those Pershings was at Pueblo. Those highly skilled workers didn’t let the grass grow under the feet and found new jobs as soon as the BRAC closure was announced. So the US govt was in a bind. Using some obscure law those workers were required to quit their new private sector jobs (under penalty of law) and go back to work for the govt. It was all a big cluster. After all the BRACs the Army only has five maintenance depots: Corpus Christi (TX); Red River (TX); Letterkenny (PA); Tobyhanna (PA); and Anniston (AL). And because of the requirement to do average cost pricing rather than variable cost pricing those depots are in a kind of death spiral. The large idle overhead needed to maintain a surge capacity gets priced into the average hourly rate, and as a result the depots are not competitive and lose workload. That only puts more pressure on the Army to shift workload away from the depots, which results in more excess overhead, which drives up average costs, which reduces competitiveness, etc., etc., etc. It’s a death spiral and everyone in the E ring knows it.
I agree, on BRAC. Same in USAF. Sacramento and San Antonio depots were closed (2 out of 5, after closing smaller geographically dispersed ‘Air Materiel Areas’ in the late 60’s and early 70’s).
The centers of excellence for a couple of aerospace technology areas I worked on were moved losing most of the knowledge and experience when workers retired or many found some way to stay in the areas.
I think you know what an ILSM does, I worked as one early in the acquisition (product support management) portion of my career.
The US would have trouble maintaining operational tempo (in USAF terms theater “sortie production”) at the levels of Southeast Asia due to shortfalls in national sustainment (logistics and maintenance engineering) resources. That could be a “nuclear tripwire” concern.
“Logisticians are a sad and embittered race of men
who are very much in demand in war, and who sink resentfully into obscurity in peace. … “
They all went to work for Wal Mart. Right?
spencer
Funny you should say that. Rumsfeld brought in someone who was supposed to be one of Wal-Mart’s logistics gurus and put him in a sub-Cabinet level position. This wunderkind was supposed to show DoD how to do logistics. It turns out that the Wal-Mart model is very naïve (single item oriented, only two echelons, assumes a normal distribution, etc.) and doesn’t really fit the DoD world. The closest commercial logistics model would be Sherbrooke’s Vari-Metric (https://link.springer.com/chapter/10.1007/b109856_5), although the DoD models are significantly more complicated because they have to support operational availability (not fill rates) across many weapon systems. His eyes glazed over when the briefers started talking about jacobians and bordered hessians. Anyway, he didn’t last long.
This is all about spare parts? Yawn!
It ain’t my imaginary (intellectual) property. I’d be delighted if the Chinese would take it and sell me stuff at a fraction of the monopoly prices of US companies.
Starbucks and McDonalds get their 6% of Chinese sales. Oh wait – these profits are diverted to offshore tax havens. Never mind.
> to quantum computing and blockchain
I suspect that I’m reading some clown any time when someone mentions blockchain.
I’m less confident about quantum computing as a “pure hype”, but it is not out of place here too – talking about protection of something that is both not even close to be a notable industry and even if it would become one will not be protected by trade treaties.
Anyway, if blockchain is now a crown jewel of the US, the king is naked.
I would bet navarro knows little to nothing about the economics or technology of either bitcoin or quantum computing (or ai and others he mentions). He is speaking from authority on topics he does not understand. And people reading his crap will believe whatever he says. Which shamefully characterizes our current state of affairs.
In fact Chinese production with patented
American IP
That requires payments to US MNCs
hardly means keeping secrets
Good point. I’ve been saying the same thing but with one caveat. The MNC is keeping it a secret how all those profits ended up in Bermuda (tax free). The Europeans are taking an interesting tack on this brazen profit shifting. If the US does not tax it, they will by denying the royalty deduction. And yet the Usual Suspects whine here about Chinese IP theft and not the counter games played by the European authorities. Go figure!
I doubt the trade war had much “impact”. Nor does it matter outside a few farmers, who I think over estimate its impact. Chindia growth slowdown is key here and that isn’t changing anytime soon due to their huge debt loads. That is the key behind the commodity slowdown. Nobody wants to admit that. The best part is when the US debt bubble bursts, which looks like it has started. Dark times coming. No bailout is coming either. The private sector needs reorganized starting with the private banking system being nationalized and usury being abolished.
in 1943-44 the civilian economy experienced a fall comparable to what happened in the worse of the depression.
Change in
real GDP
excluding
military
— % —
1931…-8.8%
1932….-6.5%
1933….-13.2%
1943……-18.4%
1944……-14.8%